Sometimes Wall Street lacks the rigor that Cramer applies to his stock picking. Traders, analysts, hedge funds – they’ll often loop in one stock with a sector peer even though the two businesses are separate. In the end, they miss out on a great opportunity.
Cramer, however, does not. And when he picks up on a stock that most on Wall Street overlook, that opportunity becomes yours. Case in point: Alberto-Culver.
ACV makes shampoo and skin-care products. You might recognize their brands: TRESemme, Nexxus, VO5, St. Ives and Noxzema. Well, this stock lost 10% after sector semi-rival Helen of Troymissed its second-quarter estimates back on Oct. 8. We said “semi” because only part of HELE’s product portfolio overlaps with Alberto-Culver, and that’s the minute detail the Street overlooked.
Helen of Troy gets more than half its sales from discretionary personal appliances – hot-air brushes, home hair clippers, paraffin baths, massage cushions and the like – and this is the segment behind the missed quarter. But the segment HELE shares with Alberto-Culver actually increased by almost 6%. And while that segment accounts for just 12% of Helen of Troy, shampoo and skin care are 95% of Alberto-Culver’s business.
Management at Helen of Troy said de-stocking and private-label competition (generics) would cause problems, and the Street jumped all over Alberto-Culver for it. Again, a quick glance at the details would have shown anyone who cared enough to look that the de-stocking was in hair irons and blow dryers – products ACV doesn’t make – and that the private-label competition was in salons. ACV doesn’t sell its salon-quality items in salons, only retail outlets, so that’s not a problem.
Cramer likes Alberto-Culver because its brands are bought regardless of how bad the economy gets. People will always wash their hair (or so we hope). Plus, with the price of oil so much lower than it had been, the company saves on raw costs. All the plastic bottles that hold ACV’s shampoos and lotions are made from resin, an oil-based product that’s much cheaper now. If the company was able to increase its gross margins in the third quarter when prices were up – something Clorox, Kimberly-Clark, Procter & Gamble and Estee Lauder weren’t able to do – then there’s a good chance Monday’s fourth-quarter report could be better than expected.
Add to all these Cramer accolades the fact that Alberto-Culver’s brands have been performing well. The company’s increased sales revenue without raising prices, and the newly bought Noxzema (from P&G) should boost growth at a time when most companies would die for it. The company’s also consolidating manufacturing into a new plant near Wal-Mart, which accounts for 20% of sales, in Arkansas, and there’s $3 a share in cash here and no virtually debt.
Cramer’s requirements for buying stocks in this market, if they don’t have big yields to offer investors: The companies should be able to make their earnings estimates during a recession. The market should have knocked them down unreasonably. And there has to be some catalyst (like cheaper oil) to make next year better than this one. He thinks Alberto-Culver qualifies on all three.
Jim's charitable trust owns Procter & Gamble.
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