Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday November 16.
The way to determine the actual value of a stock is not just to look at its price or its multiple but to look at these numbers in relation to its growth rate. Pfizer (PFE) might appear cheap, with an 8.6 multiple compared to Celgene's (CELG) multiple of 14.5, but Pfizer has a small long-term growth rate of 4% compared with Celgene's 25% growth rate. Pfizer is a company with its best days behind it, and it is about ready to fall off a patent cliff with its $5 billion cholesterol drug, Lipitor, now vulnerable to generic competition. In 2014, Pfizer's pain relief drug will also go off patent. Pfizer's PEG ratio, which is found by dividing the price to earnings ratio by its growth rate, is at 2.1; Cramer regards any stock with a PEG ratio of 2 as expensive. Celgene is the "least expensive growth stock I follow," with a PEG ratio of 0.56. Why is Celgene growing so rapidly? Its top drug for blood cancer, Revlimid, is gaining approval for new applications in the U.S. and abroad. The company acquired a successful breast cancer drug and a new blood cancer drug. CELG reported a 7 cent earnings beat with a 37% growth in revenues and raised guidance. While Pfizer also beat earnings estimates, it failed to raise guidance, which demonstrates a lack of confidence in its future growth.
Cramer took a call:
Human Genome Sciences (HGSI) is facing a class action lawsuit, but this isn't what bothers Cramer as much as the fact that the stock is just too hyped and is "not living up to the hype."
With Wednesday's volatile trading, Cramer discussed one gauge for the market that is actually working; CurrencyShares Euro Trust ETF (FXE). Since a "tell" for how the European crisis is playing out is in its currency, the FXE is the best indicator of the economic situation overseas. Cramer noticed that, even as stocks turned around on Wednesday after a difficult morning, the FXE did not rise, and stocks gave up their quick gains. A rule of thumb may be that if the FXE is up, stocks will have a good day, but if the FXE declines, even good news from U.S. companies might not be enough to move the market. The FXE, more than the S&P 500 and the Dow, might be the current oracle of the market.
Cramer took a call:
NovaGold (NG) has a new CEO from Barrick Gold (ABX) and is spinning off its copper business. Cramer believes in the new team, and since the stock has risen quickly from $8 to $11 and seems ready to pull back, he would either hold onto it or buy it on a decline.
CEO Aubrey McClendon, Chesapeake Energy (NYSE:CHK)
Chesapeake Energy (CHK) is the second largest producer of natural gas in the U.S., but it is altering its focus to include more oil. While the company is investing in the development of natural gas engines, CHK is making the transition from a company that is 90% natural gas to one that is more balanced between the two fossil fuels. While the stock has been knocked down on these funding concerns, Cramer said "I find it hard to worry about."
"You need to spend money to make money," said CEO Aubrey McClendon of the investment, which he says is necessary now that oil is four to five times more expensive than natural gas. Still, the CEO believes natural gas is seeing a bottom at its 52 week low, and with a cold winter coming, people will be more likely to embrace natural gas. "We have the best oil and gas assets onshore in the U.S.," McClendon said of the company's assets in the unconventional shales.
While there is talk of legislation providing tax incentives for the transition to natural gas engines in large vehicles, CHK isn't dependent on this proposal becoming a law; "It would be icing on the cake." While McClendon thinks natural gas may be easy to export in four years, he expresses hope that in the same timeframe, the U.S. will reduce its oil imports and use its natural resources more effectively.
Cramer is bullish on Chesapeake Energy.
CEO Interview: David Demers, Westport Innovations (NASDAQ:WPRT)
While the Natural Gas Act seems stalled in Washington, Westport Innovations (WPRT) is not holding its breath, but is already creating demand for the transition of diesel engines to those that operate on natural gas. The stock recently rallied 10%, had a strong analyst day and reported a winning quarter. The stock has seen a 168% gain since Cramer got behind it almost a year ago, but it could rally even higher if the Natural Gas Act is passed.
CEO David Demers is not waiting for Washington, but is already dealing with fleets and companies making that change to natural gas; "We are concentrating on smaller, segmented focused markets." Entire fleets of refuse trucks have switched to natural gas because city governments want to save money on fuel. The postal service, trucking companies and "anyone who has a fleet has been talking to us," said Demers. The main appeal is that companies can lock in a guaranteed low price for fuel for 5 to 10 years.
Cramer is bullish on Westport, which is doing fine on its own, but should see a huge upside if Washington supports natural gas.
Research in Motion (RIMM)
While many bash Wall Street Research for its frequent inconsistencies, Cramer pointed out a case in which a change of heart about a stock was the right move. On April 1st of last year, Goldman Sachs placed Research in Motion (RIMM) on its sell list over concerns of increased competition, rapidly deteriorating earnings and declining operating margins; "no one could have been more right about RIM," Cramer said. The stock has since declined 71%, and now GS analysts have upgraded the stock from "sell" to "neutral." RIM has enough intellectual property, a strong enough patent portfolio, steady cash flow and stabilizing market share to make it no longer a sell. "There is no reason to own it, but it is too late to sell it." Cramer congratulated Goldman Sachs analysts on a good call.
Jim Cramer was up 31% in 2009. Click here now to trade alongside him.
Get Cramer's Picks by email - it's free and takes only a few seconds to sign up.