In his first radio show after a vacation, Cramer took a look at technology stocks after Dell and Cisco roiled markets with their earnings reports.
His assessment? Sure, Dell messed up on pricing its PCs, and Cisco's guidance was too conservative. But Cramer admonished: "Shame on you for selling tech for this!" Although he wouldn't dismiss the results as aberrant, he said a closer look shows they're in line with his bullish tech thesis for the rest of the year.
In Dell's case, it blew out PC unit sales but priced products poorly. That doesn't mean investors should sell
, both of which Cramer owns for his charitable trust,
Cramer believes this means
Intel and Microsoft, because they're levered not to Dell's margins, but to Dell's volume. The more units Dell sells, the more those two companies will make, regardless of Dell's profit.
Cisco's harder to figure, said Cramer -- it's not going to be a beneficiary of the big product cycles that are driving tech. Its business was up 27% year over year and overall orders were strong, but Cisco lacks leverage to the product cycles Cramer is nuts about, so it's not as compelling a tell.
Intel and Microsoft, on the other hand, have much ahead that
exciting and will lead to gigantic upgrade cycles that should spur sales. And Cramer claims the worst thing to do now is to sell Dell in this seasonably strongest part of the year. The build starts now for consumer holiday products that he wants to profit from, and his anecdotal checks indicate strong demand.
Any declines in tech from here to September are gifts, he says. Why do we always have such big second-half runs in tech? Because every year in July and August investors can't stomach the kind of disappointments we get in companies like Dell, so they sell the stock. They're then compelling opportunities for the second half. His recommendation to the queasy: "Go take some Dramamine to fortify you to hang on for the upcoming, vigorous gains."
Tuesday's show will shine the Sector Spotlight on energy sector, but Cramer said he had to address the gigantic increase in energy immediately. It's the dominant theme among many on Wall Street, and a big topic on conference calls from firms like
Rising cost of oil produced question after question on the conference calls, but the companies say the impact is minimal. Most American companies had become complacent about oil use, and now that oil's up and here to stay, most companies have found ways to save fuel. Companies showed little conservation instinct until now, but it's working.
Fielding Radio Audience Questions
Bob in New York asked why gold is so strong, and whether Cramer would consider playing precious metals or mining stocks. Cramer said he has always felt precious metals play a role and wouldn't discourage them, adding that they're a nice hedge against inflation and that's causing the run in gold.
is his favorite now that
has had a couple of rough quarters. With the dollar rallying and the
fighting inflation with rate hikes, it's not time to own these stocks, he said. If Cramer had played that spike for a trade, he would be exiting now.
Melissa in Maryland asked about buys in health care stocks
. Cramer likes both, and sees Mentor as a mini-
, but its price gives him pause.
Selling at 35 times earnings with a 16% growth rate, it's selling for more than 2 times its growth rate, and is too rich for him to pull the trigger right here. PS is a stock Cramer has long favored, and it has been marking time. Using the same analysis, Cramer would be willing to pay up to 42 times earnings, but it's trading for only 34 times earnings. Calling it the next big thing, Cramer said it's an interesting franchise with pricing strength. His pick: PS as the inexpensive stock.
Ray in New York asked about
, calling it a heart-attack stock and worrying it would go bankrupt. Cramer said that like
, this stock had gotten through the worst. But while Cramer was away, his associate Will Gabrielski found some
damning revelations about Calpine's inability
to weather a severe cash crunch in the next six months. Revealing it as Tuesday's Danger Zone stock early, Cramer told listeners to sell now, especially because the stock is up big from where it was.
Steve in Chicago asked about
in terms of growth and its price-to-earnings ratio. Cramer said the company doesn't get enough credit, is a very, very good company.
Cramer referred back to the notion of relative value from
Jim Cramer's Real Money: Sane Investing in an Insane World
and the discussion earlier in the show about Mentor and Psychiatric Solutions when he highlighted growth rate vs. P/E. He said CDW looks very cheap to him, with an 18% growth rate, so Cramer would pay up to 36 times earnings -- 2 times growth rate. But, "people don't feel like CDW does anything so proprietary that can't be done better or faster by someone else," and reacts to anything bad in tech because it distributes Cisco and H-P products, Cramer warned. "When both reported bad earnings last week, people sold; incorrectly or correctly, people are linking this to Cisco and H-P."
Cramer believes that explains the stock's drop from $64 to $61. Cramer's take: It's an interesting company, not a bad stock -- but why doesn't he own it for ActionAlertsPLUS, his charitable trust? Because it's not proprietary, like Intel or Microsoft. "I would never fight anyone who wants to buy it, but it's not getting into my charitable trust."
Next, David from Nebraska wanted to understand how Cramer uses P/Es to make decisions, particularly about companies in the
Investors Business Daily
category of commercial services for safety and security. He noted that
was trading at 12.5 times earnings, was interested in
American Science and Engineering
trading at 27 times earnings. He asked Cramer to compare the stocks and to clarify where to find the growth rate, whether it should come from growth in earnings or revenue.
Cramer answered, "I never rely on just one, single indicator." He explained that some companies are difficult to value because they don't have a lot of sales, which was the case with Yahoo!, a holding in his charitable trust. Cramer bought the stock though its EPS was low because he saw the revenue build. So, he clarified, he's willing to use P/E as a benchmark but to step away from that. Cramer said that he was never crazy about LoJack, though it is growing earnings and revenue and looks inexpensive on earnings. Cramer sees Armor Holdings and American Science and Engineering as plays on bomb detection, so think not earnings but big contracts.
He was careful to emphasize that when he deviates from looking at EPS, "I'm talking about trading. When I invest, I
think about EPS." The example of Yahoo! came up again; Cramer explained that he was willing to buy it at 100 times earnings because its growth rate was 30%; subtracting Yahoo! Japan gave a P/E of 60, and it looked cheap in 2001-02 earnings when you considered its earnings in the out years. So Cramer's No. 1 factor to consider is EPS, but for trading he's willing to put that aside. For trades, Cramer looks for catalysts like contracts, and bomb-and-security stocks always have a lot of catalysts, which makes them interesting trading opportunities.
Sam from Northwest asked about the halo effect from Xbox and flat-panel televisions on
. Cramer answered, "When I look at situations where I talk about tech and why I want to be in it, I'm thinking about companies like ATYT." The fact that it's at a 52-week low looks like an opportunity to Cramer, who said ATI should be bought. As a company with a mixed record, it's not a high quality company to Cramer by any means, but he said, "It shouldn't be this low. I would buy it for a trade."
earnings have prompted Cramer to look for pin action that some of the others might have missed. Lowe's reported good numbers this morning, beating estimates by 3 cents, but Cramer said that because the stock correctly anticipated that number, it's not up big now. He rates Lowe's as still a buy, but said that "If you want to make money off the news, look for the pin action trickle-down economics." Cramer doesn't want to look for the equivalent of Lowe's -- for instance,
was down a little bit -- instead, you need to think about what it sells:
Black & Decker
. He called all four companies buys, pointing out particularly that Fortune would be a winner because of its additional exposure to hard liquor. He also named
as buys because of their air conditioning businesses.
Cramer defied those who would criticize him for recommending cyclicals, saying he's not worried about oil: "Don't complain about oil when you're up 300% on real estate." With the market up strong, he refused to panic about oil or housing because those are not the factors that could knock this market down. What would? A spike in inflation, a drop in job rates or a falloff in housing, he said.