March 28, 2006
Tonights Show:Bird Flu may drive pork profits
When they stop selling knockoffs your product, you are in trouble
Do you have Natural Gas?
and the Lightning Round
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You want to try to make some money off the coming bird
flu pandemic? You've got to stop thinking about drugs like
and you've got to start thinking about livestock.
See, you already can't eat beef because of mad cow disease and cholesterol. That's one animal that's already off the table.
"Cramer be looking cool. These my friends are Oakleys (OO), and these things play mp3.
I'm wearing these things because summer's coming, and that means you have to take a look at OO!
OO is not a great play on summer; they're not going to have an upside surprise because the analysts didn't realize ahead of time that people buy sunglasses during the summer.
Oh, and I don't care about the mp3 sunglasses; they actually didn't sell that well. I'm just trying to get your attention by looking funny, and giving this stock a seasonal plug.
I don't even like OO because it's supposed to have a trendy product. Frankly, their product hasn't been trendy for years.
"I Like to buy momentum when it can make me money. But I also like to buy value when it can make me money.
I, frankly, only believe in what's working.
So let me set up a great value play for you.
Natural gas, other than today, has been cratering all qtr. I don't think anybody believes in natural gas anymore.
Now, we're about to finish up a qtr. Where portfolio managers want to show that they own Hansen (HANS) and intuitive surgical (ISRG). They don't want to own these stocks so, in order to buy the JDSU and ISRG, cnxt kind of complex - the winners - they need to free up cash. And I bet they do it by practically giving away their natural gas stocks."
with the bird flu coming, you can't eat chicken either. Who
knows? Chicken could be off limits soon. No
beef! No chicken!
Hmmm. That means you need to be thinking of the other white meat; it means you should be thinking about pork!
And when pigs are the only animals left that don't have some horrible disease that renders them inedible, you know what we'll be doing then.
We'll be in a Smithfield foods (SFD) era!
SFD is absolutely best of breed in the pork industry; the co.'s very well run. The stock has not had any kind of speculative run from the bird flu - that's just stupid!
I think that's going to change. I think you should get into SFD before the pandemic gets here.
Now, this stock is not just capitalizing on the suffering of chickens. They're also feasting on the still-warm remains of con Agra (CAG) - which I might add is perhaps the worst-run food co. In the world.
You see, CAG really screwed up its balance sheet. They cut their dividend and they desperately need cash or they'll flatline. Paddles, clear, con Agra! So, it's been selling off some good divisions for a lot less than they're worth.
CAG - I would have called it an 'idiot company,' and it's giving some great gifts to SFD, so you can try to make money right here by buying SFD.
SFD already bought cook's ham from CAG. And CAG has two more divisions for sale that I think SFD could pick up for a song.
One of them being the delicious butterball turkey. This could happen at any time and it would be an instant catalyst, because CAG really needs to dump these things pronto.
The next time SFD gets to gobble up a division or two of CAG's, the stock should jump, because they'll probably be getting these divisions at a steep firesale discount. Again, tremendous pin action off of CAG's problems.
Let's reiterate. SFD is the best pork play. We like pork because it's the other white meat, and the bird flu is coming!
At the same time, SFD should be able to snap up some of the best bits of CAG, now that it's cannibalizing itself to stay afloat!
Bottom line: Buy SFD. The other white meat - pork. That's for me. It may not be kosher; it may make you money! Smithfield foods!
|I think OO may
have become so untrendy that people aren't even selling
knock off Oakleys on the street, next to the fake Rolexes,
anymore. I was in Chinatown and I didn't see a pair of
knock-off Oakleys anywhere.
This isn't an interesting play. I just think it's something smart. I think it's a smart stock to buy.
The real reasons I think you should own OO are incredibly, mind-numbingly boring.
I try to make things interesting on mad money - I try - but sometimes it's impossible.
I think this thing is going to go up significantly when their new management team takes care of some extraordinarily boring accounting problems that are forcing the co. To restate its earnings from 2000 to 2004.
People are lumping this in with general motors... wrong!
Let's just say that they had this not-very-severe accounting problem that they announced earlier in the month. All the problems were under the old management. They've been swept away.
The new team is great and when the restatement of these earnings happens, it should jump the stock.
Right now, there are investors - conservative ones - who want to be in OO, but they're waiting to pull the trigger because of this accounting nonsense. I think that's smart, prudent.
But, after you do your homework, I consider OO a safe buy ahead of their restatement, so you can capitalize on the probable spike when they put this stuff behind them, and they will!
So, other than the accounting, why are there investors who want in on this thing?
Well, their sales to the army - up 40% year over year. Apparently Oakleys are really good at reducing the glare from improvised explosive devices (IEDS) and rocket-propelled grenades(RPG). Good pin action off the military.
Oh, that's still hardly a good reason to buy the stock, especially when they reported bad 4th qtr. And '06 guidance wasn't too hot.
But let me give you just one scrutiny. You'll see that this year's earnings are being hurt by a very smart restructuring that should lead to OO having a much bigger retail presence.
They operate 149 stores, and they plan to open 40 more across this great country, so they can sell their product directly to consumers.
The co's targeting 10% annual revenue growth. This is how they're going to get there. Now, my guy - he thinks they're going to blow out the numbers in 2007. Yeah, he's looking for a 'mon-back right here. He's calling for a dollar of earnings per share, compared to analysts' consensus of 88 cents.
If they pull off this retail strategy, I think that he will be more right than the analysts are.
I've got another reason and this is the reason why I actually came to do this stock. This is the reason why I think it’s a bull and not a bear.
I think it's the CEO and the chairman who have been doing hand over fist buying of the stock in the open market. The chairman owns like a ton of stock and he's still buying.
If there's one thing we love on mad money, it's insider buying! Holy cow! We love it!
So, the bottom line!: you want to try to make some boring money? Then you need to buy some Oakleys (OO)!
they have to play this stupid game to attract investors, so I don't
blame them for being dumb. But blame isn't the issue.
They will knock down these natural gas stocks so you can buy them cheaper. Remember, I like anything that can make you some mad money.
But why do we want natural gas when it's been sucking' lately? It's called 'Contango!'
'Dance the contango'
It's when commodity prices are a lot higher further out in the future than they are right now. Where forward prices exceed spot prices (the opposite of Backwardation).
Whenever the natural gas contango is steep - whenever prices, say 12 months out, are a whole lot higher than next month's prices, you should get a huge rally in the stocks of natural gas!
Natural gas stocks should rally when future prices are a lot higher a year out than they are a month out. That's the thing. That's the way to play contango.
Right now, 12 month out natural gas has a 49% premium to the current year month contract. 49% higher. That 'contango' is the steepest I have ever see, and I have been in this business way too long.
There have been 10 times in the last decade when the contango has exceeded 20% and, guess what? Every time it's happened, the exploration and production (E&P) index has had a 19% return. You know what that compares to? 1% for the S&P. Man, that is veritable house of pleasure territory; it's a pattern worth banking on.
Remember, we're looking for value right now. I think you should be in the cheapest gas stocks that could make you the most money, because the contango is happening.
The cheapest ones right now: first is cimarex (XEC). Second is Houston exploration (THX). I think they be giving away THX. Arena resources(SRD), carrizo (CRZO), and finally energy partners (EPL).
I want to recommend all five of these stocks, because finally, you're able to buy low and sell high; it's a rarity. Remember, we like to buy high and sell higher.
EPL, just last night, just announced a big dry hole, so that one is really on sale. A lot of bad news in it, people crying about it.
All right, if you just have to pick one, I would go with Houston exploration, THX. I guess they should have sold themselves. They didn't do it, maybe they will do it next time.
I think any one of the integrateds could buy one of these co.s; they all represent great takeover targets. Particularly for BP plc (BP), or for Royal Dutch Shell (RDS-B).
Recent sale: Vintage got taken out at about 20x earnings - those are the compares.
Right now, XEC trades at 9x next year's earnings. Thx at 11x; ard at 8x; CRZO doesn't work; EPL at 12x. I think any of these stocks can be taken out at a serious premium.
So, how about a little bottom line action?: these natural gas stocks are cheap. They should get cheaper when the portfolio managers dump them. And then they should have a big run up because of my friend contango!
XEC, THX ARD, CRZO and EPL, but especially EPL!