Friday, 03/28/08
Posted 03/28/08,  11:52 pm ET

(Scroll down to see Jim's comments below)

 
 
Today's date:  Friday, 03/28/08

  Dow Jones: 12,216    - 86
  NASDAQ:   2,261    - 19
  S&P 500:   1,315    - 10
 
 
 
 
 
First Segment
 
 
Opening Segment 1 Title: 'Cramer's Game Plan
  For Next Week'

.  .  .  .  .

Featured Stock(s): Target (TGT)
Wal-Mart (WMT)
Chesapeake Energy Corp. (CHK)
Schering-Plough (SGP*)
Kellogg Co. (K)
Pepsico, Inc. (PEP)
Coca-Cola (KO)
United States Steel Corp. (X)
Potash (POT)
Textron Inc. (TXT)


See Opening Segment 2, below...
 
After this segment, you can see Jim's Lightning Round picks here...



JJC:    Earnings season is unfortunately upon us! I say, "unfortunately" because, for five weeks a quarter, the information comes so fast... the conference calls at such breakneck speed... that all I can give you for a Game Plan is this... where the odds do not favor you at the gaming tables... The most important edge you can have, when owning a stock, is if the company underneath the stock will beat the earnings estimates set by Wall Street...

If there is one iron law out there... it's not the iron law of wages... It's that stocks that beat the estimates tend to go higher!

How can you find them?...

You have to look for trends that might have occurred intra-quarter, because earnings estimates are set when a company reports previously... and that means we're looking for changes between now and the month of January... the last reporting period.

In preparation for this show, I have looked at sector after sector in the S&P 500, to try to find you an earnings edge and, frankly, I am not encouraged!...

I sincerely doubt, because of the mortgage crisis, that any of the major financials... of there, I'm speaking of the banks and the brokers... will be able to report numbers that cause the estimates to be raised...

Consider the best financial that recently reported... Goldman Sachs (GS*)... The company stayed up for a nanosecond... and then suffered a beatdown that still seems to be going on... That's because GS* is a nice house in a neighborhood that needs to be redlined...

Tech is similar! People are kidding themselves about tech. I was on (CNBC) this morning and analyst after analyst came on and told us not to worry...the outlook for tech is great... What are they smoking? What are they drinking?

Other than Apple (AAPL), which has an event... a new phone... a 3G (i.e., third generation) smartphone that comes out at the end of the quarter... I'm talking July... I think we'll be hard-pressed to see any estimate bumps.

Estimate cuts will become a regularity in the next four weeks.

We may have cases like Research In Motion (RIMM) next week, where they can take up guidance, but that could be a time to ring the register, not buy...

Certainly, Intel (INTC) can tell a good story about next quarter, but that's because of problems with Advanced Micro Devices Inc. (AMD)... its principle and zero-sum competitor...

But I have no conviction that any other company can beat numbers... My conviction... my bet... is number cuts across the board.

Machinery... too tied to the endless collapse of the motor stocks... The desire to build cars elsewhere is hurting the machinery stocks.

How about telecommunications?... I love a good yield, but these companies are cutting their rates this quarter, and accelerating their spending, because of their desire to wipe out Sprint Nextel Corp. (S)... and I think AT&T (T) and
Verizon (VZ*) could do that... Or they want to blunt VZ* on the cable side... which Comcast (CMCSA) has to do. I own VZ* for my charitable trust... which I'm proud to say, I've been able to donate $470,000 from last year's winnings. I take nothing...

When in doubt, you go with yield support...



Retail?... An unmitigated disaster. When they're bad, like J. C. Penney (JCP) today... they go down huge. When they're good, like Costco (COST), they don't budge.

I'm flirting with Target (TGT), at $49, because it would be low... Wal-Mart (WMT), on any pullback, is great, because that's where you shop, when you like that hospital emergency room environment... No conviction away from these though...

Restaurants?... Low expectations, but I don't know if those can be beaten... Gasoline is too high.

I'm worried about the minerals. I feel that the group is so hostage to the vicissitudes of China, that I cannot recommend any of them right now... Plus, Alcoa, Inc. (AA)... (bear sound)... should kick off earnings season with a weak number and a guide down, given its heavy use of energy to smelt the metal... Sell, sell, sell...

Even the oil patch may be difficult. Most of the integrateds (i.e., integrated oil stocks) have refinery exposure, and that business has been a nightmare!

The natural gas companies have higher price realizations, but most of them have raised numbers already. I trust only Chesapeake Energy Corp. (CHK) to move up, and that's because of the secondary price yesterday that is giving you a chance to get in at a good price...

Now... Let's get to the good ones. There are only a couple...

Foods and drugs, for instance...

The drug companies have legal experience and a couple of bumps, but they'll all be weak-dollar related, and not earnings related... not product related...

Schering-Plough (SGP*)... a charitable trust name... seems worth trading now... It's under $20, it has the most overseas exposure, weak dollar...

The foods should take their cue from GIS, which reported great numbers this week.

Kellogg Co. (K), Pepsi (PEP) and Coca-Cola (KO) should follow suit, and all of them should either be hedged against higher grain costs, or make it up in solid overseas sales and weak dollar translations... I like all three... three of a kind.

Which leads us to the two groups with the greatest ability to produce earnings surprises... and that's steels and agriculture.

It's supply shortages and no dumping in the U.S.... Our favorite is United States Steel Corp. (X)... We suggest buying weakness, like we had yesterday... and then selling strength, like we had today... But you want to be in there, ahead of the numbers, because they'll trash the estimates...

Agriculture?... We saw Monsanto (MON) up this week. That was a big estimate beat... a pre-announcement. Frankly, the group still reacts to numbers when they're surprising... We're going to get a crop report Monday from the government. I think it will cause momentary weakness... smaller corn plantings. My takeaway is, if that happens, you buy Potash (POT)... the fertilizer company that has the lowest estimates relative to what I think the Street is looking for, and will beat them... Fertilizers, like steels, put through big price increases this quarter. They're determinant of upside surprises.

Pullback? Here's one... Defense contractors... We talked about it earlier this week... The cheapest?
Textron Inc. (TXT). I expect imminently the V-22 to be approved... That will be a great catalyst. It could happen in a fortnight (i.e., within two weeks)...

.  .  .  .  .

The Bottom Line!:      There are only two groups set to beat estimates. We can't be too optimistic about this earnings season. Be careful. Defense - and not just in stocks - is the watchword.


[See Jim's 2nd Opening Segment stock picks below... ]

 

 

 



See all of tonight's stocks' latest quotes on Yahoo! Finance



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Stock Snapshots - Includes all stocks mentioned above

 

 

 

Jim
Cramer's
rating on
this stock

STOCK
SYMBOL

Closing
price
that
day

Opening
price
next
day

Full Company Name/Comments
(see comments above for each)

TGT

49.69

na

Target (TGT)

WMT

52.12

na

Wal-Mart (WMT)

CHK

45.50

na

Chesapeake Energy Corp. (CHK)

SGP*

19.47

na

Schering-Plough (SGP*)

K

52.48

na

Kellogg Co. (K)

PEP

71.56

na

Pepsico, Inc. (PEP)

KO

60.94

na

Coca-Cola (KO)

X

125.69

na

United States Steel Corp. (X)

POT

160.57

na

Potash (POT)

TXT

54.62

na

Textron Inc. (TXT)

 


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Second Segment
 
 
Opening Segment 2 Title: 'Iron Age'

.  .  .  .  .

Featured Stock(s): AMAG Pharmaceuticals, Inc. (AMAG)

See AMAG's official website here.

See the Yahoo! Finance profile for AMAG here.

 
After this segment, you can see Jim's Lightning Round picks here...



JJC:   For Speculation Friday, I've got a biotech stock that I think has huge potential, and the stock is.... AMAG Pharmaceuticals, Inc. (AMAG)... and it deals in iron... unlike Alliant Techsystems Inc. (ATK), which deals in lead, and we talked about yesterday.

AMAG is one of those little biotech stocks that makes a great speculative play, especially if you think about 1990, our last real credit crisis, where the biotech stocks were among the strongest