Cramer's Mad Money - 5 Themes That Will Work In 2012 (1/24/12)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday January 24.

5 Themes That Are Working in 2012: Apple (NASDAQ:AAPL), Coach (NYSE:COH), Ralph Lauren (NYSE:RL), Starbucks (NASDAQ:SBUX), Whole Foods (NASDAQ:WFM), Michael Kors Holdings (NYSE:KORS), Texas Instruments (NYSE:TXN), Avnet (NYSE:AVT), Novellus (NASDAQ:NVLS-OLD), Xilinx (NASDAQ:XLNX), Citrix (NASDAQ:CTXS), Broadcom (BRCM), Intel (NASDAQ:INTC), VMware (NYSE:VMW), F-5 (NASDAQ:FFIV), Red Hat (NYSE:RHT), (NYSE:CRM), TIBCO (NASDAQ:TIBX), Westport (NASDAQ:WPRT), Cheniere Energy (NYSEMKT:LNG), Cheniere Energy Partners (NYSEMKT:CQP), Clean Energy Fuels (NASDAQ:CLNE), Chesapeake Energy (NYSE:CHK), Schlumberger (NYSE:SLB), Ensco (NYSE:ESV), Conoco-Phillips (NYSE:COP)

On Monday's Mad Money program, Cramer discussed Apple (AAPL) as a huge theme. The company reported a strong quarter and didn't decline, despite its 15% run-up prior to the quarter, to give investors a chance to buy. Cramer would keep holding Apple, especially given its solid gross margins and stellar sales of the iPhone. Cramer discussed 5 other themes that are working in 2012:

1. Consumer spending: Coach (COH) blew away its numbers after its earnings and rose 5.8%. Ralph Lauren (RL) soared 3.3% and Whole Foods (WFM) and Starbucks (SBUX) rose higher. Michael Kors Holdings (KORS) rallied a bit and then dropped back down. Cramer would buy KORS as a consumer spending play for 2012.

2. Semiconductors are bottoming: Texas Instruments (TXN) reported a strong December and January. There has been recent good news from Avnet (AVT), Novellus (NVLS-OLD) and Xilinx (XLNX). Cramer suggest picking among the semi stocks, since they should all see some upside. His favorite is Broadcom (BRCM) for its exposure to Apple, but Intel (INTC) might be a lower risk investment.

3. The cloud is back and bigger than ever: VMware (VMW) reported great news, and the stock jumped 6 points. Things are looking up for F-5 (FFIV). Cramer would consider buying Red Hat (RHT), Citrix (CTXS) and (CRM), which have all been laggards; he would buy deep in the money calls in CRM, which is no longer "Salesforce.coma." TIBCO (TIBX) is also a great cloud play.

4. Europe is not dictating the movement of stocks: When investors expect the worst from Europe and the worst doesn't come, stocks rally. "Stop worrying and learn to love European banks and bonds," said Cramer.

5. Natural gas prices: While low natural gas prices might not be good for many fuel stocks, they are too low for the trucking industry to resist. Cramer thinks Westport (WPRT), which makes engines that run on natural gas, will see increasing orders. There is also foreign interest in the fuel, and Cheniere Energy (LNG) is a good play on exporting natural gas, but he prefers Cheniere Energy Partners (CPQ). President Obama might finally get behind natural gas, and this move would be good for Clean Energy Fuels (CLNE).

Cramer called these 5 themes trampolines that will cause stocks in these sectors to bounce back after any down day.

Cramer took a call:

Chesapeake Energy (CHK) is a challenged company and needs to see natural gas go higher. Cramer prefers Conoco-Phillips (COP) for its yield and Schlumberger (SLB) and Ensco (ESV), because the latter two are more international than CHK.

How Big Pharma Got Its Groove Back: Pfizer (NYSE:PFE), Bristol Myers (NYSE:BMY), Johnson & Johnson (NYSE:JNJ)

With the multi-year wave of patent expirations for major drugs, Big Pharma seems to have hit a roadblock. However, Cramer sees upside for this sector, even though it has been lagging for a while. Johnson & Johnson (JNJ) reported a lackluster quarter with gloomy guidance, and the stock still did not move down. Cramer thinks Bristol Myers (BMY) and Pfizer (PFE) may be worth owning on their joint venture to develop Eliquis, on oral anti-coagulant that prevents strokes in patients with atrial fibrillation problems. The existing drug is ten years old and is often ineffective. Eliquis could capture 70% of the stroke prevention market of nine million patients, and could generate $5 billion in annual revenues that will be split between the two companies.

This drug could move the needle more for BMY than PFE because BMY is one-third the size of PFE. Both stocks are shareholder friendly, with BMY yielding 4.3% and PFE, 4%. PFE is buying back stock and announced a spin-off of its animal health and nutrition divisions. Eliquis is only one of four new drugs; each of the other three could produce $1 billion in annual sales. BMY, however, is Cramer's preference, even as it has risen 33% in the last year, 20% since Cramer got behind it last August. While BMY's best-selling drug Plavix is going to lose patent protection in May, BMY has other successful treatments for Hepatitis C, Alzheimers and skin cancer.

Trading Places: Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT). Other stocks mentioned: Baidu (NASDAQ:BIDU)

Microsoft (MSFT) and Google (GOOG) seem to be trading places, with Microsoft no longer the outdated laggard and Google floundering. Cramer says everything investors need to know about this switch can be found on their respective conference calls, which he discussed on the program:

Management: Google reported a big earnings miss, but management was inappropriately upbeat. CEO Larry Page said, "We are happy with our was a strong quarter." While CEO Steve Ballmer of Microsoft said about the company's earnings beat: "Despite a challenging PC market, we delivered solid financial results." Google's hubris was punished by The Street: the stock dropped 50 points.

Gross Margins: Google seemed reluctant to admit its problem with gross margins and blamed foreign currency issues instead. Microsoft, with significant exposure overseas, had the same currency issues, but did not suffer as much.

International: Google is levered to Europe, which saw a drop in growth from 20% to 5%. Microsoft, unlike Google, has strong growth in China.

Monetizing Projects: Google has a slew of projects but seems unsure of how to monetize them, while Microsoft has plans to effectively monetize its XBox and Skype segments. MSFT was the #1 seller of game consoles in 2011, and its Bing picked up 300 basis points. Google is losing advertising because of the increasing use of mobile devices, since advertisers are less enthusiastic about trying to grab customers who access the web on their phones.

The bottom line: Microsoft has significant upside, while Google may be dead money for a while, and has to spend a quarter or two in the penalty box before Cramer will consider recommending it.

Cramer took some calls:

Intel has been unloved, but will make a comeback, since it is no longer a PC story, but a server story.

Baidu (BIDU) has made investors money, but is not performing well, because of worries about a slowdown in the rates that can be charged on the web.

CEO Interview: Richard Kinder, Kinder Morgan Energy Partners (NYSE:KMP), Kinder Morgan (NYSE:KMI), Kinder Morgan Management (NYSE:KMR). Other stock discussed: El Paso (EP)

High-yielding stocks were the winning investments for 2011, and Cramer thinks this trend will continue into 2012. MLPs are the best yielders, especially oil and gas pipeline plays. Kinder Morgan Partners (KMP) yields 5.6% and has a toll road type of business model that generates stable income. Its parent company, Kinder Morgan (KMI), is acquiring El Paso, a deal that is expected to close by the second quarter. Many of El Paso's assets are expected to trickle down to KMP. Kinder Morgan Management (KMR) pays its shareholders in additional stock, and is a great tax alternative to the other two forms of Kinder Morgan. KMP has risen 122% since Cramer got behind it in 2007.

CEO Richard Kinder discussed the El Paso deal and how it will simplify gas transportation. Even without the acquisition, he expects KMP to grow its distribution by 7% and KMI's yield to increase 12.5% annually. When asked how low natural gas prices affect Kinder Morgan, the CEO said that since the business model resembles that of a toll road, the underlying price of the commodity does not affect the business. Low gas prices should lead to higher demand, which will ultimately be a boon for the company. Kinder says his Permian Basin assets will be a huge opportunity for growth for the next few years. When asked about the government blocking the Keystone Pipeline, Kinder said, "It was a bad thing for the country to have blocked was a short-sighted thing for the U.S." However, the blocking was "somewhat of a blessing" for Kinder Morgan because it creates more demand for transportation of oil and gas from Canada to the Pacific.

Cramer calls Kinder Morgan, "The best idea we've had on the show since your own research to see which Kinder Morgan you like. I own KMP for my charitable trust, but I'm drawn to KMR because of the easier tax issues."


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