Cramer's Mad Money - Semiconductors Are Not Cyclical (2/8/10)

by: Miriam Metzinger

Stocks discussed on the in depth session of Jim Cramer's Mad Money TV Program, Monday February 8.

Intel (NASDAQ:INTC), Xilinx (NASDAQ:XLNX), Marvell Technology Group (NASDAQ:MRVL), Cypress Semiconductor (NASDAQ:CY), Broadcom (BRCM), Avnet (NYSE:AVT), Altera (NASDAQ:ALTR), Texas Instruments (NYSE:TXN), Cisco Systems (NASDAQ:CSCO)

Cramer says investors have to change the way they think about semiconductors. Until recently, these stocks have been considered to be cyclical stocks, dependent on outside factors such as the health of global economies. However, Cramer believes semis are a secular story and are more stable than The Street thinks. The Philadelphia Semiconductor Index SOX is str,ong, and its component stocks are levered to smartphones and other gadgets which will be hot products among the growing middle class in emerging economies. The list of semi stocks that have blown away their numbers is a long one: Intel (INTC), Xilinx (XLNX), Marvell Technology Group (MRVL), Cypress Semiconductor (CY), Broadcom (BRCM), Avnet (AVT), Altera (ALTR), Texas Instruments (TXN).

Conventional wisdom says semiconductors move with the business cycle, but Cisco's (CSCO) conference call indicated that there were shortages in semiconductors and most of the above-mentioned stocks are down since they reported, at good levels to buy.


Cramer kicked off a weeklong series about companies that have recently raised their dividends. Hasbro has upped its yield 25%; “…dividend increases are the true harbingers of what the health of the market is,” Cramer said, “not the oil futures, the dollar or gold...”

Hasbro beat The Street's estimates by 28 cents per share and its stock price rose 12.7% in one day. One of the best strategies for cashing in on dividends is to reinvest the yields; 40% of returns on S&P 500 stocks are from reinvested dividends. When stock prices fall, the dividend percentage rises, and that is what makes dividend stocks so appealing when the market is volatile.

However, it isn't enough if a company offers a rich dividend, but the yield should be safe. Cramer's litmus test for dividend safety is if the yield is not more than double earnings per share. Hasbro is expected to earn $2.13 per share in 2010 and $2.76 in 2011, which are more than double its $1 a share dividend. The company is strong and is planning to launch a new TV Network called The Hub in partnership with Discovery Communications (NASDAQ:DISCK).

Special Guest: Senator John Sullivan, Republican Congressman from Oklahoma

It was on a trip to Oklahoma University's Price School of Business that Cramer became devoted to natural gas as a bridge fuel that is 40% cleaner than coal and 30% cleaner than oil. Oklahoma produces 10% of the country's natural gas, and Republican Congressman John Sullivan, who co-authored the NATGAS Act which would give tax credits to drivers of natural gas-fueled vehicles is among the fuel's biggest advocates in Washington. A bill that would increase federal funding for research into natural gas engines has recently been passed in the House. However, Washington's cap and trade emissions legislation and regulation of hydraulic fracking technology might prove to be obstacles.

Sullivan said that while solar and wind may someday become viable alternatives to fossil fuels, the country has 120 years' worth of natural gas reserves that will be wasted if not used. Of the 150 million natural gas fueled vehicles worldwide, only 10 million are in America, and Sullivan thinks this number should increase. He added there is no evidence that horizontal fracking causes environmental damage. Implementing the use of natural gas could create 1 to 2 million permanent private sector jobs.

Mad Mail: Nucor (NYSE:NUE), Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), Atmel (NASDAQ:ATML), Skyworks Solutions (NASDAQ:SWKS)

Cramer told his first caller that while he likes Mattel (NASDAQ:MAT), he prefers Hasbro (HAS). He told another viewer that it is not time to sell Apple (OTC:APPL), and he explained he downgraded his price target for Google (GOOG) once he became aware of the problems the company is running into in China. He prefers Skyworks Solutions (SWKS) to Atmel (ATML), because of the former's very consistent performance. Concerning Nucor (NUE), Cramer said, "I reiterate that Dan DiMicco runs the best steel company in the world."


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