Chocolate Lover - Cramer's Mad Money (10/7/08)
Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Tuesday, October 7.
Tech Sags - Cisco (CSCO), Intel (INTC), Microsoft (MSFT), Oracle (ORCL), Yahoo! (YHOO)
After another triple-digit loss in the Nasdaq market, Jim Cramer said that he knows what a bottom looks like for tech, and it's not what investors might think. His comments came on a day when the Nasdaq dropped 108.08 points, or 5.8%, to 1754.88. Over the past five days, the index has fallen 16.1%. Cramer turned to the history books to remind viewers that after the dot-com bubble of 2001-2002 many of the bellwether names on the index, including Cisco, Intel, Microsoft and Oracle, fell 80% to 90% before finally hitting bottom. He reminded viewers that there were pundits then who recommended these names all the way down while warning them it was too late to sell. The average tech stock fell 78% back then and could do so again, he said. Cramer said there are three things that need to happen before a bottom in tech can occur.
- First, the earnings estimates for these companies need to be cut repeatedly until the companies can beat them.
- Second, companies with bulging inventories need to work through those inventories. And finally, the economy needs to turn around. Cramer said based on current market conditions, we're nowhere near a bottom. The estimates haven't been cut, he said, noting only one downgrade of Yahoo! so far. He said companies have just now hit the inventory wall and haven't even begun to work off excess products.
- Finally, Cramer said the economy is not turning around anytime soon. Tech stocks are cyclical and they don't have to bounce back, he reminded viewers.
A Standout - Salesforce.com (CRM)
Next, Cramer talked with Mark Benioff, chairman and CEO of Salesforce.com, to see whether his company, with its 40% growth rate, can buck the trend and be a standout amongst a lagging industry. Benioff said that customer success is still the key at Salesforce, and that he's redoubling his efforts to spend even more time with their customers to find out what they need and provide it. He said the company has switched its message from promoting features and functions, to how customers can save time, money and resources by moving to the company's cloud computing model. Regarding the company's large cash position, Benioff said that Salesforce remains cautious and conservative, with no plans for the more than $6 a share of cash it has on the balance sheet. Cramer said he's always been a big fan of Salesforce and the company's business model. However, with a 57 multiple, he said the company remains priced for perfection and he simply can't recommend the stock despite its recent decline. Cramer said as soon as the economy improves, Salesforce, with its 49% revenue growth last quarter, will be among the first to rocket higher. “Some companies do well in tough times,” Cramer said. “This is one of them.”
Chocolate Comes Back - Hershey (HSY)
Despite accusations to the contrary, Cramer is actually recommending a stock, Hershey's, which he says is a $45 stock hiding inside of a $38 stock. Cramer said the period from 2001 to 2005 was the golden age for Hershey, when the company was able to grow earnings at a compound rate of 14% a year. However since 2006, Hershey has been struggling with high commodity costs, among other issues, and has only been able to deliver 4%-to-6% earnings growth and only 2.6% sales growth last year. Sugar, cocoa and milk make up 43% of Hershey’s costs, and those commodities have seen significant declines of late. Cramer said Hershey is poised for a comeback, with commodity prices plummeting and the company able to push through not one, but two price increases earlier this year. Cramer said sugar, with accounts for 19% of Hershey's costs is down huge in recent weeks. Cocoa, which accounts for 15% of the company's costs, is down 21% since June, and milk, which represents 9% of costs, is expected to decline 5.5% over the next 12 months. With Halloween approaching a new CEO at the helm since 2007, Cramer expects Hershey to have a blowout third quarter against the already lowered estimates. The company has streamlined its supply chain, stepped up advertising, expanded overseas, including in China, and is breaking into the premium chocolate segment, all things that Cramer said makes Hershey's an extra sweet stock play. There’s a nice dividend yield of 3.1% here, too. So investors are being paid to wait for the stock to go up. Cramer figured Hershey is actually at $43 stock masquerading at $38. If the company gets a takeover bid – and despite Hershey’s board saying they wouldn’t accept one, Cramer won’t count it out – that price target could be closer to $45.
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This article has 3 comments:
- ozcutty2
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Oct 07 10:28 PM- Norman Lepoff, M.D.
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Oct 08 10:58 AM- htroute66
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Oct 08 11:56 AM