Avery Dennison has a lot more room to run.
Don’t give up on Blue Apron yet.
Wait for a pullback in Southwest Airlines before buying.
Stocks discussed on the in-depth session of Jim Cramer’s Mad Money TV Program, Thursday, July 6.
Though Thursday was a normal day in the market, Cramer thinks investors should never stop worrying about their stocks. He gave a list of six concerns underlying the current market:
- North Korea: Whichever way the issue is resolved, it will not be good for the market.
- Competition: There is lot of competition in various industries which makes it difficult for investors to pay a premium for stocks.
- Amazon Prime Day: July 11th is the infamous Amazon (NASDAQ:AMZN) Prime Day which will be big for them. “After that day we’re going to hear that sales were probably up 20% versus last year’s Amazon Prime, so the day we get the results, every other retailer out there is going to take a header. We’ve got to get past that day,” said Cramer.
- Dividend stocks: Some of the high-yielding dividend stocks like Verizon (NYSE:VZ) and General Electric (NYSE:GE) are hitting 52-week lows. Where can investors go for safety?
- Washington: Congress has few working days left in the year and not many reforms have been done. “The only thing coming from Washington is rate hikes from the Fed and potential bond sales, which is only good news for you if you’re a bank CEO. Bad for everyone else,” he added.
- Less deals: The market seems to have lost interest in M&A. “The fact is, without more deals, this market lacks a natural defense against the bears. There is no penalty whatsoever to being short right now, even being short Tesla (NASDAQ:TSLA), the ultimate bear slayer, and that’s worrisome,” said Cramer.
Preparing for the worst is the best game.
Avery Dennison (NYSE:AVY)
Avery Dennison is a lesser known maker of labeling and packaging materials and solutions. Its stock is up 27% for the year but it has not had enough limelight. Despite this the company’s products are everywhere, be it adhesive materials, coatings, and labeling and packaging products like graphic imaging or RFT tags the helps companies manage inventory.
They are not dependent on the retail sector solely and derive 42% of the revenue from non-durable consumer goods, like the labels, tags and packaging. They have presence in healthcare and industrial space as well in the form of tamper-proof containers and heat resistant films.
They are a steady company with 4-5% revenue growth and 17% earnings growth. They are shareholder friendly with their 2% dividend yield and stock buyback. They are growing organically via acquisitions. It trades at 17.5 times earnings which is cheap compared to the peers. “Avery Dennison may not be sexy, but it’s one of the kind of unsung heroes that no one talks about. They just don’t. I feel good about the norm of the market, since this company is the definition of normal — the regular American Joe stock that’s worth investing in any day of the week,” concluded Cramer.
Blue Apron (NYSE:APRN)
Blue Apron was one of the most anticipated IPOs of 2017. Just when things looked good for the meal delivery service, what went wrong with it? Cramer answers the question.
The stock has fallen 20% below the IPO price. The company is more than a delivery service which gathers data to predict what the customers will buy next. Its direct-to-consumer model allows them to make more money and give deals to consumers. The company’s financials were strong with 133% revenue growth in the last year along with gross margin growth.
However, in 2017, the revenue growth slowed and gross margins declined. “For ages, this company’s fabulous margins were what made it stand out from traditional grocers, where the margins are razor-thin and continue to be pressured by ruinous competition every day. Yet now, Blue Apron’s margins are getting worse, too, and we’ve got to wonder if they may have peaked last year when they were 33%,” said Cramer.
The competition from other services is eating up into company’s margins and market share. Apart from that, as the company expands, their costs increase too. Their EBITDA is lower compared to last two years. “It’s unsustainable. As long as its costs keep rising faster than its sales, it’s hard to see how Blue Apron can become profitable, but if they cut back on their spending? Jeez, then the competition might steamroll them,” he added.
In this case, the problems are not with the IPO market, but with the grocery space as Amazon acquired Whole Foods. “Here’s the bottom line: don’t freak out about Blue Apron. This is a company that came public too late, too late to cash in on the period of insane growth. I’m concerned about what Blue Apron’s first quarter out of the gate as a public company might look like, so my advice to you here is to stay on the sidelines for now and be patient. Maybe they can get the problems under control and you can swoop in at a lower level. Maybe,” concluded Cramer.
Off the tape
Cramer went off the tape to review privately held Netcapital. It has created a solution that helps early stage companies raise funds. He interviewed founder and CEO Jason Frishman to know more.
“There’s lots of different options for early-stage company financing, but it’s really hard. And so what we do is we allow you to raise money from anybody. Not just the general partners in Boston, New York and San Francisco, where 80% of venture capital is invested, but from your friends, from your family, from your customers, from your fans, from your followers. We’re really turning this on its head and making it so that you can leverage the power of your popularity to accomplish your fundraising goals,” said Frishman.
They are like a PE firm that broadens the fund raising efforts for new companies. “You can invest between $100 and $100,000 right now from the comfort of your couch. You can go to Netcapital.com, you can invest in anything from a drone company to a Pokémon-Go-style mobile game company to a family fun park to a virtual reality company. They’re non-accredited investors, for the first time ever,” he added.
The era of the small company IPO is dead according to Frishman. “Netcapital solves that problem, and there are really two things that we have to do. No. 1 is we have to generate access — we have to allow you to get access to these hot new deals or exciting, innovative ideas that entrepreneurs have. And then No. 2 is we have to lower that minimum investment down so you can invest $99,” said Frishman.
Anyone can get involved in the early-stage asset class. The company is not looking for its own IPO soon, but they have more room to run.
Viewer calls taken by Cramer
Exxon Mobil (NYSE:XOM): It’s a well-run company with a good balance sheet that will protect its dividend. Things are not as dire for Exxon as they are for companies with a poor balance sheet.
Southwest (NYSE:LUV): Cramer’s trust owns a big position in the stock, and it’s run up a lot to be bought at current levels.
Advanced Micro Devices (NASDAQ:AMD): Don’t chase it. Wait for a pullback before buying.
Hain Celestial (NASDAQ:HAIN): People think Amazon will crush this company. However, Amazon is its biggest customer.
Kroger (NYSE:KR): It will never have the P/E before Amazon got in.