Weekly Roundup
Jim Cramer
There was also speculation that there were other hedge funds liquidating as well, and seeing the enormous declines in the energy complex, I suspect that was the case. That's a lot to digest, and it's no wonder the markets were off about 3% for the week.
The volatility remains very high, and I continued to trade around my core holdings looking to pick up shares on the cheap and to take profits where I could. The only saving grace is that my fund is now very diversified with high- quality large-cap stocks so I am not captive to one segment in the market.
Early in the week, I bought all of my energy stocks when they got hit -- Cabot Oil & Gas (COG:NYSE), Devon Energy (DVN:NYSE), Foster Wheeler (FWLT:Nasdaq), National Oilwell Varco (NOV:NYSE) and Quanta Services (PWR:NYSE). But I also picked up Cisco (CSCO:Nasdaq) and Hewlett-Packard (HPQ:NYSE) and beefed up my tech weighting. My tech bets are high-quality, best-of-breed companies and are cheap. I also added to Celgene (CELG:Nasdaq), Gilead (GILD:Nasdaq) and WellPoint (WLP:NYSE) and will continue to buy those names if weakness continues.
I took profits in Morgan Stanley (MS:NYSE) but didn't give up my financial weighting in the fund because I bought JPMorgan Chase (JPM:NYSE). I will continue to add to financials on weakness.
So, overall I did a lot of trading again this week to take advantage of the extreme prices. I have wider buy levels for my energy names, but if they are hit, I will act. Large- cap, defensive and high quality is the way to go for now.
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I also want to be sure you're not confused about the terminology I use on my "Mad Money" television show: When you hear me refer to my "charitable trust" on "Mad Money," I am talking about the trust that holds my Action Alerts PLUS portfolio. My winnings from Action Alerts PLUS go to charity after the close of each trading year.
Here's the quick guide to my rating system, too: Ones are stocks I would buy right now, Twos are stocks that I would buy on a pullback, Threes are stocks I would sell on strength and Fours are stocks I want to unload as soon as my trading restrictions allow.
ONES
Abbott Laboratories (ABT:NYSE, $57.01, 2,300 shares, 4.26% of the portfolio): Abbott sold its spine business to Zimmer (ZMH:NYSE) for $360 million in order to focus on its core businesses -- the vascular market, Humira growth, the KOS integration and its diabetes franchise. This wasn't a strategic fit for the company and ABT got a decent price. Also, an industry study showed that Boston Scientific's (BSX:NYSE) Taxus stent had more repeat revascularization vs. bypass surgery, which highlights just how good ABT's Xience stent is. At 17 times earnings, the stock trades below its peers and has higher growth and a better dividend. This will remain a core holding, and I would buy more under $54.
Altria (MO:NYSE, $20.95, 9,200 shares 6.26%): There was speculation this week that Altria might buy UST (UST:NYSE) for $10 billion. Neither company commented, naturally, but it would be good news for MO because it would give MO exposure to the high-growth smokeless market. Absent this deal, MO is growing market share, getting 5% price increases, has great cash flow, and management is committed to creating shareholder value. This is a high-quality, defensive stock and I am very happy it is my largest position in the fund.
Celgene (CELG:Nasdaq, $66.21, 600 shares, 1.29%): I bought 100 shares and will continue to add after my restrictions are lifted next week, especially at the current price. I think this stock could be a double over the next three years given its dominance in the cancer market (multiple myeloma). CELG offers the best growth in the industry and will see 40% earnings and 30% revenue growth for the next several years. The Pharmion deal will be more accretive than the Street expects, which gives a nice cushion to earnings.
Cisco Systems (CSCO:Nasdaq, $22.26, 3,500 shares, 2.53%): I bought 400 shares this week when the stock pulled back and will continue to add, especially if it falls to the $22 level. Tech has given back its recent gains on global growth slowdown concerns and weak results from Nokia (NOK:NYSE) and Ciena (CIEN:Nasdaq). The problems at NOK and CIEN highlight how good of a report CSCO had. Recall CSCO beat earnings and revenue estimates and guided conservatively for the remainder of 2008 and 2009. Dell's (DELL:Nasdaq) bullish comments about financials increasing their tech spending also were a positive for CSCO. The stock is cheap, and this is the best-in-class tech company. Look for me to buy more on weakness.
Costco (COST:Nasdaq, $68.44, 1,300 shares, 2.89%): The company posted a 9% gain in sales and the stock sold off, which makes no sense to me. Core U.S. comps were up 5.5%, driven by strong sales in food, beverage and beauty products. I continue to believe that COST and WMT will deliver the best growth in the sector as the consumer remains stretched, and both offer a value proposition. Considering that the majority of the retailers disappointed on July sales, I'll take 9% any time. I am looking to buy more if the stock hits $66.
Foster Wheeler (FWLT:Nasdaq, $42.02, 2,800 shares, 3.82%): I bought another 100 shares on the weakness. The Terex (TER:NYSE) news was certainly not a positive for the industrial sector, but FWLT is down $44 from its highs and now down for the year. In other words, the bad news is priced in and the long-term story is solid. China is slowing, but still growing at mid-digit levels; FWLT's backlog remains very robust at $8 billion. I expect the company to announce contracts much like the one it struck with South Korea on Thursday – a 15-year deal to build coal- steam generators for Bumwoo E.N.G. Stay patient on this stock. This is a good long-term story that is unfortunately caught up in an out-of-favor sector.
Gilead Sciences (GILD:Nasdaq, $47.85, 2,600 shares, 4.04%): I bought 300 shares on weakness. Confusion remains over how to interpret the IMS data for its HIV drugs. I don't know why there are any issues -- scripts grew 20% year over year for its HIV franchise, and that is very strong growth. The stock is cheap; earnings will grow at 20% plus and GILD has $3 billion in cash to fund future growth. I will continue to buy more if shares stay at these levels.
General Mills (GIS:NYSE, $67.84, 1,200 shares, 2.65%): Management presented at an industry conference this week, and I liked what I heard. The company continues to raise prices to combat inflation, focus on cost cutting (could be 2 to 3 cents to earnings this year) and new products. At 17 times earnings, the stock is still at the midpoint of its long-term range. I will buy more after my restrictions are lifted at these levels.
Goldman Sachs (GS:NYSE, $163.24, 700 shares, 3.71%): Earnings estimates continue to come down for the quarter, but I think this is old news, and the shares are recovering nicely from the $154 level. I think this quarter was a one- quarter blip for the company driven by sluggish equity markets and wrong bets in its proprietary trading book, but I expect the company to bounce back and if the stock trades back to the mid $150s I will likely buy more. This is still the best of breed investment bank and I expect continued market share gains.
Hewlett-Packard (HPQ:NYSE, $44.96, 2,700 shares, 3.95%): I bought 200 shares this week after the company presented at an industry conference. The stock is below my cost basis, and I will continue to add under $45. Management expects its printer business to continue to grow in the mid- to high-single digits and that it isn't seeing a major slowdown in its Europe business. Their target for the PC business is for profitable growth -- I like that. The EDS deal has many positives, especially on the cost-cutting front as well as deeper penetration in enterprise accounts given EDS' big installed base. I like this one and will continue to add on weakness.
JPMorgan Chase (JPM:NYSE, $39.60, 2,300 shares, 2.96%): I picked up 100 shares late in the week when financials were under pressure. I am still underweight financials but like this high quality company and am slowly building this position in the fund. JPM has one of the best risk management teams in the business, and in this environment that is a big deal. The company will continue to take share from the weaker players, and the steeper yield curve is positive for its large deposit base. I will continue to add on weakness to slowly build this position over time.
Nike (NKE:NYSE, $58.82, 800 shares, 1.53%): Back-to-school season should be decent in the U.S. for the company as it continues to offer the best product and take share from its competitors. Its careful inventory management and market segmentation remain key. The opportunities abroad are significant, especially in China, where NKE has the "it" factor. It has $5/share in cash and trades in line with its growth rate. I will continue to buy under $59.
Morgan Stanley (MS:NYSE, $41.36, 3,200 shares, 4.30%): I continued to trade around my core position and sold 300 shares this week. The stock is up 18% off its lows, and I took some profits. The financials continue to be volatile, but MS will be a relative outperformer given its diversification and lowered expectations. The company will report earnings soon, and I expect the private wealth management business strength to offset the weakness in fixed income. Risk management should improve from last quarter with new management in place. I also think MS will deliver strong results in its commodities and prime brokerage units. Long term, this is a good story with a strong institutional franchise. It will likely stay in a trading range until we get evidence that a true turnaround is taking place for financials. In the meantime, this is one of the best management teams and it will continue to improve its profitability.
Quanta Services (PWR:NYSE, $28.08, 4,600 shares, 4.20%): Quanta was down 12% with the correction in energy and related stocks, and I bought another 100 shares. Frankly, this confuses me. No matter what happens with oil and natural gas prices, there is still a need for alternative energy sources, especially with wind's economic benefit. The transmission grid is in desperate shape, and utility companies have a mandate by the government to spend money on improving their infrastructure. PWR will grow revenue at 20% and has upside to margins as wind becomes a bigger part of the company. I will buy more at $25.
Walgreen (WAG:NYSE, $34.59, 1,700 shares, 1.91%): The company posted about as-expected August sales data, but its stronger-than-expected front-end sales were helped by heavy promotions. Earnings are probably a penny too high, but I don't own the stock for this quarter or next. I own this for the long-term restructuring as the company reduces square-footage growth in order to focus on its existing store base and improve productivity. As it slows its square- footage growth, margins, returns and cash flow will improve. After my restrictions are lifted, I will likely buy more at $32
WellPoint (WLP:NYSE, $49.02, 2,100, 3.35%):I bought 400 shares on the weakness, and the stock continued to drift lower on no new information. The stock is thinly traded, and there are overall concerns about the election and health care stocks. I will continue to add on the weakness and stay patient because WLP is in the early innings of a turnaround. Its recent actions to improve price appear to be working and earnings look conservative based on this. At eight times earnings, the stock trades at the low end of its historical range.
TWOS
Cabot Oil & Gas (COG:NYSE, $39.20, 2,200 shares, 2.80%): I bought 100 shares early in the week and am now waiting for the stock to pull back to the $35 level to buy again. The energy group is out of favor, and the market is selling off any and all energy-related stocks. COG is the cheapest E&P stock, with excellent prospects for growth and first-mover advantage in the Appalachian region. Its costs are low and management is seasoned. I will stay patient.
Deere (DE:NYSE, $63.23, 1,400 shares, 2.88%): The stock is down about $8 in a week in sympathy with the bad news from Terex (TEX:NYSE). I still like this stock for the long run, because the U.S. farmer's cash receipts are strong and the demand for ag equipment remains high. The company raised its production recently to meet the strong demand. DE is 70% booked for high horsepower combines for 2009. That is well ahead of where it was a year ago. The issues remain in its construction and forestry business, where the sluggish U.S. economy continues to pressure results. Until that bottoms, the stock will likely be range bound. That's OK, because the long-term fundamentals in the farm industry remain excellent; $60 will be my next buy point.
Devon Energy (DVN:NYSE, $95.69, 400 shares, 1.24%): I continue to trade around this core position and take advantage of the volatility in the shares. On Tuesday, I bought 100 shares and sold 300 on Friday, when shares traded up. This is a great long-term story, and the long- term fundamentals remain strong with 12% production growth, its low cost structure and several opportunities from on-shore and offshore projects. The stock is the cheapest large-cap E&P stock, and I think that is unwarranted. I will likely buy more if the stock hits $90.
Freeport-McMoRan (FCX:NYSE, $73.91, 1,000 shares, 2.40%): The stock fell nearly 20 points this week on pure liquidation, not fundamentals. The stock is cheap at 4.1 times EBITDA and has a free cash flow of 12%. China is one fourth of the demand for copper, and even though growth has been slowing forecasters expect 8% for the year. That is still very positive, especially since supply is still hard to get. This is too cheap to ignore, and I will look to buy more once my restrictions are lifted.
National Oilwell Varco (NOV:NYSE, $61.86, 2,200 shares, 4.42%): The stock is off 13 points this week on the energy selloff, and I bought 300 shares. I will continue to buy on weakness because the long-term fundamentals remain very strong -- the tight rig market, its dominant market share and huge backlog ($10 billion), which provides excellent visibility. At 13 times earnings the stock is very attractive for the long term. My next buy level is $58.
Pepsi (PEP:NYSE, $68.92, 2,000 shares, 4.48%): I would like to buy more of this stock if shares hit $67 because I believe that the company will benefit from the lower raw material costs with oil coming down. It's cheap, has a great brand name, and earnings are going a lot higher. But I will remain patient for the right price.
Procter & Gamble (PG:NYSE, $70.78, 2,000 shares, 4.60%): PG will also benefit from the lower oil price, and its earnings are too low as a result. This is a high-quality company with a broad range of products all around the world. Product innovation remains strong, and the company has flexibility with price increases. This will remain a core holding.
Qualcomm (QCOM:Nasdaq, $47.67, 3,500 shares, 5.42%): Negative comments from Nokia (NOK:NYSE) and discussion about slowing handset growth weighed heavily on the stock this week. I own this for the 3G play as consumers migrate to those higher-powered, feature-rich phones. The NOK settlement is a huge win for the shares, and earnings estimates are too low. I will buy more at $46.
Wal-Mart (WMT:NYSE, $60.74, 1,700 shares, 3.36%): WMT was the only retailer to beat estimates for August sales. It reported 3.5% vs. 1.8% expectations and said strength was across the board. I like the defensive character and its ability to offer a value proposition to the consumer. I will buy more at $56.
THREES
Discovery Holding (DISCA:Nasdaq, $19.52, 7,300 shares, 4.63%): I expect the stock to recover when the corporate structure gets simplified and the management gets out of its quiet period. While two tracking stocks aren't always good for multiple expansion, the stock is cheap, and I like DISCA's programming. I think it will continue to see higher-than-average growth in advertising as a result. I will look for strength to the mid-20s to right-size the position in the fund.
