Cramer: How to Beat the Earnings-Season Blues
Want to eliminate the stress of finding firms strong enough to top analysts’ estimates? Then buy the companies that already pre-announced better-than-expected numbers.
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“These are the closest things we have to certain winners because no company pre-announces unless it knows it’s going to do even better in the future,” Cramer said. “And you definitely don’t pre-announce to the upside if you think you’re going to disappoint later on.”
That’s why Cramer likes Covidien , a health-care stock that’s not just immunized against President Obama’s reforms, but might even benefit from them. The company announced better-than-expected guidance on Sept. 10, so a good report is likely when earnings are finally released on Nov. 17.
Covidien operates in three areas – medical devices, medical supplies and pharmaceuticals – parts of which speak directly to Obama’s intended goals: preventative care and cost savings. The company’s diagnostic products help keep people out of the hospital, while the minimally invasive surgical machines help people leave the hospital faster. If the White House wants improved efficiencies, then this seems to be the company to deliver them.
But there is some downside exposure to Obamacare, specifically to the tax on medical devices introduced as part of Senator Max Baucus’ bill. Like a lot of government impositions, though, Cramer expects Covidien’s customers to suck this one up. Regardless, Goldman Sachs reported that only 10% of the company’s earnings would be affected, so this could be “one of the safest health-care plays, or at least safest from Washington, that’s out there,” Cramer said.
A few other points of note regarding Covidien: The company is making smart acquisitions, most recently through the purchase of Aspect Medical Systems, and at the same time unloading less profitable divisions. Also, a first-line pain treatment called PeNSAID should serve to grab patients early in the treatment cycle. And the Food & Drug Administration could bless a new pain medicine as early as next month, making a nice potential catalyst for the stock.
Covidien is trading at a discount to its peers, even after the punishment leveled on the entire group by Obamacare. That’s an unusual place for COV, considering it’s best of breed and once fetched a 29% premium to the market, going for $57 a share in September 2008. If the stock were given the same valuation now – meaning, if health-care reform wasn’t an issue – Covidien would be worth $58.92, almost 40% more than Wednesday’s closing price.
“Either way, as soon as this health-care debate ends, I think these stocks are all going to fly,” Cramer said. “So you need a chit in this game, and the chit is Covidien.”
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