After this segment, you
can see Jim's Lightning
Round picks
here...
JJC: On this
show in Cramerica, we like
companies that can
reinvent themselves!... At
least as long as there's
something worthwhile to
reinvent...
...and that's exactly what
I think
Bristol-Myers Squibb Co.
(BMY)
looks like right now...
Do you know, I've hated
this stock, ever since I
started this show... I
mean, despised it...
I'm changing right here...
BMY looks like it's
breaking itself up, to
become a pure play drug
company... buy, buy,
buy!... and, when that
happens, it should become
one of the cheapest drug
companies out there... one
that I would definitely
consider buying...
Here's the story...
On Friday, BMY sold its
wound care business,
Convatech, for $4.1
billion. Step one...
People yawned. The stock
was down today... Sorry...
that's stupid...
Step two is the partial
spinoff of Mead Johnson,
BMY's nutritionals... I
want you to think baby
formula business (e.g.,
the Enfamil brand)...
Right now, the plan is to
sell 10-20% of the
nutritionals business in
an IPO... It should bring
in $940 million to $1.9
billion. I think it's
going to be on the high
side; this is going to be
a very hot IPO.
Now, there have been
rumors that BMY wants to
sell the whole division...
There's a lot of
opposition to this from
investors, because of the
cash flow it brings in and
because of the taxes...
BMY would take an outright
sale, I believe... People
don't want it. I do.
People won't be yawning
when it happens...
You see, this IPO is seen
as a compromise. BMY keeps
to keep Mead Johnson, as a
cash cow, even as it
establishes an independent
evaluation for that part
of the company, and gets
the flexibility to sell
off the whole thing, later
on down the line. I
personally wouldn't be a
bit surprised to see a
cash bid for this division
from our friends, Heinz (HNZ)...
which I believe would love
to have it... But I think
the IPO will most likely
place a very high
valuation on Mead Johnson,
and that would boost all
of BMY...
The money from Convatech -
the sale on Friday - and
the Mead Johnson IPO
should give BMY the money
it needs to buy up smaller
pharmaceutical
companies... build a
better pipeline...
diversify out of its
portfolio risk...
So what's BMY look like,
as a pure play on
drugs?...
Well, in three years,
drugs representing half of
BMY's profits, including
Plavix, will go off
patent...
You can look at this two
ways...
It looks like BMY has
three years of great
earnings visibility left
for these drugs, or BMY
has three years to get its
act together, before
things get really bad.
I see these two moves, the
selling of Convatech and
the IPO of Mead Johnson,
as steps BMY is taking to
avert a catastrophic
situation in 2011, where
BMY's biggest drugs go
generic.
BMY can use the money from
these sales to buy up
smaller drug companies,
and round out its drug
portfolio to replace what
it's losing. Oh, and the
Mead Johnson spinoff... In
two years, they'll have to
sell it entirely... good
tax consequences. That
could provide BMY with a
ton of money right before
the patent expirations...
Now, BMY does have other
drugs, that are new ones,
that should help pick up
the slack... In other
words, 2011 isn't the end
of the world... it isn't
the beginning of the
collapse of a great
American drug company...
For example, Reyataz, an
HIV drug, already brought
in around $1.1 billion a
year for BMY, and it isn't
due to lose market
exclusivity until 2017...
BMY's got Sprycel, which
is a chronic myeloid
leukemia drug, that some
analysts think could
become a billon dollar
drug blockbuster... a 2013
expiration...
BMY has Ixempra, a drug
for advanced breast cancer
tumors... $800 million
mark by 2012... Then
there's Orencia... this is
one that I've been
following closely, because
I have friends who have
this... a rhumetoid
arthritis drug that could
reach $1 billion in sales
by 2012, making it another
potential blockbuster...
that one, I think, is
understated...
BMY's got a hepatitis
drug, Baraclude, that
could hit $700 million,
within the next three
years... These are all
real drugs... How about
the diabetes II drugs
they've got...
Saxagliptin... in the
pipeline... phase III data
coming out in June... I
think you want to be in,
ahead of that data... It
could be a $500-600
million drug by 2012...
You see all these drugs by
2012 they have?... The "no
pipeline" rap?... I think
it's unjustified, in light
of that lineup...
To put it this way... and
it's even better than the
fact that some think they
have no pipeline...
Nobody believes anything
BMY says... Any sweet
upside... anything that
does work is going to be
immediately impactful, and
make you money.
Now, tomorrow, BMY is
going to have its annual
meeting, and I think all
of this is going to come
out... The strategy to
deal with its big drugs
going generic... It's
attempts to become more of
a pure play drug maker...
And I also think BMY will
highlight the pipeline...
It's really much, much
better than people
think... Yeah! BMY is
trying to reinvent
itself!...
In addition to what I've
already told you, it's
been slashing costs. I
mean, really getting rid
of a lot of people
there... BMY's got $1.5 in
savings by 2012...
And, of course, there's
BMY's bountiful 5.4%
yield... I regard that as
mouth watering... 11.4x
forward earnings... I
mean, it's ridiculous...
It's got 11.4% long-term
growth rate...
Big dividend... good
growth rate... I think
this is a stock... This is
a stock that could either
go up soon at the meeting
tomorrow... if it is
bullish, and I think it
will be... or go up later.
Hey, you know what?... If
it takes longer, that's
fine with me! BMY's paying
you to wait, with that
mighty dividend... much
better than treasuries!...
. . . .
.
The Bottom Line!: Bristol-Myers Squibb Co.
(BMY)
is transforming itself!...
BMY is becoming more of a
pure play on drugs and I
think it's doing a good
job of dealing with
upcoming patent
expirations in 2011, with
a pipeline that doesn't
get enough love. I think
this one's a buy, ahead of
when another drug company
buys it... or the
company's more positive
fortunes - at last - come
to light...
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Stock Snapshots - Includes
all stocks mentioned above
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Jim
Cramer's
rating on
this stock
STOCK
SYMBOL
Closing
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day
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JJC: We're going
into the "wayback machine"...
way back... taking us all the
way... to try to make some money
off of a tale of two cans... You
see, on the one hand, you've got
a steel can... and, on the other
hand, you've got an aluminum
can...
Historically, when steel gets
too expensive... and, right now,
we're in a moment where steel is
real expensive... companies
switch from steel to aluminum...
It's cheaper and, because we're
in the wayback machine, we
remember it's called,
"substitution"...
The steel companies have been
putting in several price
increases intra-quarter, which
really is pretty amazing... and,
while we've praised
United States Steel Corp.
(X) endlessly
- including 40 points ago...
that was like a month ago...40
points! - we now see that the
cost of aluminum has now gotten
way out of whack with the cost
of steel, and you know what?
This is about as simple a story
as it gets... but, believe me,
it works if you get in at the
right time...
And I think the way to play the
aluminum substitution game is...
AA... another company like
Bristol-Myers
(BMY),
which I have continually
denigrated on this show... but I
am changing my mind...
. . . .
.
AA has about 10.9% of the world
aluminum market... 19.8% of the
alumina market... the actual raw
stuff...
Living in America, we don't
realize the enormous substitution
potential that aluminum has,
because we use aluminum in
virtually almost all of our metal
beverage cans but, in the rest of
the world, metal beverage cans are
split 50/50 between aluminum and
steel...
You've got roughly 25 billion of
these cans in Europe... A lot of
them are still steel and, with
steel prices so high, you'd better
believe they're going to try to
substitute for the cheaper
metal... aluminum. There are
plenty of steel aerosol cans out
there... both places where you can
substitute the cheaper aluminum
too... and this is just the
substitution part of the story...
swapping out of steel for
aluminum, because steel is so
expensive... just one reason to
buy AA.
I've got some others, and I think
they're dynamite...
There are plenty of other reasons
why manufacturers are using more
aluminum...
Automakers, for example, have been
using more aluminum each year,
because it's lightweight... to
save energy. It's a great
aerospace metal for the same
reason.
Also, according to the chairman of
Alumina, an Australian company -
and this is just as of three days
ago - the Chinese are finally,
finally now running short of
aluminum... since high Chinese
inventories have been holding the
price of aluminum back... This is
yet another reason to believe that
aluminum should be going higher,
at last and, therefore, take AA
(higher)...
Let me throw in another thing that
has happened in the last six
weeks...
Power shortages in South Africa...
they are keeping aluminum
production down in that country...
and you've got a great thesis for
aluminum (prices) going up. We
think it can go up faster than its
raw costs... mostly the energy
needed to smelt it... and that's
something we haven't felt could
happen until the Chinese excess
capacity got worked off, and South
Africa's problems starting
hampering production. Those were
the two places that were killing
pricing...
Meanwhile, we know that AA teamed
up with Chinalko... and a 12%
stake with
Rio Tinto (RTP)...
Remember, just again, last week...
we learned that the BHP bid for
RTP is pretty much over. Why
wouldn't
BHP Billiton (BHP)
then turn and buy AA?...
Looking at what RTP paid for
Alcan, the last big aluminum
acquisition... using those
metrics... AA would be worth
anywhere from $50, if you use
sales... We're talking about a big
increase to $50... and $64, if use
measurements that involve cash
flow...
AA could be a $64 stock
masquerading as a $36 stock...
because, with all the
consolidation in the sector, I
just can't think of a reason why
BHP can afford to stay away, now
that it's pretty much failed to
get RTP...
Another thing... People don't
realize that AA has a fantastic
fastener business... think little
screws, okay... They've built this
business up over a 20-year
period... The aerospace business,
which also includes plates for
wing and fuselage skins, and
turbine airfoils... It's
ignored... it's crazy. Now the
fastener business... no one's
wanted to look at it... It's been
on hold because of all the delays
with the
Boeing (BA)
Dreamliner... AA is supplying more
than a million fasteners for a
787. It's their third-highest
revenue plane and, now that it's
finally on schedule, people should
be buying AA off it, darn it...
A monstrous buyback... The company
has 135 million shares left in its
repurchase authorization... 16% of
outstanding shares... The stock is
trading at 10x 2008 earnings...
21% long-term growth rate... 10x
earnings... No wonder people say
this market won't go down... AA's
cheap, even without a takeout...
Okay... Now, what's it doing at
$36? The long-term reputation is
poor... A series of missed
opportunities and missed
quarters... But, now, I think the
only thing keeping it back is
another kind of miss...
mis-perception!
. . . .
.
The Bottom Line!:
When steel prices get as
high as they are now,
companies generally start
substituting aluminum for
steel. It's not in
anybody's numbers... I
read through every single
report on
Alcoa, Inc. (AA)
this weekend... And AA is
the low-multiple
substitution play, in
addition to being a sweet,
juicy... takeover target.
. . . .
.
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Definitions of key phrases
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"Cramerisms":
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trigger' is Jim's phrase for making
the decision at that point to trade -
either to 'buy' or
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Put it behind you.
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stock price come down briefly, as your
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the rest of your position (i.e., total
number of shares you own in that stock).
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or 'doing a 'mon-back' is Jim's
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truck to load up on a stock by buying
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