Cramer's Mad Money - Themes That Will Work For 2014 (12/19/13)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday December 19.

Themes That Will Work In 2014: Celgene (NASDAQ:CELG), Biogen Idec (NASDAQ:BIIB), Regeneron (NASDAQ:REGN), Gilead (NASDAQ:GILD), EOG Resources (NYSE:EOG), Noble Energy (NYSE:NBL), Linn Energy (LINE), LinnCo (LNCO), National Oilwell Varco (NYSE:NOV), Cemex (NYSE:CX), Vulcan Materials (NYSE:VMC)

Cramer discussed investment themes to look for in 2014.

4 Horsemen of Pharma: Cramer has discussed these "four horsemen" before, and they have seen significant gains for 2013. The stocks have further room to run. Celgene (CELG) has its blockbuster drug Revlimid, as well as a treatment for small cell lung cancer and breast cancer for which CELG is seeking FDA approval to treat other cancers. CELG has an anti-inflammation drug in development, and it trades at a multiple of 22 with a 22% growth rate. Gilead (GILD) has an HIV franchise and a Hepatitis C drug, with cardiovascular and cancer drugs in the pipeline. Biogen Idec (BIIB) has 3 drugs to treat multiple sclerosis and is developing treatments for lymphoma and hemophilia. Regeneron (REGN) has its blockbuster treatment for macular degeneration and is working on drugs to treat bowel cancer and high cholesterol.

Domestic Oil and Gas: Even though outgoing EOG Resources (EOG) CEO Mark Papa said the "easy money" had been made in domestic oil plays, Cramer thinks there is plenty of upside in the industry. EOG, along with Noble Energy (NBL), Linn Energy (LINE) and LinnCo (LNCO) are worth buying. LINE is a dividend play, while LNCO works better in a higher interest rate environment. National Oilwell Varco (NOV) has 60% market share in gas and oil equipment and has been a laggard. However, it is receiving many new orders and is spinning off one of its segments in 2014.

Rocks, Aggregates and Cement: Another major theme for 2014 will be a result of the new Highway Bill that will use federal funds to build and repair roads and bridges. This increase in infrastructure spending is good news for Cemex (CX) the number one producer of concrete. This company did a complete debt restructuring and improved the strength of its balance sheet. The Mexican company has only 21% exposure to the U.S. and 40% to Mexico, where the economy is improving and the government is spending more on infrastructure. It has a large European segment, and as the economy on the Continent turns around, CX will benefit.

Vulcan Materials (VMC) is more of a pure play on the U.S. The stock never recovered from the great recession and is 53% below its all-time highs. VMC is a high risk, high reward stock. It is seeing increased shipments from once troubled areas, with a 34% rise in orders from Florida. Although VMC trades at a sky high multiple, it is worth picking up cyclical stocks ahead of mega trends.

Gift List For 2014: Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB), Boeing (NYSE:BA), 3M (NYSE:MMM), Twitter (NYSE:TWTR), Bank of America (NYSE:BAC), Lennar (NYSE:LEN), Toll Brothers (NYSE:TOL), Macy's (NYSE:M), Phillips-Van Heusen (NYSE:PVH), VFCorp (NYSE:VFC), Macy's (M), GameStop (NYSE:GME), Home Depot (NYSE:HD), Best Buy (NYSE:BBY), Exxon (NYSE:XOM), US Airways (LCC), MasterCard (NYSE:MA), Visa (NYSE:V), Standard Pacific (SPF)

Between now and the end of the year, Cramer would consider buying momentum stocks like Netflix (NFLX), Amazon (AMZN), Facebook (FB), Boeing (BA), 3M (MMM) and Twitter (TWTR), because they will be unimpeded by the Fed or the government. While these stocks have seen gains, they are likely to run higher, at least for the short-term.

When it comes to investments for 2014, Cramer outlined 5 major themes:

Banks: Things are looking up for banks, as demand for loans grows and interest rates are rising. Cramer thinks Bank of America (BAC) may be the biggest comeback story in the sector.

Housing: Although Toll Brothers (TOL) got hit after decent earnings, Lennar (LEN) told a similar story and the stock was spared. New data shows the extent that supply of houses has dwindled and prices are due to increase. Cramer thinks Lennar is the best in the sector.

Retail: The sector has done nothing for a while, because people were worried about the holidays. Phillips-Van Heusen (PVH) CEO, Manny Chirico sounded bullish about holiday sales, and VFCorp (VFC) is benefiting from the cold weather. Other buys in the sector are Macy's (M), GameStop (GME) (in spite of GME's lackluster November sales data), Home Depot (HD) and Best Buy (BBY).

Oil: With the economy improving, oil prices can't be far behind. Exxon (XOM) is a buy because of renewed growth and Warren Buffett increasing his stake. Domestic oils have fallen too much, and should be bought.

Airlines: This sector was hot this year, but suddenly cooled. Even after announcing its merger with American Airlines, US Airways (LCC) is dramatically undervalued.

Cramer took some calls:

Cramer would sell MasterCard (MA) and buy Visa (V). While Visa has risen, MasterCard is way too expensive right now.

Standard Pacific (SPF) is a stock that is going higher.

2 Stocking Stuffers: Apple (NASDAQ:AAPL), Caterpillar (NYSE:CAT). Other stock mentioned: China Mobile (NYSE:CHL)

Apple (AAPL) has bounced back after its year in the wilderness. It bottomed in the summer, rebounded, but is up only 3% for the year. Demand for its devices is still strong and its software is gaining steam. Gross margins and cash are strong, and its deal with China Mobile (CHL) will be a huge positive for Apple. Next year, Apple is releasing the iPhone 6, iPad pro and other products. Apple is super cheap, trading at a multiple of 9 compared to its historical average of 14, with a 14% growth rate. If Apple traded up to its historic multiple, it would be 55% higher.

Caterpillar (CAT) is the rare downer in the Dow; it is off 2.3% for the year. Caterpillar has kept missing numbers and its sales are lackluster. Cramer noticed that the stock doesn't even decline on bad news, and this is the first sign of a bottom. Anything good will move the needle, as evidenced the last time the stock was crushed over a long period; a bit of positive data moved the stock up again. Caterpillar has been cutting operating costs, and if it even manages to contain the decline, the stock price can go higher.

Supply and Demand: Citigroup (NYSE:C), Micron (NASDAQ:MU), Himax (NASDAQ:HIMX), Western Digital (NYSE:WDC), Seagate (NASDAQ:STX)

Twitter has been rallying because there is huge demand for the stock and not a lot of shares available. The same thing is happening with other social media stocks, such as Facebook, whose stock did not even decline when management announced a secondary offering. Citigroup (C) is a "supply and demand nightmare." It has more shares than anyone could want and there are plenty of banks to choose from.

Supply constraints in products as well as shares can also cause stocks to rise higher. For a long time DRAM memory chips were in such high supply that the sector was a laggard. Just when things were improving for the industry, given dwindling supplies, Micron (MU) was hit by the news that Himax (HIMX) is building a new DRAM factory. Even shares of Seagate (STX) and Western Digital (WDC) were sent down on the news. The takeaway: investors should know what affects how holdings trade and keep an eye on supply and demand, whether related to shares or products.


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