Why Cramer Loves Buybacks
In a falling market, there's always one thing investors can count on, Cramer told viewers -- companies with big stock buyback programs. That's why he's a fan of contract manufacturer Flextronics (FLEX) and seed giant Monsanto (MON), two companies with mammoth buybacks.
Cramer explained that outsourcing your manufacturing is still a growing trend around the world and Flextronics is one of the leaders in the space. The company has a diverse customer base across multiple industries and is benefitting big from the LTE wireless buildout in China. But more important, Flextronics is a cash cow with a buyback authorization to purchase 20% of its market cap. With the stock trading at just nine times earnings with a 13% growth rate, Cramer said the stock could be 20% higher if that multiple expands to just 11 times earnings.
Then there's Monsanto, which may be declining along with falling commodity prices for corn and wheat, but the company also has a $10 billion buyback in place. Monsanto dominates the U.S. seed market and has long-term tailwinds that will propel it for years to come. The company is also a potential breakup story, which would translate into a 17% rise in the stock if it were to actually occur, said Cramer. With shares already down from $128 to $115, Cramer said Monsanto is increasingly attractive.
Chart Week: Coal and Bonds
For the next installment of "Chart Week," Cramer sat down with colleague Tim Collins to discuss the charts coal and long-term treasuries.
Using a weekly chart of the U.S. Coal Index, Collins noted that coal has been trading in a channel for about a year now, which has created a strong floor and a strong ceiling for the commodity. With coal currently at the floor, that made Collins bullish, a sentiment that was confirmed by the Money Flow Index, or MFI.
Of the coal stocks, Collins recommended SunCoke Energy (SXC), a coal producer with exposure to the steel business, which has been rallying of late. SunCoke's chart is forming a bullish cup-and-handle formation, with the MFI also indicating a momentum breakout to the upside. Collins felt SunCoke could see $30 a share be the end of the year.
Turning to bonds, Collins was less bullish. He noted that the 20-Year Treasury bond weekly chart is showing the short-term rally meeting up with long-term price resistance, a bearish divergence that will be hard to surmount. He also pointed out the Relative Strength Index, or RSI, also signals a bearish divergence, which makes him decidedly not a buyer of U.S. Treasuries.