Cramer's 'Mad Money' Recap: Dealing With Headline Risks (Final)
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NEW YORK (
) -- "We don't know what the future will bring," was Jim Cramer's lesson to the viewers of his
TV show Monday, as he opined on the litany of things the markets are beginning to worry about and what investors should do about it.
Cramer reminded viewers that big news isn't always big news for stocks, especially for individual stocks. Thats why until something actually happens, it's hard to know just how it will impact the markets, if at all, he said.
To be sure, Cramer said, there are market implications if the newly-released federal budget, and accompanying deficits, gets passed. There are also serious implications for a unruly default in Greece. Expiring tax cuts will impact some stocks, said Cramer, and the rising tensions between Israel and Iran will impact others.
But for the vast majority of stocks, all of these worries won't matter at all, said Cramer. And for investors to worry about them before that happen is just plain madness. "We can't predict how any of these things will impact individual stocks," he said, recalling at favorite line from his old hedge fund days. "What does that have to do with the earnings of
Bristol Myers-Squibb
(BMY) - Get Report
?"
Cramer said for stocks like
Apple
(AAPL) - Get Report
, a stock which he owns for his charitable trust,
Action Alerts PLUS, or
Pfizer
(PFE) - Get Report
or
Caterpillar
(CAT) - Get Report
, all of these issues simply aren't issues and aren't something investors need to be concerned with at a time when stocks are historically cheap.
Cramer said with interest rates making stocks far more attractive than bonds and those rates likely to stay put for years, it would be foolish to pass up the great opportunities stocks are offering simply because investors are worried over things that may or may not happen. When the facts change, then investors can change their minds.
Out of the Doghouse
Can old dogs really learn new tricks? They can if the dog is
Dell
(DELL) - Get Report
, Cramer told viewers, as he did an about-face on a company that once topped his "Wall of Shame."
Cramer explained that Dell, once one of the most innovative PC companies, has been ailing for years as it became hostage to slowing sales and increased competition. But that's all changed, he said, as Dell is now one of the hottest tech turnaround stories. I'm pounding the table, recommending Dell," he proclaimed.
So what's different at Dell? Plenty, said Cramer. First of all, the company has dramatically lowered costs for its desktop and laptop PCs by 30%. Dell has trimmed its offerings substantially, thus streamlining its operations and reducing the size of its supply chain.
But the real story is in the enterprise, where Dell has made over 17 acquisitions and is now selling its own brand of storage and networking products at dramatically higher margins, rather than reselling solutions from other providers. Cramer said this move, while misunderstood by Wall Street, was brilliant and has led to a surge in free cash flow of 80%.
Cramer said that while Dell missed revenue last quarter, it did beat on earnings by seven cents a share. He said in this quarter, Dell should deliver an upside surprise. Shares are also ridiculously cheap, said Cramer, trading at just 8.7 times earnings with a 5% growth rate. He also praised the company's massive stock buyback program which aims to reclaim 22% of the company's market cap.
"It's time to let Dell out of the doghouse," Cramer concluded.
Pet Supplies Play
Continuing with his canine theme, Cramer said there's one stock that is certainly a portfolio's best friend, and that's
Petsmart
(PETM)
, the industry leader in pet supplies with a 15% market share thanks to a network of over 1,200 locations in the U.S. and Canada.
Cramer said it's no secret that America is obsessed with pets, and now that the economy is on the mend, pet adoptions are once again on the rise, adding fuel to the fire of this already $35 billion market. With over 94 million cats and 78 million dogs in the U.S. alone, Cramer said its easy to see why food, toys, grooming and veterinary care now totals over $48 billion a year.
As the market leader, Cramer said that Petsmart gives investors multiple ways to win. First, he said the company is taking full advantage of the move towards healthy, all-natural pet foods and products. These healthier items demand higher margins and up to 10% of Petsmarts' all-natural selection is now exclusive to its locations.
Petsmart is also going all in on pet services as well, offering not only grooming but also a high-end chain of boarding facilities that now totals over 450 locations.
Cramer said that Petsmart also has a solid balance sheet, which only adds to the reasons why the stock hit a 52-week high. Trading at 18 times earnings with the 16% growth rate, Cramer said the stock is not expensive, although he wouldn't chase it at these levels.
Growing Like Crazy
In the "Executive Decision" segment, Cramer spoke with Gary Evans, chairman and CEO of
Magnum Hunter Resources
(MHR)
, a small oil and gas driller with acreage in the Bakken, Eagleford and Marcellus shale regions of the countries. Magnum is growing like crazy, said Cramer, with production up 455% last quarter and proven reserves up 44% over the past six months alone.
Evans said that the Bakken shale region will be the focus for Magnum in 2012, but he also noted that the company's Eagleford assets, which totals 25,000 net acres, are also a great resource that should be valued as high as $35,000 an acre.
When asked about the current value of his company, Evans said that Magnum now produces 14,000 barrels of oil a day and some recent industry takeovers were for companies that had 16,000 barrels a day. Those takeovers, he said, were valued at $4.2 billion, meanwhile the current market cap of Magnum is just $850 million.
Turning to the company's plans to offer a master limited partnership for its pipeline assets, Evans said that Magnum's midstream assets now have "their own life" and could be valued at 12 to 13 times the $75 million per day that they produce. He said the proposed transaction would not take any money away from the company's upstream drilling plans.
Looking at the company's future, Evans noted that for about 20 years of his career, the major oil companies were leaving the U.S. and selling their assets to the little guys like Magnum. Now however, the big boys are back and are competing with the independents, especially in the oil shale regions. "We've positioned the company for a takeout," said Evans, but noted that the company still has a lot of growing left to do to maximize its value.
Cramer said that Magnum, while still small and speculative, is really terrific. He urged viewers to use limit orders when buying in.
Lightning Round
Cramer was bullish on
Taiwan Semiconductor
(TSM) - Get Report
,
Praxair
(PX)
,
Airgas
(ARG)
,
McDonald's
(MCD) - Get Report
and
Southern Copper
(SCCO) - Get Report
.
Cramer was bearish on
Sprint Nextel
(S) - Get Report
.
Closing Comments
In his "No Huddle Offense" segment, Cramer said that the move in
Apple
(AAPL) - Get Report
is all about earnings. He said after the company's huge upside surprise, shares should have immediately gapped higher to $550 a share, but instead, they're skipping ahead day by day to the level where they deserve to be.
Why $550 a share? Cramer said forget about the company's $100 billion in cash or rumors of a new iPad or perhaps a dividend. Apple deserves to trade at $550 a share based on its earnings alone, as it is expected to earn $5.50 a share in earnings, yet still trades at less than 10 times those earnings.
--Written by Scott Rutt in Washington, D.C.
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.
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At the time of publication, Cramer was long Apple.
Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for TheStreet.com, Inc., and CNBC, and a director and co-founder of TheStreet.com. All opinions expressed by Mr. Cramer on "Mad Money" are his own and do not reflect the opinions of TheStreet.com or its affiliates, or CNBC, NBC UNIVERSAL or their parent company or affiliates. Mr. Cramer's opinions are based upon information he considers to be reliable, but neither TheStreet.com, nor CNBC, nor either of their affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Mr. Cramer's statements are based on his opinions at the time statements are made, and are subject to change without notice. No part of Mr. Cramer's compensation from CNBC or TheStreet.com is related to the specific opinions expressed by him on "Mad Money."
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Some of the stocks mentioned by Mr. Cramer on "Mad Money" are held in Mr. Cramer's Action Alerts PLUS Portfolio. When that is the case, appropriate disclosure is made on the program and in the "Mad Money" recap available on TheStreet.com. The Action Alerts PLUS Portfolio contains all of Mr. Cramer's personal investments in publicly-traded equity securities only, and does not include any mutual fund holdings or other institutionally managed assets, private equity investments, or his holdings in TheStreet.com, Inc. Since March 2005, the Action Alerts PLUS Portfolio has been held by a Trust, the realized profits from which have been pledged to charity. Mr. Cramer retains full investment discretion with respect to all securities contained in the Trust. Mr. Cramer is subject to certain trading restrictions, and must hold all securities in the Action Alerts PLUS Portfolio for at least one month, and is not permitted to buy or sell any security he has spoken about on television or on his radio program for five days following the broadcast.
