Corporate Turnarounds Take Time - Cramer's Mad Money (4/19/17)

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Includes: AMD, CRM, IBM, INCY, ISRG, KO, LLY, MCD, MCHP, MDT, MGM, MU, MZOR, TMUS, VZ, WMT
by: SA Editor Mohit Manghnani

Summary

Microchip Technology, Micron and Advanced Micro Devices are worth buying.

Cramer would buy Incyte and Eli Lilly on weakness.

Cramer's favorite pick in telecom is T-Mobile.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday, April 19.

Corporate turnarounds are hard and take time. IBM (NYSE:IBM) seems to be struggling with a turnaround and the market became negative on the stock after it reported earnings. "IBM failed to demonstrate that it's made a successful transition from the slow-growing basic mainframe and software business to the fast-growing cloud computing, cognitive, artificial intelligence areas that are so vital to restoring the company's revenue growth after 20 straight quarters declining sales," said Cramer.

The company is not signing up enough new business and instead focusing on its legacy businesses so that the entire earnings is not dragged down. They beat earnings estimates due to one-time gains like licensing intellectual property.

Cramer however thinks that IBM still has promise. He would not sell the stock but instead be a buyer at $160. When turnarounds pick up, the gains will be good. "When you consider that IBM's got a 3.5% yield, an incredible base of installed business, a partnership with Salesforce.com (NYSE:CRM) that should begin to produce results even in the second half of this year, and the CFO's promise that the unsigned business will be signed very soon. I do not want to sell IBM's stock around $160. I'd rather buy it," he added.

Cramer gave other instances of slow turnarounds like Coca-Cola (NYSE:KO), McDonald's (NYSE:MCD) and Wal-Mart (NYSE:WMT). Credit Suisse upgraded Coca-Cola to a buy rating saying that that with CEO Muhtar Kent's push to make the company leaner before stepping down on May 1, the company can focus on global growth and franchising. The re-franchising of bottlers will give the company EPS growth. Cramer said he trusts Coca-Cola and its strong balance sheet and 3.4% dividend yield make it a good bet.

McDonald's is also seeing a turnaround thanks to initiatives by CEO Steve Easterbrook. The company is simplifying its menus, adding natural and organic ingredients, has an all-day breakfast menu and is implementing cost-savings technology across its locations. "That makes these franchisees more attentive, more willing to hire new workers, and more amenable," said Cramer.

Lastly, Wal-Mart is also seeing a turnaround after CEO Doug McMillon took over in 2014. The company's push for higher wages has led to a fall in training costs. They have pushed into e-commerce big time, that helps the company take advantage of the stay-at-home economy. They yield 2.75% which is good enough to wait for a comeback.

"The bottom line: I say turnarounds take time. You need to be patient, so I say hold onto your IBM, because they can still get it right," concluded Cramer.

Off the charts

The semiconductor stocks are rallying and Cramer took a look at the sector's three big names to get a sense of their direction. He went to the charts with the help of technician Suz Smith to hear her take on Microchip Technology (NASDAQ:MCHP), Micron (NASDAQ:MU) and Advanced Micro Devices (NASDAQ:AMD).

Microchip makes microcontrollers for various devices and is Smith's favorite stock. "In the case of Microchip, Smith says we're dealing with a stock that has very strong institutional ownership. In other words, Microchip is almost an anointed winner at this point given this trajectory, even if we haven't talked about it that much on the show," said Cramer. The daily chart shows that the stock is making bullish moves around $74. The full stochastic oscillator is giving a buy signal. The MACD indicator shows a positive push upwards is in store for the stock.

"If Microchip Technology can clear its near-term ceiling at $75, which is only a few cents above where the stock is currently trading, then Smith believes it can make its way to $86 in the not-too-distant future," said Cramer. He added that the company's upcoming earnings report will be the positive catalyst for it to move higher.

The charts of Micron show that it is gearing up for a rally. "Eventually, Micron's end markets will go bust as they get flooded with new supply and pricing comes down, but for the moment, it's still very much in boom mode and that could last quite a while before this move runs out of juice," said Cramer. The stochastic oscillator show the stock is in oversold territory and the Williams percent R oscillator shows a possible move higher out of oversold territory.

"Perhaps best of all, Smith notes that Micron has a floor of support at $25.84, about a buck and a half below where it's currently trading, which makes this a low-risk entry point, as she believes Micron could have smooth sailing to the $34 level," added Cramer.

AMD was the best performing stock of 2016. The stock is settling above its lows in March and the selling volume is decreasing. The MACD indicator shows that the stock is moving out of oversold territory. "My one concern is that AMD reports on May 1st, and while this company has given us a miraculous turnaround, a less-than-perfect quarter might throw this whole story out of kilter," said Cramer.

Bottom line is that the charts show that these semiconductor stocks are worth buying.

Incyte (NASDAQ:INCY)

When Cramer had suggested buying the stock of Incyte last Wednesday, he had no idea the FDA would reject its arthritis drug, Baricitinib, and the stock has fallen from $140 to $126. Is the stock still worth owning? Cramer dug deeper to find out.

Cramer said that no one saw the FDA rejection coming especially since the drug was approved in Europe. But that's the risk that comes with biotech stocks. Eli Lilly (NYSE:LLY) was Incyte's partner on the drug and its stock got hit from $85 to $80 as well. Cramer, however, is more optimistic on these stocks than the rest of the market.

Both the companies are big enough not to be derailed by one drug failure. They have strong pipelines that are in the hottest areas of biotech, like cancer immunotherapy for Incyte and diabetes for Eli Lilly. The setback for Incyte is simply a request by the FDA for more information on the dosing for Baricitinib. Based on this, Cramer will be a buyer of both Incyte and Eli Lilly on weakness and not a seller.

"Buy Incyte for speculation, Lilly as a longer-term investment. Just be careful, you might get a chance to buy some Incyte even lower because once the company prices the big secondary offering that so many people are expecting, it has yet to occur," added Cramer.

CEO interview - Mazor Robotics (NASDAQ:MZOR)

The stock of surgical robotics maker Mazor Robotics is up 49% YTD and jumped 4.9% on strong earnings from Intuitive Surgical (NASDAQ:ISRG). Cramer interviewed CEO Ori Hadomi to find out what lies ahead.

Hadomi said that the company gets revenues from three pillars - Selling robots for $1.1M each, disposables that robots consume and service support. The patient has always been the focus of the company. Using Mazor technologies during surgeries has proven to reduce complications and lead to fewer revision surgeries, benefits that hospitals around the United States have eagerly embraced.

"Hospitals really promote and market the procedure, and that's, in many ways, a result of the fact that we have sufficient data and sufficient clinical data to show them the effectiveness of this technology," he added.

They are expanding rapidly in the space and have partnered with spine-focused medical device maker, Medtronic (NYSE:MDT). "The ability to have access, to walk together, with such a giant player in the spine space, having access to all the biggest academic centers, hospitals around the world, both in the U.S. and out of the U.S., is something that is part of our growth strategy," said Hadomi.

Cramer said Mazor was a speculative stock and he is excited to see it following in the footsteps of Intuitive Surgical.

French Elections

Will the elections in France affect the average US investor? "We tend to read everything negative into European elections because of the market's initial reaction to Brexit and the shocking declines it caused around the globe, including here," said Cramer.

The volatility in US stocks post Brexit was due to hedge funds who live to trade and not invest. "It's that same volatility that the hedge funds search for to make quick money. It's also why the headlines turn into such a loud drumbeat. In retrospect, though, it meant very little, except as a panic, a panic that gave you a great chance to buy," said Cramer.

"If the hard leftist (Jean-Luc Mélenchon) wins, you probably don't want to invest in French businesses because of tax considerations or French bonds, because hardcore socialists tend not to care at all about the bond market. On the other hand, if Marine Le Pen, the hard-right candidate, makes it to the second round and then wins the election, she said she'll take France off the euro, which would mean the end of the EU as we know it," he added.

In both cases, bond prices will go up and rates will come down. If investors are concerned about the European elections, selling is a mistake. Instead think about buying the downturn and holding positions.

"I say ignore that ridiculous bond-stock linkage and carry on looking for shares of high-quality companies that get knocked down to cheap prices by this nonsense, or please be ready to buy a low-cost index fund if things really get hit," he concluded.

Viewer calls taken by Cramer

MGM Resorts (NYSE:MGM): Cramer thinks the stock will make a comeback. He will be a buyer at $28.

T-Mobile (NASDAQ:TMUS): It is Cramer's favorite in the group. After T-Mobile, he'd go with Verizon (NYSE:VZ) due to the yield.

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