PepsiCo Stumped The Street – Cramer's Mad Money (7/10/18)

Stocks discussed on the in-depth session of Jim Cramer’s Mad Money TV Program, Tuesday, July 10.

As earnings season kicked off, PepsiCo (NYSE:PEP) surprised the street with strong earnings. Recently, consumer packaged goods stocks, including Pepsi, had attracted short sellers, who were betting on their instant decline. “Instead, they heard the two words short sellers fear most: ‘sequential improvement,’ as in each month was better than the previous one during the quarter and the improvement’s continued into this new quarter, which is benefiting from a heat wave,” said Cramer.

With 2.6% organic growth they beat the street expectations of 2.2%. Frito-Lays brands core growth was 5%. Cramer praised CEO Indra Nooyi for her work. “Nooyi has built a company to last, attracting the best and brightest to her business. She’s true to her word, although there’s one community that’s been left behind: the analyst community, part of which is now in tatters after they called for a shortfall and instead got these blockbuster, better-than-expected numbers,” said Cramer.

He is happy that the expectations for Pepsi were muted which led to the stock jumping on the good earnings beat. He also expects the estimates to rise for the rest of the year. Cramer said he has been a believer in the company for years and does not bet against CEO Indra Nooyi as she keeps reinventing the company with their latest better-for-you products.

Off the charts

Cramer went back to the charts with the help of technician Tim Collins to review Allergan (NYSE:AGN) which has been losing. Cramer’s trust sold the stock recently and he called it one of their biggest losses.

The stock has fallen from $250 last summer to $142 this spring and the weekly chart has not been good. Collins thinks Allergan just needed a little time to iron the wrinkles out, a Botox-like injection to smooth out the path for the bulls to follow. He thinks the charts are looking pretty and are showing some bullish signs.

2018 shows a different pattern for the stock. The stock’s floor of support has stayed the same between $140-150, its ceiling of resistance changed. It has broken two ceilings of resistance in recent weeks. “From these levels, he believes Allergan has a clear path higher for at least the next 10 points — so we could get to $186 without much difficulty,” said Cramer.

If the stock breaks that level, the stock could easily run to $200. The 10-week moving average has crossed over the 20-week moving average, which is a bullish crossover. The stock’s trend may be changing to bullish.

“I think we need to be skeptical because this is a situation where I think the charts may possibly disagree with the fundamentals. I see some major competitive threats to its main drug, Botox, and I’m concerned that it’s got real risks as we get closer to its major patent expirations. The charts, as interpreted by Tim Collins, suggest that Allergan may be ready to roar here. I think the fundamentals tell you to be a little bit skeptical,” said Cramer.

Jack Henry & Associates (NASDAQ:JKHY)

Cramer did his homework on Jack Henry & Associates as he was stumped by a caller. He was astonished to find out about the stock as he did his homework. Jack Henry has run 172% in the last five years and is up 11.3% in the last three months.

Fintech has been heating up lately and this stock is at the center of it. The company helps credit unions automate their transactions and manage mission critical information for them. They support 1,900 financial institutions. The company has been taking market share from its rivals thanks to the company’s investment in R&D which comes up with new products from time-to-time.

They invest about 10-14% of their revenue in R&D. As the street is hesitant to own banks, the fintech stocks are getting popular. Cramer thinks a resurgence of the banks could derail the growth in Jack Henry and hence he suggested waiting for the big banks to report on Friday before buying the stock.

CEO interview – Core Labs (NYSE:CLB)

Core Labs celebrated its 20-year listing on the NYSE. Cramer interviewed chairman and CEO David Demshur to hear his take on oil.

The supply shortage in oil is seeing no signs of going away. If the world demand for oil isn’t met, oil could skyrocket to dangerous levels. “If you look at domestic activity here in the U.S., it’s fabulous. All of our operations here in the U.S. are doing great. Internationally, year over year, activity level’s only up 1%. This gives me great concern about what crude oil prices are going to do over the next couple or three years,” said Demshur.

In the last 23 years, the demand for oil has grown by 1% each year. However, in the last three years, the demand has grown by 1.5% each year and low production in oil rich countries like Mexico and Venezuela are impacting the world’s crude supply chains. “Right now, we are seeing a big uptick in the amount of crude oil being used. My fear, Jim, is that when we go to later this year into next year and 2020, we see $100-plus crude oil again,” added Demshur.

Core Labs is a technology-focused oilfield service player that helps companies drill more for less. They are performing well for players like Exxon which is drilling in more innovative ways. Even then, Demshur is worried that oil production in the U.S. would not be able to meet global demand.

“We’re also seeing sharp declines in West Africa, Angola leading the pack there with Nigeria. So as we look around the globe, you’ve got to ask yourself, over the next couple or three years, where is that supply going to come from? Alright, we’re going to have some supply come from the U.S., but if we look around the globe, it’s going to be very limited. I see higher crude prices in the future for sure,” concluded Demshur.

Viewer calls taken by Cramer

O’Reilly Automotive (NASDAQ:ORLY): It has had a good run. Cramer prefers AutoZone (NYSE:AZO).

Tyson Foods (NYSE:TSN): Their last quarter was not good. There are others in good shape and hence he cannot recommend a buy.

Accenture (NYSE:ACN): The long-term situation is terrific. Buy half now and half when it goes lower.

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