Cramer's 'Mad Money' Recap: A Dose of Reality (Final)
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NEW YORK (
) -- "Today's market turnaround was a prelude of things to come," Jim Cramer told the viewers of his
TV show Tuesday.
He said the markets may be returning to the way it used to be, where things that happen in Europe stay in Europe, and what happens here in the U.S. matters.
Cramer said he's been preaching all month about the importance of Washington to the markets. That's why when President Obama announced he was in talks with Congressional leaders on a compromise on unemployment benefits and tax cuts, the markets quickly forgot about European debt woes and rallied hard from their deep deficits, he said.
Cramer called the European contagion a smokescreen, clouding investor judgement, and keeping them from focusing on the strength of U.S. stocks. Case in point,
Baldor Electric
( BEZ), which received a huge takeover bid today and is up 40% since Cramer featured it just two weeks ago.
Cramer said there is strength everywhere, from retail to restaurants, but that strength is being masked by hedge funds knocking down stocks and bonds in Europe and trying to game the U.S. dollar-euro spread. These funds are accelerating weakness in Europe, he said, and are taking our markets along for the ride.
That's why Washington matters, said Cramer. The government is so dysfunctional as of late that even the smallest of positive news matters. Any bit of clarity or certainty matters, he said, as it's the only thing that can break the European cycle of doom and gloom.
Fate of Retail
In the "Off The Charts" segment, Cramer went head to head with colleague Tim Collins over the chart of
Retail Holders ETF
(RTH) - Get Report
to see just how healthy this holiday shopping season may be for retailers.
According to Collins, the monthly chart of the ETF shows a "W" formation, a bottoming pattern that could signal another 10% to 15% move over the next year. Collins said if the stock breaks through its current ceiling, a rally may be in the cards.
The weekly chart of the ETF also confirms this analysis by displaying the very bullish "cup-and-handle" pattern, while the daily pattern displays a developing "W" pattern that is also bullish news for the sector.
Turning to the fundamentals, Cramer said the retail stocks all hinge on the fundamentals, and whether Washington is able to pass a compromise bill on unemployment benefits and tax cuts. If they are, then the retailers will definitely head higher, he said.
High-Flying Apparel Names
Continuing his "Stock-ing Stuffers" series on the best retail stocks, Cramer turned to the apparel vendors, a group that offers a higher return on their invested capital since they only make products and don't have retail stores.
When it comes to apparel vendors, Cramer said investors need to look for companies with strong brands and international exposure. That's why he likes both
Nike
(NKE) - Get Report
and
Polo Ralph Lauren
(RL) - Get Report
.
Cramer said Nike has 50% market share in the red hot footwear market and is seeing emerging market sales up 24%. While other apparel makers are getting hit with higher cotton prices, Nike uses mainly synthetic materials and is not affected. The company recently boosted its dividend by 15%, and shares of Nike are up 17% since Cramer recommended it on March 22.
With Nike trading at just 17 times earnings with a 10.5% growth rate, Cramer said he would pay up to 20 times earnings for the stock.
Ralph Lauren is another premium global brand, according to Cramer. The company is seeing an 11% pop in sales, and is able to shift higher input costs to its retailers. Ralph Lauren trades at just 18 times earnings with a 13.5% growth rate.
Cramer said he also likes
Philips-Van Heusen
(PVH) - Get Report
, a diversified player, and
Guess
(GES) - Get Report
, which gets 60% of sales from overseas.
Cramer said he would avoid companies like
Liz Claiborne
( LIZ) and
Jones Group
(JNY)
, two companies struggling with image and inventory.
Powerful Brand
In the "Executive Decision" segment, Cramer sat down with Joseph Gromek, president and CEO of
Warnaco Group
(WRC)
, an apparel maker that trades at just 13 times earnings despite a 16% growth rate and a recent nine-cent-a-share earnings beat.
Gromek explained that Warnaco is mainly the operator of the Calvin Klein brand, a name it licenses from Phillips-Van Heusen. Calvin Klein represents 75% of the company's sales, said Gromek. The company also operates 1,200 retail stores outside of the U.S. and has another 600 outlets through distribution partners.
Gromek also said that as part of the company's 2001 bankruptcy, under previous management, the rights to sell Calvin Klein through domestic stores went back to Phillips-Van Heusen, which is why Warnaco is mainly an international company.
Calvin Klein has 40% market share in the underwear market, which makes it a powerful brand, said Gromek. The brand is also strong in both jeans and fragrance segments as well.
When asked about rising input costs, Gromek said about 70% of those costs were passed onto retailers, with the remaining 30% being absorbed by the company. He said Warnaco's margins will remain in tact.
Cramer recommended Warnaco's stock, saying it's a great apparel maker that investors have likely never heard of.
Lightning Round
Cramer was bullish on
Halliburton
(HAL) - Get Report
,
Total SA
(TOT) - Get Report
,
Statoil
(STO)
,
Steve Madden
(SHOO) - Get Report
,
McDonald's
(MCD) - Get Report
,
AT&T
(T) - Get Report
and
Verizon
(VZ) - Get Report
.
He was bearish on
(GOOG) - Get Report
.
Closing Comments
Cramer commented on the
ABB
(ABB) - Get Report
takeover bid for Baldor Electric.
Cramer said stocks like Baldor are out there for the taking, if investors know what to look for. He said Baldor was a dominant player with superior products that help reduce power consumption for a cleaner environment. Yet the company was trading at just 14 times earnings.
Despite ABB's lucrative offer, Cramer said Baldor will still be accretive to the company's earnings. What's not to love?
--Written by Scott Rutt in Washington, D.C.
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At the time of publication, Cramer was not long any stock mentioned.
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