Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday January 25.
Jarden (JAH) is all about "brands, brands, brands." The company is a total pastiche of housewares, appliances and accessories. The company pre-announced better than expected revenues and is up 80 cents. The stock sells at only 10.6 times earnings and has a 10.4% long-term growth rate. The stock is cheap because analysts were concerned they were going to have to cut estimates, but now that worry is off the table. Jarden is up 30% since Cramer got behind it in November 2009, and while it is just one point off its 52-week high, it is still worth buying. The company breathes life into old brands and develops new names. Since its brands have significant name recognition, customers are willing to pay up for them and retailers stock their products. The bears have three concerns about the company: rising input costs, the fact that it is a mature, slower-growth business and the fact that the company derives 20% of its sales from Wal-Mart (WMT).
Martin Franklin discussed his shift in roles from CEO to Executive Chairman. The change of position keeps the company "fresh...Jarden is my baby...it was a $250 million business and now it is $6.3 billion and we are going to keep growing."
Concerning the company's philosophy of reviving brands, Franklin said, "There is no such thing as a tired brand. There are tired brand managers." One statistic Franklin is proud of is that organic growth in revenue is now larger than sales were when he first took the helm. He says Jarden keeps raw costs under control with pricing strategies, depending on the item and says gross margins are up. While Jarden has some production in Asia, the company strives to keep as much business as it can in North America to aid job growth. Concerning the relationship with its retailers, Franklin said "if you have a product that comes off the shelves that is a different case than if it is just sitting there...you have to earn your price point...this is an ongoing discussion we have with every retailer." The key is to keep costs under control and offer a value proposition.
"Behold the power of low expectations!" Cramer declared. The Street wasn't expecting very much from Kimberly-Clark (KMB) after analysts cut numbers and lowered estimates last quarter. All Kimberly-Clark had to do was to meet numbers and address some of its problems. Instead, KMB beat estimates by 5 cents and gave in-line guidance. The company discussed a pulp and tissue restructuring program, a dividend boost and a stock buyback. "Kimberly-Clark is still not out of the water, but it did what it needed to do to stay in the game." The stock rallied to close up $1.34 by the end of the day.
Cramer's discussion with NRG Energy (NRG) CEO David Crane inspired him to go in search of a pure play (or close to it) on car batteries. NRG is building 50 charging stations for electric cars, but it will take a while before electric cars make up a large percentage of the company's revenues.
Looking at the car battery itself, Cramer notices AeroVironment (AVAV) was written on it, and indeed the company produces car batteries, but currently this business is only a tiny 4% of this defense contractor's revenues. A123 Systems (AONE) is more levered to car batteries, but this highly speculative stock under $10 is a poor performer.
Cramer looked at a general battery play, Polypore (PPO) which gets 70% of its revenue from making separators for all kinds of batteries. In five years, a third of the company's revenues are expected to be derived from separators for lithium ion batteries. This small segment is a "happy oligopoly" since there are only three companies who produce these separators and the barriers to this industry are high. The separators can cost about $500 in the total production cost of every Chevy Volt. Polypore is expanding aggressively into auto batteries, and is building out ten times more of these devices than its peers.
Cramer thinks Polypore should and will follow in Marathon's (MRO) footsteps and break up the company to unlock value. The company has already seen a 71% gain since Cramer got behind it in August and a 37% uptick since he reiterated the recommendation in October. The whole company is worth less than its parts, and Cramer estimates the battery segment could be worth $1.75 billion or 87% the value of the entire company. The stock could rise 20% on news of a breakup, Cramer predicted.
In the case of Polypore, breaking up is good to do.
Since F5 Networks (FFIV) reported a merely in-line quarter last week, the bears have been reading the obituary for high-multiple growth stocks, which have been falling ever since. However, Cramer thinks rumors of the demise of momentum names are greatly exaggerated. It is worthwhile though, to look for cases of multiple expansion rather than multiple contraction.
With the help of technical analyst Ken Shreve, Cramer took a look at InfoSys' (INFY) chart, which demonstrates the "kind of multiple contraction you don't want to see." The stock has been hammered ever since it warned of slow growth in January, and was trading at a rich multiple of 31, which has since declined to 28. The stock tried to rally on heavy volume but finished low on an otherwise up day. Not only are sellers of InfoSys overwhelming buyers, but the shareholder base is shrinking, and as investors bail, it will be very hard to maintain any kind of rally in this stock.
Accenture's (ACN) chart tells the opposite story of multiple expansion. The multiple has expanded from 15 to 18 on huge volume, since money managers are buying the stock. The stock gapped up on December 17 and there are still buyers underneath waiting to get into the stock. Not only does the chart indicate a move higher, but the fundamentals are strong; the quarter was a "thing of beauty," the company raised guidance and has earned its higher multiple.
Is it time to give up on momentum stocks? No, but while waiting for them to recover, look for stocks seeing multiple expansion.
The Dow drama on Tuesday was caused by the "powerful owners of mendacity" which could not stop the Dow from rebounding from the abyss after the market regained its senses. The cause of the drop? "A vicious bout of stupidity" and flawed reasoning. At one point the Dow was down 80 points. The bears gave two reasons 1) inflation fears 2) commodity prices falling. How could the bears have it both ways? Cramer mused. Can commodities be slowing in a high inflation environment and vice versa? When the market returned to sanity, the Dow recovered to close only 3 points down.
Shouldn't commodity prices falling be good news in the case of oil? Cramer's one worry this year is if gas prices go above the psychological level of $4 where consumers start to change their driving and shopping habits. Until then, cheaper oil is a good thing. Cramer thinks the "banks are ready," and retailers like Kohl's (KSS) and Wal-Mart (WMT) are stocks to watch.
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