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Jim Cramer's Mad Money Recap
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Cramer's 'Mad Money' Recap: Finding Opportunity in a Declining Stock Scott Rutt
09/20/12 - 07:25 PM EDT
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NEW YORK ( TheStreet) -- Not all stock sales are created equal, Jim Cramer told "Mad Money" viewers Thursday.
He compared the selling off in two names, railroad Norfolk Southern ( NSC) and home-goods retailer Bed Bath & Beyond ( BBBY). Cramer said that while both of these stocks fell over $6 a share today, it's the job of every good investor to determine if the declines are a buying opportunity or a precursor of bad things to come.
In the case of Norfolk Southern, the company pre-announced that it would miss earnings and miss big. The culprit, a sizable drop off in demand for coal. Cramer said the bulls argue that once cold weather returns, the demand for coal will rebound, but he feels otherwise.
The reality of the situation is President Obama doesn't support dirty coal as a fuel for baseline power generation in our country, Cramer said. With natural gas cleaner and now cheaper, it's likely there won't be any new coal plants built, putting coal into secular decline.
But in the case of Bed Bath & Beyond, the issue is declining same-store sales, which fell from 5% growth to just 3%. Cramer said this retailer should be doing well with housing on the mend. But with a pullback in growth and an ugly chart, many investors are shying away from the company.
So which company can be bought? Cramer said that with coal in secular decline, Norfolk Southern will be a train wreck, pardon the pun, for many years to come. Bed Bath and Beyond, however, has shrewd management that's faced this situation before and prevailed, making today's decline a buying opportunity for smart investors.
Getting in on the Action Investors should always be looking for great long-term stories, Cramer told viewers as he featured Five Below ( FIVE), the teen-oriented discount retailer where everything in the store is less than $5.
Cramer told investors to get in on the Five Below initial public offering back on July 19. Shares came public at $17 a share and since then have doubled, rising 101%. Even if investors weren't able to get in on the IPO, shares are still up a handsome 31% thus far.
Five Below is by no means an inexpensive stock, noted Cramer, as it now trades for 50 times earnings with a 35% growth rate. But the company does have a proven concept and only 226 locations with the opportunity to expand to over 2,000.
Cramer said by comparison, Dollar General ( DG) has 10,000 stores, while Dollar Tree ( DLTR) has 4,300. Using the current valuations for those stocks, Five Below should be worth $4 billion to $5 billion, whereas its current market cap is less than $2 billion.
Cramer cautioned investors not to chase shares of Five Below higher, as the stock has exhibited the peculiar pattern of falling sharply when it reports earnings. He said that as with many momentum stocks, there will be plenty of opportunities to pick up shares on the cheap later on. |
