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tv   Mad Money  CNBC  April 25, 2017 6:00pm-7:01pm EDT

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n now. >> well, that's the thing but and ben affleck. >> i'm melissa lee, thank you so much for watching. see you back here tomorrow. don't my mission is simple. to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere and i promise to help you find it. "mad money" starts now. hey, i'm cramer, welcome to "mad money," welcome to cramerica. other people want to make friends, i just want to make you some money, my job is not just to entertain you, but to educate and teach you. any time we zoom, any time stocks take a real leap, we have to wonder if we have come too far too fast. it's a reasonable assumption,
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especially after a day like today, where the dow roared 232 points. the s&p surged .61 and the nasdaq ended at an all-time high. i think stocks are going higher not because of politics, but because earnings are much better than expected and the alternatives, bonds, gold, real estate seem very expensive to me. still after this extraordinary two-day move, i want to tackle head on the notion that the nasdaq is overheated. because the index blasted through the 6,000 level. and whenever we blast through
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new numbers, it causes instant soul searching. when we took out the 5,000 level, before unceremoniously diving thousands of points and wiping out a whole generation of investors. could that happen again? i'm not going to dodge this conversation, but i will say that you look at the two sets of stock, the nasdaq of 2000, versus the nasdaq 2017. the stocks that took us to 5,000 turned out to be incredibly expensive on an earnings basis, or just plain worthless. the best way to compare stocks on apples to apples basis is to
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match the four multiples of stocks leading the index higher. first let's go back in time. the market leaders back in 2000, microsoft, cisco intel, all still household names. but at the time, microsoft traded at 59, cisco was at 179 times earnings, intel 126 times earnings. these companies unlike so many others in the nasdaq back then still exist, these days microsoft 20 times earnings, intel 29 times earnings, oracle, 16 times earnings, when you consider that the average stock on the s&p 5 money sells for 20 times earnings, these stocks are
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undervalued versus their price back then, they're actually low lower. expensive? how about cheap. of course if like me, you're old enough to remember 2000, you know it seemed like the personal computer and the internet were converging to create a whole new world. in that world, we were all supposed to be on the verge of doing everything online, playing games, buying goods, even watching television, turns out we were a decade early. all the companies that were being formed to take advantage of the web's wonder, subsequently crashed, the infrastructure crashed with it, including all those former leaders. these stocks are all considered value stocks, they're all much cheaper than any consumer packaged goods or major industrial that i follow.
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if you go back to 2000, you'll discover that the only company that was really cheap on earnings back then was worldcom was selling at 20 times their future earnings. despite that exercise, it's real easy to see that some people would worry about the nasdaq getting overheated here, because there are a couple of market leaders that appear to have reached 2000 style valuations that are staring us in the face. and i'm talking about amazon and netflix, amazon is trading at exactly the price to earnings ratio that intel sold for 20 years ago, 106 times earnings. the fourth largest company on the nasdaq reports on thursday,
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and no matter how well amazon does, there's no earnings report that will make this stock look cheap. meanwhile net flex is selling for 230 times net earnings, isn't it doomed to crash? doesn't it have to happen? won't history repeat itself? i'm not so sure. for ages now, this market has given amazon and netflix a pass, these values are not judged by traditional metrics, they're judged another set of standards. i know my charitable trust won't buy them because they're -- granted amazon has the greatest sales momentum of all time i have never seen a company this large grow so fast that's intermarket worth trillions and trillions of dollars world wide. it's so compelling so some
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investors that they're simply willing to wave any of their standards, as they were in the dotcom double of 2000. but there's a big difference. amazon is not a fly by night effort. back in 2000, this company does make billions of dollars, it just chooses to keep spending that money to keep growing faster. and netflix, this is a stock that's all about opportunity. when it just crashed into the chinese market, it's easy to see why it's worth $8. now i don't expect that to happen at least, not any time soon. but there are plenty of money managers who will happily may up now for the possibility that will happen in the future. so we have covered microsoft, amazon, intel, i threw in n netflix to show you the overvalued of the overvalued.
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let's look at apple, that's 14 times net earnings. how about number two, alphabet, parent of google. the stock only sells for 18 times net earnings, and it's got a gigantic cash flow, you're probably sick of hearing how pricey facebook is. when you look at the numbers, the stock is trading at only 21 times next year's earnings, same value as the same stock. comcast, parent company of cnbc is next, it has a large dividend. ed and am again, which is incredibly cheap and then kraft
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heinz, the ketchup company. some might say wait a second, some of these stocks could be wildly overvalued if the global economy turns upside down. but right now they're doing just fine. and they may get even better if president trump can get his repatriation plans through congress. in that case all these numbers would be so darn cheap, we would be wasting our time talking about it. tonight when costco announced a several dollar dividend. even though the nasdaq is up 14% year to date, i refuse to call it overvalued. but compared to many other ares that i have to admit seem al more ricky, one more reason to stay the course in this darn market. andrew, my home state of new jersey, andrew. the great city of hoboken.
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>> man, massively beautiful place. >> caller: i wanted to ask you about son know coe. the retail locations to 7 seven. the catalyst. >> you know, look, they did do that sale, but you're still reaching for that 10% yield and i think that family of companies is too dangerous for me. they have made too many reckless moves, i'm not going there. all right, no, the nasdaq is not overvalued, that doesn't mean you can go on buying spree yet. on "mad money" tonight, it's not just the nasdaq, the dow and the s&p just had their best two-day valley in 2017. with the nasdaq going higher, i'm going off the chart.
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news from both most holdings and cardinal health. i'll tell you if the only things these deals could leave you is soggy cereal. and briggings and stratton is up for the fifth day in a row in stick with cramer. who wants a donut?
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after the second really incredible day in a row, where the average is rocking higher yet again, thanks to some spectacular earnings reports, i think it's worth asking if this move is sustainable. we're going off the charts with the help of mark sebastian, he's a brilliant technician at option
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pit.com. in order to get a better read on the state of the market. specifically, sebastian is our resident expert on the volatility index, which measures the level of volatility that traders are expecting in the near future. it's a proxy for the amount of fear in the marketplace. now as you can imagine, when the averages were higher, the vix tends to go lower, because there's simply less fear, averages wouldn't go up otherwise, by the same token, when the market goes down the vix usually spikes, sebastian says sometimes the best way to measure the strength of the upmove is by looking at the decline in the volatility index. so first of all, take a look at this pair of charts showing the action the s&p 500 and the volatility index over the past
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two years, here you can see a couple of strong rallies in the s&p. every time you see a blue circle that translated into declines in the vix. wherever there's a decline in the s&p 500, the market falls off rapidly. what you're seeing is the relationship between the s&p and the volatility index, makes sense, right? let's zero in on the most recent swing, when the market took off after the election in early november, to show how this relationship really behaves. remember, heading into the vote, it seemed like hillary clinton would win, but when fbi director jim comey released his letter saying he would reopen the investigation just before ele election day, it threw everything into chaos. the market likes certainty, and
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everyone was certain that hillary would win. but the big spike up into the stratosphere, going from 13 to 22 and that's right there. in short, the vix's move up was out of whack with the move down, sebastian would have expected a 5% to 7% decline given the action in the vix. he says we tend to see this kind of behavior your when the market is worried about what might happen, not what is happening. next up, let's zoom in with this pair of charts showing the s&p 5 money and the volatility index over the last nine months. first sebastian points outa when comey news dropped right before the election, the vix pulled from 18 to 13. the vix sold off. in short the vix plummeted about
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50% in less than a month, the s&p rallied like crazy. the fact is this is a great example of the vix forecasting. in other words we're always trying to find something that make you money. this forecasted the move. a lot of people were freaked out. because so many money managers were expecting a clinton win, but if you took your queue from the volatility index, you knew it was time to start buying and you caught the beginning of the phenomenal trump rally. that's sebastian's major lesson from the trump win. a drop in the volatility index signals an up swings in the s&p. going back to early last month, heading into the first round of the french election this weekend, we knew that worldwide markets were terrified by the possibility that only hard
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liners would make it to the runoff, meaning we get to a nightmare scenario, where france might have to choose between the ultrafar right le pen, and the ultra far left marcon. you can see the big surginging, as investors once again worried about what might happen, even if it was in another country on the other side of the atlantic. of course, when the centrist ce macron came on, not only is the s&p roared higher, but the vix has plummeted. it's gone from 14.5 friday,
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okay, down to 10.5 as of today. which is an incredibly low level. look at this, we haven't seen that -- this is really amazingly low. yet sebastian points out the s&p 500 has only rallied about 5.6% since the close of business on friday. looking through the prism of the last rally when the vix plummeted, sebastian says this run has a lot more room to reason. not only does he see the nasdaq making a new all-time high, based on the action of the vix, he easily sees the s&p traveling to 2450 before it runs out of steam. in other words it is a clarion call to buy. sebastian suggests that the s&p has more room to run. i don't want to get too carried away, because chasing stocks can
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be a high risk activity. if you're already in, what this says is stay the course, much more "mad money." while everybody's been focusing on earnings, let's not forget there's another powerful force in this market, i'll reveal what it is just ahead. and after a spectacular rise over the past few stays, i'm talking to the briggs and stratton ceo. are these earnings surprisings for real? i'll reveal, stick with cramer. hey you've gotta see this. c'mon. no. alright, see you down there. mmm, fine. okay, what do we got? okay, watch this. do the thing we talked about. what do we say? it's going to be great. watch. remember what we were just saying? go irish! see that? yes! i'm gonna just go back to doing what i was doing.
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fueling this newly resurgent bull market, and i'm talking about takeovers. we have seen some nice deals in the last few months. i think we're being totally lost in the shuffle, we learned about them a week ago, but money managers were worried about the big french election, which turned out to be nothing, nothing at all when it happened on sunday. last tuesday, post holdings, the iconic american cereal company that's whiting wheatavix. and po but the market didn't particularly like what it heard from either company, post stock barely budged at this news, cardinal dropped on news of this announcement, causing the stock to lose 11% on that slash n a single session. it's like all they did was break some hearts with numbers and
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nobody gave a darn about anything else. here's the thing, though, i think there's a lot to like with both these deals, these are stocks could actually be worthying about buying because the rest of the market is leaving it in the dust. i get the sense that wall street is really underestimating these two potential acquisitions. for those of you who don't know post holdings, is the third largest cereal maker in the united states. great grains, grape nuts, raisin bran, it's not just cereal, post also makes some egg and potato products and premium protein and power bar. they make knockoff peanut butter. how about cardinal health?
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cardinal is a major distributor for drugs and medical supplies. in recent years, the wholesale drug distribution business had had a hard time because the space has gotten supercompetitive. and cardinal health has some products but the growth of that division has been anemic. post and cardinal health have one thing in common, they're not getting enough credit with how they're trying to change their stripes. wheat avetix. it's the second largest cell in the uk. it's not just the united kingdom. now post expects that this
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wheatabix deal will -- like i told you before, the market didn't seem to care about this transaction when it found out about it last week. this has the potential to be a truly transformational deal for post. why? because wheatabix will globalize this kind of domestic company's business. right now post gets 90% of its sales from the u.s., the remaining 7% comes from canada. and wheatabix will expand into europe and china. granted post says it only sells 20 million pounds worth of synergies, the combined companies should be able to generate amount of these costs. more important, once the deal closes, most will be able to
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sell wheatabix in the united states. and let's not forget, post knows what its doing when it comes to acquisiti acquisitions, the company bought mom brands, and while management initially forecasted synergies at 15.5%, it ultimately just came in at just under 10%. upod, which i think is going to happen with this wheatabix deal. let's talk about cardinal health. remember, investors with respect focused at all on cardinal's $6.1 million business on deep vein thrombosis because in the same day, the slash was ugly. yet the update was bad news. but i think it caused the market to gloss over this very positive acquisition. cardinal cut its full year
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earnings forecast, in this drug wholesale business. mkt cut their earnings growth target for 2018, saying they expect earnings to be down. but that's in the stock. that weakness is the reason why this medtronic deal should be a game changer by giving card natural's assets to boost by 21% per share. and by 201, cardinal believes it's share will be boosted by 55 cents. medtronic will help cardinal health continue to diversify away from that lousy drug short fall. for years cardinal's been trying to broaden it's portfolio, and as of today it's one of a small share of pharmaceuticals that can -- these medtronic assets
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give the company much more exposure to the emergency rooms, nursing stations, critical care facilities. plus cardinal already has a huge distribution network to help sell the stuff. more important buying these things from medtronic, makes it a one-stop shop for all of hospital needs. and we know it's going to give the earnings a major boost, maybe we'll pay a higher price multiple for the stock. now i know these companies aren't perfect, far from it, cardinal is a troubled industry. but long-term, i think these two stories just got a heck of a lot more compelling than the market seems to realize. let's go to bailey in maryland. bailey?
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>> caller: hey, jim cramer, i'm from berlin, maryland. i would like to give a shoutout to my finance teacher mr. mark, and i would like to know about the nike stock. >> i hope he uses one of my books in his class, because we gave him a shoutout. nike is resting and waiting for the next quarter and if we don't get some positive news, it doesn't have a lot of down side, so it's got to, i like that risk profile, of very little down side and maybe 10% up side. let's go to josh in nevada, josh? >> caller: hey, jim, i'm calling from las vegas, i'm a big fan of yours. i want to ask you your thoughts about boeing, ba, i'm fairly new to this, is this a good company to invest in for the long-term?
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>> i think the earnings report will be good, i think boeing is a fantastic long-term story, because it's got orders out 10 years, so few companies have that long a visibility for their business, i like boeing, and on weakness, i would be a buyer of the stock. takeovers can take your portfolio higher, when it comes to cardinal held and most holdings, these mergers make things a lot more interesting, but nobody cared. spring is here, i'm starting any gard gardening, consumers demand for lawn mowers fuel briggs and stratton higher? could the cooler than normal weather dampen the company's prospects? you know i love surprises.
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i'm crunching the numbers. stick with cramer.
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maintaining the beauty of
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america, to keep our fields green and our waves of grain amber. is there a company with the scale and the drive to make it in america? briggs and stratton thinks there is. here's a puzzle, what the heck is going on with briggs and stratton? bgg, the maker of gasoline engines for outdoor power equipment like generators mowers and sod cutters. here's a company that seemingly reported okay, maybe not fabulous earnings last thursday, but the stock has been on fire ever since. they rallied more today, the darn thing seems unstoppable. but when you look at the headline numbers that the company just reported, it doesn't look all that impress e impressive. as for the four-year guidance for 2017, why is the stock been soaring, hitting a new
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three-year high today? was it just a relief rally because briggs & stratton is -- for example the gross margin, what it makes after the cost of goods sold increased by 150 basis points, the company rolled out a bunch of new products and if we have a decent gardening season and we're right on the cusp of it, briggs & stratton will clean up. todd, the ceo of briggs & stratton. it's been an incredible move because of a terrific move into higher margin engines, or is it because we have begun to see signs that lawn and garden equipment are beginning to increase or is it a mix of both? >> really what you're seeing is the execution of our strategy over the last few years, we have been able to reposition our portfolio, where we have got a
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great franchise in our residential business, but then we also have the opportunity now in some of the commercial markets, which perhaps you go back six, seven year, we didn't have the same opportunity, so it's things like commercial engines and things like that, so you're seeing that margin lift, which really comes back to a lot of innovation in the last several years, both on the residential side and now it's coming in on the commercial side too. >> isn't this what i regard as a larger trade, our homes are growing in value, we want to be able to take care of them better, we want to power wash them, we want to invest in our homes, not just expense them. and briggs and stratton, not unlike mask crow is part of what we regard as a new form of investment. >> if you think about the housing market over the last few years and we are expose to
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housing especially on the residential side but you have had this buy fur indication where you'll have commercial cutters, so you'll have commercial equipment to cut the grass and that kind of facility. while at the same time, you've got the residential side, where the starter step up homes haven't been nearly as robust as the high end, and now what i think we're starting to see, is the fact that we have got starter and step up homes where there's a lot of demand out there but not that much supply, as we look at our residential business, as we look forward, we see the opportunities as that part of the market continues to grow, or will kind of take hold, if you will. >> you go into a commercial, there's so much of a white space, is that what all this innovation could allow you to take more share of it from? >> that's how we look at it. so if you think about the
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commercial markets, they generally have been growing at about two times gdp, and we expect that to continue. at the same time we have the opportunity to take share as well. and that's where the innovation comes into play. and we think about it as customer insight, user driven problem solving, and for the commercial users, it really comes back to efficiency and up time, so if you look at the innovations we have come out with in the last year or two, we have a mower that can go 500 hours between maintenance intervals versus the normal 100 hours, that means better up time, better productive for the commercial cutter. so you'll see us try to penetrate more of that market. >> this morning we got this news that there's going to be a tariff on soft wood coming from canada, we know that the federal government is very, very adamant that there's dumping of steel. a lot of the raw materials you can't afford necessarily to have all these prices go up just
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because the white house wants to protect jobs, at what point will rising steel prices because of tariffs hurt your business. >> it's really hard to say at this point, because all this tariffs discussion is still in the early stages, obviously we keep a very close eye on raw material cost, but at the same time it comes back to really giving the market what it wants. so to the extents that we have some head winds as it relates to commodities or other things, we continue to look for ways to create tail winds through innovation and other things we can do to grab market share in commercial markets. >> you've got great plants all over the country, but are we prodeucing enough workers for you? >> 85% of what we make is here in the u.s. and the reason high we have been able to remain very competitive in the u.s., is things like automation, we have more robots in one -- i and
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other ceos have been out there talking a lot got the fact that we need people who can run ro t robots, program robots and it's a big issue, one that we have been able to figure out how to bring people in and train them up so we have our own development programs, but at the same time, there's more that we need to do as a country, because the skills gap is only going to get worse. if in fact some of the administration policies start to take hold. >> last question, it seems to rain every day, i'm incredibly conscious as a gardner, that i have got to be concerned about the weather, how much have you been able to take the weather out of the equation and how much do i have to look to the weather to worry about your long-term sales? >> if you look at our strategy execution in the last few years is to get into markets that aren't weather related. if you think about the almanac
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position that we did a few years ago, it gets us into rental and that sort of thing, but yes, we are going to be exposed to weather especially on the residential side of our business, but we have a strategy that allows us to be less reliant on the weather overall. >> the ceo of briggs & stratton, thank you so much sir, good to see you. >> thanks, jim. >> this is the tipping point quarter where they're obviously less involved and worried about the weather, you should be les worried about the weather too if you like this stock. we, the entertainment-loving people, want all our rooms to be tv rooms. because those are the best rooms.
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because they have tvs in them. and when we're not in those rooms? we want our shows to go with us. anywhere? you got that right, kid show thing. get a directv all included package in four rooms and on your favorite devices for $25 a month when you have the new at&t unlimited plus plan.
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it is time, it's time for "the lightning round." [ buzzer ] and then "the lightning round" is over. question start with connor in nebraska. connor? >> caller: boo-yah, jim, i would
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like your thoughts on bank of america. >> bank of america was up in the top four, why? because the economy is better than expected and bank of america does incredibly well perhaps the best of all banks when we get fed rate hikes and i think we'll get two of them, that's why i sabaning of america. let's go to michael in nevada. >> caller: boo-yah jim. looking at a company that might be doing a prototype for the apple car, and it looks like a good stock value play. >> you don't want to buy for that, no matter what, because that's way too far in advance, and autonomous diving is owned by google. i think magnum is too cheap to sell and everything related to autos is stall, but i'm not going to tell you to sell it. vulcan in pennsylvania.
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>> caller: hi, jim. thanks for taking my call, i love your show. i was calling to ask you about sage. >> this central nervous system, they believe they have got something, here's my feeling on all the central nervous system and traumatic brain injury stocks, if you want to speculate, it's a great area to speculate because there's so little to help you, if they have something, it will be huge, if they don't, though, understand. >> caller: i have heard you talk a lot got ivc, but what about ilg. >> ilg, wyn, and vac, what you just mentioned, are all good stocks, i have overlooked ilg, i am bad, i agree with you, it's a
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good situation. let's go to john in new york, john. >> caller: hey, jim, sprint, buy, hold or sell? >> last night we have john legere and he had good things to say about sprint. i want to own sprint. and that ladies and gentlemen is the conclusion of "the lightning round." connecting our brains so we can share our amazing trading knowledge. that's a great idea, but why don't you just go to thinkorswim's chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders? i know. your brain told my brain before you told my face. mmm, blueberry? tap into the knowledge of other traders on thinkorswim. only at td ameritrade.
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when you first see the kind of stunning numbers we got today, all you can do is shake your head, focus your eyes, catch your breath and pinch yourself to make sure it's real, not some kind of bizarre stock market dream. i'm talking about the gigantic upside surprises we got from not one, not two, but three dow jones industrial average components today, caterpillar, dupont and mcdonald's. how good were these quarters? when caterpillar's numbers first flashed, i thought, no way they can earn a 1.28, they were just worth 62 cents. caterpillar -- goldman-sachs went from the biggest bear on this stock to the biggest bull.
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but even gold man didn't think that -- caterpillar has what's known as enormous leverage, and in this case i don't mean debt with the ability to muscle somebody else, cat has operating leverage on a scale that can generate large profits. it's backlog was up big, allowing management to raise its full year-out look from $2.95 up to $3.75. and given how low -- i believe there will be many more upside surprises ahead, i think caterpillar stock has got a lot more room to run. as for dupont, the turn around mastered by ceo ed green continues. here's another head shaker. the company earned $1.64 per share, much better than the 69
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cents the market anticipated. in all the years i have followed it, we're kind of used to seeing dupont merely meeting the numbers, maybe exceeding bring a penny or two. it's all about being able to charge more and have better sales, known as organic growth, which was up a surprising 5%. dupont's got so many things going for it, from the wildly strong agricultural number to fantastic materials pricing, plastics that go into things like televisions, phones and personal commuters to computing. plus, green's far from done, dupont is going to merge with dow chemical, a deal that should close by august, and that will brark the combined company up into three separate entities. if you own either stock, it's a
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terrific situation to hit, even with the stock up 3.5% today. finally there's the real stunner, and you know i love this guy, you heard me talk about him all the time. i'm talking about mcdonald's, steve easterbrook, the stock was in the 90s, did it again today, easterbrook delivered sales growth, mcdonald's earned $1.47. people were looking for $1.33. at first i thought this report had to be powered by some sort of one-time gain, artificial, because you just don't see a large capitalization company like this doing this much better than already repeatedly raised estimates. but again the strength is real. how did easterbrook do it? one thing's for certain, this isn't about all-day breakfast anymore, i'm tired of hearing about it, this was about management execution, this is about getting the company to buy into a plan to lower prices and
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better technology. easterbrook has talked be ethereal concepts, meaning that when the franchisees feel the momentum, they hire and train more, they make the place for spiffy, they want to be part of a big momentum chachb. you think it's all about cutting prices on sodas, giving people better late night deals. but whatever it is, the stock is up $1.47 gain. we're so used to what i call manufactured earnings beats, beating by a penny more than expected, dealing with smoke and mirrors and buy backlecbacks. these are remarkable numbers, ones to be applauded and they serve as a reminder that in an expensive market, maybe it's a
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lot cheaper than you think, maybe it's a lot cheaper than it looks when you break down the component parts and look at the astounding results that companies like caterpillar, dupont and mcdonald's are reporting right now. stick with cramer. will your business be ready when growth presents itself? american express open cards can help you take on a new job, or fill a big order
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