Cramer's Mad Money - The Most Undervalued Stocks (5/5/10)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday May 5.

JP Morgan (NYSE:JPM), Citigroup (NYSE:C), Bank of America (NYSE:BAC), Goldman Sachs (NYSE:GS)

Cramer continued his week-long series on sectors that are seeing the greatest earnings beats. Information from the banking sector shows "the credit recovery cannot be stopped," and Cramer would look for banks that have no exposure to the craziness in Europe. Financial reforms will not destroy the banks, but investors should "anticipate clarity" and the positive effect more visibility will create. Cramer insists the government is not going to break up the banks and would buy strong financial stocks on declines.

JPMorgan (JPM), Goldman Sachs (GS), Citigroup (C) and Bank of America (BAC) are "the most undervalued names out there," and all four gave "fabulous earnings," although Goldman Sachs has "hair all over it" right now and Bank of America still has not had a dip to make it cheap enough to buy. JPMorgan beat estimates by 10 cents per share, saw its investment banking revenue grow 69% in the last quarter, credit losses decline and non-performing loans drop 4%. Cramer called JPM "the premier bank in the country, if not the world," and praised the bank for taking significant market share in all of its divisions. JPM is a master at risk management and is inexpensive with a multiple of 7.

At $4, Citigroup (C) is a buy. The Street expected Citigroup to report a loss, but instead it beat estimates by 15 cents a share and reported a 42% rise in revenue from last quarter. Cramer still thinks the stock could reach $12 by 2012, especially with falling net credit losses. Currently 50% of Citigroup's business is overseas and that is expected to grow to 70%, but this growth is mainly in emerging markets and not in Europe. Citigroup is "incredibly inexpensive" and trades at a 19% discount to book value. The U.S government selling off its 27% stake will create a perfect buying opportunity for Citigroup.

General Mills (NYSE:GIS), McDonald's (NYSE:MCD), Devon (NYSE:DVN), Costco (NASDAQ:COST), Steve Madden (NASDAQ:SHOO), Nike (NYSE:NKE), Apple (NASDAQ:AAPL), (NYSE:CRM), EMC (EMC), Netflix (NASDAQ:NFLX), Chipotle Mexican Grill (NYSE:CMG)

Wednesday's action was like a "vicious roller coaster" as the Dow opened 102 points down, rallied 130 points and closed 60 points in negative territory. With chaos in Europe, the Gulf of Mexico and new worries about the Chinese bubble bursting, Cramer would invest in "companies that are uniquely domestic or companies with strong growth that play to the weaknesses of Europe… and, yes, boring companies that do well when everyone is so worried that the world’s economy is slowing down."

What are some examples? General Mills (GIS), McDonald's (MCD) (even with its European exposure), Devon Energy (DVN) (it reported a great quarter), Costco (COST), Steve Madden (SHOO), Nike (NKE) (because retail is getting unfairly pummeled), Apple (AAPL), (CRM), EMC (EMC). Some "turbo-charged growth stocks" include: Netflix (NFLX) and Chipotle Mexican Grill (CMG). Cramer is bullish on stocks that have "great long-term secular stories."

CEO Interview: David Demshur, Core Labs (NYSE:CLB)

Oil stocks are falling because of Europe and the leak in the Gulf of Mexico, but Cramer thinks the selloff in the sector is an overreaction. However, with no end in sight to the current problems, it is going to be hard to find a bottom in the sector. Cramer prefers to find an oil-related company that is immune to the Gulf of Mexico mess, and while that seems impossible, Core Labs (CLB) fits the bill. Core Labs is a "high tech oil services" stock that analyzes pockets of oil and is best-of-breed; the stock has risen 21% since February and has raised its dividend. Last Wednesday saw a "fantastic" 7 cent earnings beat from Core Labs, which hasn't been affected by the Gulf leak. CEO David Demshur explained:

It has had absolutely no impact on the company. We do focus ourselves internationally and on oil 70% of our revenues come from outside of North America. They are primarily aimed at oil developments around the globe. So this has not had an effect. Nor do we believe that it will have an effect long term on Core Lab revenues and profitability.

Concerning Core Labs' attention to shareholders, Demshur added;

And since 2002, we have returned over three quarters of a billion dollars in dividends, special dividends, and share buy backs. Including over 700,000 share purchased in the first quarter of this year.

Core Labs has five projects which should boost production in Iraq, a country that is becoming more stable as hopes for a coalition government are beginning to materialize. While the company also is levered to American natural gas shales, its main story is growing international oil production.


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