Cramer's Mad Money - The Hospitality Quotient (2/22/10)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday February 22.

Editor's Note: Until February 26th, Jim Cramer will be broadcasting "Mad Money High Noon" which will air midday. There was no Lightning Round segment yesterday.

Danny Meyer's Hospitality Quotient: Apple (NASDAQ:AAPL), Goldman Sachs (NYSE:GS), Whole Foods (WFMI), Amazon (NASDAQ:AMZN), Bed, Bath and Beyond (NASDAQ:BBBY), Chipotle (NYSE:CMG)

Danny Meyer, frequent Mad Money guest and owner of the Union Square Cafe, appeared on the show Monday to discuss the "Hospitality Quotient," his theory that businesses that focus on customer service are able to weather even deep recessions. Danny Meyer formed the Hospitality Index which includes companies known for putting their customers first: Goldman Sachs (GS), Apple (AAPL), Whole Foods (WFMI), Amazon (AMZN), Bed Bath and Beyond (BBBY), Chipotle Mexican Grill (CMG) and others. This index has performed twice as well as the S&P 500.

Cramer expressed amazement that the Hospitality Index could do so well when it included quality rather then discount-oriented companies. Danny Meyer said, "quality is key," and predictions of a trade down did not happen. "Customers will stick with the best." However, being "the best" is no longer enough, since anyone can copy a product. Therefore, companies that make the customer "feel the best" and "make customers feel they are on their side" are destined to succeed.

One underperformer on the Hospitality Index Danny Meyer would replace is Build-A-Bear Workshops (NYSE:BBW), even though he believes it is still a good company. He would exchange it for Dreamworks Animation (NASDAQ:DWA).

Retail Plays: Lowe's (NYSE:LOW), Sears Holdings (NASDAQ:SHLD), TJX Stores (NYSE:TJX), Macy's (NYSE:M), Safeway (NYSE:SWY)

When picking retail stocks, Cramer prefers looking at fundamentals to trying to predict trends, and he is bullish on Lowe's (LOW) which beat its numbers and is planning to repurchase $5 billion in stock. Sears Holdings (SHLD) is closing excess stores and is developing its successful brands. However, Cramer is concerned that Target (NYSE:TGT) is having an identity crisis and doesn't know whether it wants to discount or trade-up. His price target for Macy's (M) is $20, he thinks TJX (TJX) has some upside and expects Safeway (SWY) to report good numbers.

Noontime Picks: Schlumberger (NYSE:SLB), Smith International (SII), Air Products and Chemicals (NYSE:APD), Airgas (ARG)

Action in stocks was not so exciting by noontime on Monday. Cramer attributes this to a breather after a big run and buyers' remorse. He is interested in buying Schlumberger (SLB) on its $11.3 billion takeover bid for Smith International (SII). Schlumberger has always been a "soup to nuts player in the oil patch" and will increase its advantages with the proposed acquisition. Another merger Cramer is rooting for is the hostile takeover bid of Airgas (ARG) by Air Products and Chemicals (APD). Everyone involved will see higher margins thanks to the “developing industrial gas oligopoly.” If Air Products isn't successful, the price should snap back to where it was before the bid.

Merger Monday: Thermo Fisher Scientific (NYSE:TMO), Millipore (MIL), McDermott International (NYSE:MOS), Apple, JP Morgan Chase (NYSE:JPM), URS (NYSE:URS)

Cramer thinks Thermo Fisher's (TMO) $6 billion bid for Millipore (MIL) could give TMO the ability to provide all biotech companies with their equipment. While the talk is about nuclear power right now, Cramer thinks McDermott International (MOS) and URS (URS) are the unsung plays on this alternative fuel. While Cramer hasn't been bullish on booksellers, he thinks Amazon (AMZN) is a survivor. If Apple holds at $200, tech stocks will rally, but if it falls below $198, the sector will dip, according to Cramer. Banks are hot right now, and JP Morgan (JPM) is one of the hottest.


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