Cramer's List Of High Quality Stocks - Cramer's Mad Money (2/18/16)

by: SA Editor Mohit Manghnani


Alliance Data has become too cheap to ignore.

Waste Management CEO interview.

Markets have started loving value stocks again.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money Program, Thursday, February 18.

Don't be disheartened by the market decline on Thursday after the three-day rally as a rally is usually followed by a decline. "Get ready and let the bad times roll, at least when it comes to stock prices, as we let the better times roll with the fundamentals," said Cramer. There are many stocks that can be bought since we are in the middle of earnings season. Another reason to be positive is that the Fed has turned in favor of the market as the Fed's James Bullard questioned the need for a rate hike when there is turmoil in the world.

The dollar has also ceased to become strong and there has been some activity in the M&A space. "You don't get a couple of bids for $6 and $7 billion respectively out of thin air and not think something has changed," said Cramer.

If you think that you have missed the rally, think again. Such rallies are followed by declines which gives an opportunity to buy high-quality stocks at bargain prices. In Cramer's opinion, stocks like McDonald's (NYSE:MCD), Jack in the Box (NASDAQ:JACK) and Panera Bread (NASDAQ:PNRA) should be bought, as the latter two have become too cheap to ignore.

Other consistent stock to be looked at are Clorox (NYSE:CLX) and Cisco (NASDAQ:CSCO). In the industrial sector, Honeywell (NYSE:HON) and 3M (NYSE:MMM) should be bought. WhiteWave (NYSE:WWAV) is also looking good. This is the time to look at opportunities.

CEO interview - Six Flags (NYSE:SIX)

Six Flags' earnings report shows that the benefit of lower gasoline prices has been showing in the bottom-line of companies. They beat the earnings and revenue consensus along with 22% increase in tenants. Cramer interviewed executive chairman Jim Reid-Anderson and CEO John Duffey to hear more about the quarter.

"We made substantial investments in both our Fright Fest offering in October, and our Holiday in the Park offerings in December," said Duffey. "And Jim, that is one of the reasons why now if you think about the fourth quarter, years ago it used to be part of the off season. Now it's a major contributor to our financial performance," he added. The strong quarter comes from investments in Halloween Fright Fest and year-end festivities.

The company continues to have something new and exciting at each park every year. They are also maintaining a balance between thrill and family rides.

80% of the guests in the park come from within 100 miles and many come from further due to cheaper gasoline prices.

Alliance Data Systems (NYSE:ADS)

Alliance Data was once a loved stock due to the rising credit card and loyalty program business. Its stock had increased 4 times since 2009 till April 2015. After the stock peaked, it has been crushed in the market selloff. The company had been doing well till it started forecasting weak quarters.

Their last guidance was weak and investors who loved the revenue growth started hating it and left. The company's loyalty card business decline of 15% was a shocking decline to investors. Currency weakness caused further issues. In the market sell off since January 2016, the stock has fallen by 10%.

The company could have a credibility problem as even the 2016 positive guidance is not working in its favor. It seems as if investors have stopped believing in the company. "While this story isn't red-hot like it used to be, I think the recent weakness in Alliance Data needs to be viewed as a buying opportunity, especially since the company will be in there buying the stock with you," said Cramer.

Even with slowing growth, Cramer is okay with 10% revenue growth for a company that trades at 10 times earnings. The market might sell off again and the stock could fall further, but it will be too cheap to ignore at some point. "It is still sound enough to be worth investing in as long as you remember to be patient and buy on the way down," said Cramer.

CEO interview - Waste Management (NYSE:WM)

Waste Management is a high-quality company and the largest trash collection company in the US. They reported an earnings beat and a revenue miss on Thursday, but gave solid guidance and a 6.4% dividend boost. Cramer interviewed CEO David Steiner.

"We are really right in the sweet spot with the economy right now. Everything is clicking. We've got the right team in place; we've got the right sales people in place. Now if we could get some help in those recycled commodity markets, everything would be clicking on all cylinders," said Steiner.

One thing not working for the company is recycling. The cost of recycled products is coming down, but customers should be better at keeping non-recyclables out of the recycle stream. That way the company would be able to process more and do more recycling.

Another good aspect is that the customer churn rate since 2002 is at its lowest. This happens due to excellent service as per Steiner.

Value stocks

The value stock has started to be in the limelight again. "This is a market that has disdained low valued stocks. Its mantra has been, sure they're cheap, but so what? However, the market is not saying that anymore," said Cramer.

For instance, the airline stocks have been selling at low PE multiples for some time now. The airlines might have issues, but lower oil, declining dollar has made them too cheap to ignore. In the industrial sector, Cummins (NYSE:CMI) and Emerson (NYSE:EMR) have started yielding 4%. That is juicy.

The most important value stock is Apple (NASDAQ:AAPL) which is trading at just 10 times earnings. They have also announced a $12B bond offering to return capital to shareholders. Apple Pay also went live in China where electronic payments are more prevalent than the US. One should also not overlook that Apple gets $30B in service revenue every year.

IBM (NYSE:IBM) got upgraded and the stock went up by 5%. At this point, IBM is valued more than Apple. "That is insane. In no universe should IBM be getting a higher multiple than Apple," said Cramer.

Value stocks have made a comeback.

Viewer calls taken by Cramer

Ventas (NYSE:VTR): The stock has received downgrades by analysts but Cramer is willing to bet on CEO Debra Cafaro.

Ulta Salon (NASDAQ:ULTA): Cramer has not seen the downgrade report, but he think ULTA's earnings show it's doing well.

Palo Alto Networks (NYSE:PANW): The company is doing well but the market does not like high-growth stocks. Current environment demands that you be patient.


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