Tuesday, 05/27/08
Posted 05/27/08,  8:43 pm ET

(Scroll down to see Jim's comments below)

 
 
Today's date:  Tuesday, 05/27/08

  Dow Jones: 12,548  +  68
  NASDAQ:   2,481  +  36
  S&P 500:   1,385   +  9
 
 
 
 
 
First Segment
 
Opening Segment 1 Title: 'Smooth Operator'

.  .  .  .  .

Featured Stock(s): Kaydon Corporation (KDN)

See KDN's official website here.

See the Yahoo! Finance profile for KDN here.



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

        
JJC:    Every good law-abiding citizen of Cramerica knows that our favorite source of renewable energy... the one that's the cheapest... the one that's been making companies money right now... is the mighty wind!... Wind power... yes, wind power...

It may be the best form of renewable energy... something we have to care about, even if oil is down $3 bucks from $130 (cost per barrel)...

Wind... 4 cents a kilowatt... cheaper by half than the next alternative... clean as a whistle, even if it does whistle pretty loudly... So great, in fact, that I've declared 2009 the year of wind! Just like 2008 is indeed turning out to be the year of natural gas... But, unlike natural gas, where we've got so many (stock plays)... where we've got the Apache Corp. (APA)... where we've got the Anadarko Petroleum (APC)... we've got the Chesapeake Energy Corp. (CHK), we've got the Southwestern Energy Co. (SWN)... No. There are very, very few pure wind plays...

So, we have to get creative, and find companies where the wind business is hidden inside of something else... stealth wind plays, if you will...

Today, we've got one of the great stealth plays left in my universe... Actually, it's the last one I have left...

The last great wind play in my series on wind is... Are you ready, skee-daddy?...

Kaydon Corporation (KDN)!

On the face of it, KDN is boring manufacturing, okay... It manufactures bearings... anti-friction bearings, split-roller bearings... along with shock absorbers, gas springs, rotary dampers, engine rings, filtration systems...

Yeah, you're yawning about these systems, right... unless you're a "new tech" aficionado... like Cramer, who recognizes the value of bearings that reduce friction... When you reduce friction, you increase efficiency for the manufacturers who are actually trying to solve the world's problems, and making money doing it... Real world problems!...

In that case, anti-friction bearings shouldn't be putting you to sleep... No... I don't want to hear this, when I hear anti-friction bearings (sound of a heart monitor, going flat-line)... I want to hear this (all aboard! sound)... Just in case you conked out when I was talking about bearings, let me give you a little wake-up call...

KDN is the market leader for wind power bearings... It's got 50% market share...

I bet you never even thought about a wind bearings play but, wherever there's motion... bearings will be there. And, when that motion comes from the turning of a windmill, KDN's the company to go to...

In 2007, KDN's wind-related sales came to $35 million. I know, I know... Only 8% of the company's total revenues last year... But, by 2009, wind is expected to grow to 20% of KDN's sales... that's $108.2 million in two years...

In two years, KDN's wind business is expected to triple... Can you believe that? We've got to get in ahead of that, don't we?... And this is based on a bunch of what I think are low-ball sales estimates that I am pretty sure the company can easily exceed.

Already, wind makes up almost half of KDN's $320 million backlog... That's terrific.

Now, because KDN had been investing in, and expanding, its wind capacity, its margins had been held back. It's not making as much money as it should yet. I think that overhang should be lifted, as the volume of wind sales picks up... and we know that's the case... because the single-biggest issue with wind is we don't have enough turbines!...

KDN reminds me of Trinity Industries Inc. (TRN), another stealth wind stock...

TRN makes railcars... Nobody cared about its wind tower business... until we mentioned it on the show, and then, a week later, it blew away earnings, thanks to its wind division... The stock has yet to look back from when we liked it...

Then we had Owens Corning (OC)...

Another one that hasn't looked back, reminiscent of KDN... a company that everyone thinks of as an insulation play levered to housing... I would look at it as an emergent wind play, as it makes the heavy-duty flexible composite materials needed for new windmills that have wingspans often as large as a Boeing 747... and need the sturdy materials only OC can provide, in order to capture wind energy... You have no idea how hot these windmills can get. You need special fibers.

Or how about Thomas & Betts (TNB)?... A lot of wind-related hardware there... And Emerson (EMR), a classic "new tech" play, which makes the components for the turbines, among others, including Siemens (SI) and General Electric (GE), parent company of this network... You split open a turbine... out tumbles EMR... And don't forget Woodward Governor (WGOV)... kindred to EMR... but back to the stock at hand...

While we wait for KDN's wind business to pick up - and I don't think we'll be waiting very long, frankly - I don't think we have the worry about the rest of the company. It's selling bearings and other friction and velocity control products... "new tech"... with some great end markets.

At KDN, 50% of sales are coming from automation... heavy industrial mobile equipment, defense, aerospace, power generation... This company's making the nuts and bolts of all that "new tech" needs, that I've talked about endlessly on this show, and will continue to do so...

This company's exposure to residential construction and autos in North America is less than 10%, so you don't have to worry... you don't have to sweat...

I mean, you've got to contrast that with another company I really like, but I have not recommended... That's ball bearing maker, Timken (TKR), which has a good wind business, but way too much automotive exposure for my taste.

KDN... shareholder friendly... a buyback of epic proportions... 4.1 million shares are left in its repurchase authorization... That comes to around 14.8% of the company's total shares...

I think one of the reasons why the stock has hung in there - it's only a point below its 52-week high - is that it's been bolstering the stock, and its boisterous buyback... but also because, while it looks expensive, I think it can go much higher...

It's only trading at 19x expected earnings. Oh... 19x... You think that's high? No. Remember, it's versus growth rate... and it's got 14.5% long-term growth rate... And I think these earnings numbers are low. I don't think they take into account just how strong wind will be for KDN.

The analysts that are covering... they're all kind of from these obscure firms and I've got to tell you something... As soon as wind catches their attention, I think the stock's in for one wild ride higher...
 

.  .  .  .  .

The Bottom Line!:      For a great stealth play on wind, I think you should stick
                                   with Kaydon Corporation (KDN).

.  .  .  .  .

 

   
 

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)


KDN

59.11

60.90

Kaydon Corporation (KDN)


 

 

 



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Second Segment
 
 
Opening Segment 2 Title: 'Generation SPX'

.  .  .  .  .

Featured Stock(s): SPX Corporation (SPW)

See SPW's official website here.

See the Yahoo! Finance profile for SPW here.

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

 

JJC:    "New tech" versus "old tech"...

On this show, I have been going on and on about the difference between the two... perhaps ad infinitum... or, perhaps, ad naseum...

And, today, we got a great demonstration of why I should keep talking... Hey, let's go to page B5 of a much better Wall Street Journal than it used to be... The title of the article is... "Graphics Chips Reshape the Battlefield"... Sorry... It's about how Intel (INTC), NVIDIA (NVDA) and Advanced Micro Devices (AMD) - all "old tech" to the bone - are in, and I quote - "a bruising battle over chips that draw the animated landscapes in computer games"...

Wow... I wonder how much energy INTC's saving with this initiative...

While these "old tech" companies work to better virtual landscapes, may I ask a plaintive question?... What are they doing to improve crop yields on real landscapes?... How about designing chips that protect real U.S. soldiers, or give them better equipment to see the people who are trying to kill them?... instead of making chips that give us more detailed renderings of Nazis in "Call Of Duty"...

Even the "old tech" stalwarts seem to be figuring out that the day of "new tech" has dawned!... There was a great article in this week's Barron's about how "old tech" was feeling stale at the Churchill Club's 10th annual top 10 tech trends dinner... This is a dinner for all the big... tech investors, and Barron's - which gave us a nice shout out for our "new tech" rant, as they called it... pretty much agreed with our conclusion that there was no real innovation going on in Silicon Valley anymore...

Today, I want to give you a company that may very well be the apotheosis of new technology... "new tech" being the companies that are innovating to solve the biggest problems facing humanity...

A week ago, I gave you a list of what I, and Dr. Smalley from Rice University, think are the top 10 of these problems... and the stock I'm about to reveal seems to address almost all of them... and the company is...

SPX Corporation (SPW)!

.  .  .  .  .


Right off the bat, let me give you a taste of SPW's "new tech" credentials...

It makes better valves used in the newest lines of nuclear reactors... clean energy... and crystal growers for solar power!... How's that for solving the global energy crisis?...

Back on May 19th, SPW had a conference... This is a must-read slide show... where they laid their key external drivers... six of them... and every single one was one of the big issues of the day that "new tech" companies are trying to solve, while "old tech" companies systematically ignore!

.  .  .  .  .


This company has four divisions...

Flow Technology... moving water around. It doesn't sound sexy, but check out FLS... It hit a new 52-week high again today. This is one of the hottest areas in the market right now...

SPW's Flow Technology business sells pumps, valves, filters and dehydration equipment to the sanitary, food and beverage, pharmaceutical, oil and gas and, most importantly, power generation markets. This is total "new tech"... solving the global food crisis...

SPW's pumps move liquids at food processing plants, control temperatures, and mix ingredients in ways that reduce food spoilage all over the world... solving famine... This company has found a cleaner way to make our foods, drinks and medicines.

.  .  .  .  .


The second part... its Test and Measurements Division...

It makes diagnostic tools, collection systems, portable cable, pipe locators, vibration testers... telecom, defense, transportation, utility markets...

Third business... thermal equipment. This is all about power. They make cooling systems and thermal components for power generation plants. They also sell the HVAC (i.e., heating, ventilation, and air-conditioning) refrigeration and industrial markets.

Notice the trend so far... All these different pieces of SPW have some part that's serving the power generation market... and that trend holds up in SPW's fourth division... Industrial Products and Services...

Here, the company sells power transformers, through its Waukesha Electric subsidiaries... to electric utilities. Transformers are a huge story... much bigger than semiconductors...

There's a once-a-generation transformer replacement cycle coming on... The last major one was in the '70s, 30 years ago... Well, guess what? Electric transformers start to fail around 30 years in. And, right now, the average age of the transformers out there is between 25 and 40 years. They're getting old.

With its market share, SPW should see a nice jump... get this... $22 trillion that needs to be spent worldwide on energy infrastructure to keep it reliable...

SPW... It's not a 3G (cellular phone) replacement cycle... It's not (Microsoft operating system) Vista 2.0... It's a critical struggle to give the world enough power just to support civilization. 

.  .  .  .  .


I need you to ask yourself something...

Which is more important? Computer-aided design for Transformers, the movie, or transformers that help transmit more efficiently, thereby saving energy. We need these guys.

.  .  .  .  .

The Bottom Line!:      I think SPX Corporation (SPW) is the ultimate Cramer "new tech" play...  but, no matter how much replacement work it does to save energy...  no matter how much it helps worldwide to generate clean nuclear power... no matter how much it helps to have food for the masses...  this company simply will not help you win Guitar Hero 3, when "Barracuda" by Heart, comes on.  Your loss!  Civilization's gain!

.  .  .  .  .

 

   
 

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)


SPW

122.94

125.91

SPX Corporation (SPW)

         

 

 

Go to the LIGHTNING ROUND from tonight's show here >>

See current quotes on Yahoo! Finance from tonight's show stocks here >>

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Back up the truck - indicated by Jim, when he says the stock is so good, that he would do a 'mon-back' on the stock... In other words, this is the sound someone would say to a truck driver, "Come on back... " as he is "backing up the truck" to load up on his cargo.  Translation for buying stocks:  This recommendation by Jim indicates that, after you do your own homework on the stock, you should feel comfortable loading up on it, as it is in a good position to be bought at this point.

Stumped. - Of the 2,000+ stocks that Jim Cramer has in his head, for which he has an informed opinion, he sometimes comes across a caller with a stock he does not know well enough to opine on...  He then indicates he is stumped and will have to come back to it, after he does some homework of his own on the stock.  This usually occurs during the Lightning Round, when Jim does not know in advance who is calling, or what their stock question is about.
 

 
Definitions of key phrases used by Jim, known as "Cramerisms":

Definition:   'Pull the trigger' is Jim's phrase for making the decision at that point to trade - either to 'buy' or to 'sell' (although he usually uses the phrase for buying), as if to say you should feel comfortable enough to make the final decision without looking back...

Definition:   'Ring the Register' is Jim's phrase for selling a stock, and making it a final sale, that you should not look back on.  Put it behind you.

Definition:  'Let It Come In' indicates how you may wait for it to pull back, or have the stock price come down briefly, as your chance (after letting it come in) to buy the rest of your position (i.e., total number of shares you own in that stock).

Definition:  'backing it up' or 'doing a 'mon-back' is Jim's phrase for the metaphor of backing up a truck to load up on a stock by buying it.  'Mon-back is short for the imaginary worker saying, 'Come on back...' as the truck is backing up to receive its load... Notice that we use the little truck icon to indicate where Jim has mentioned this.  Translation for buying stocks:  This recommendation by Jim indicates that, after you do your own homework on the stock, you should feel comfortable loading up on it, as it is in a good position to be bought at this point.
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