Cisco or Sysco?
Networking-equipment giant Cisco and food services provider Sysco might have similar-sounding names, but on Monday's "Mad Money," Cramer only recommended one of them.
Cramer grew tired of Cisco Systems on Nov. 10 when it reported its second disappointing quarter in a row. CEO John Chambers, who had developed a reputation for credibility, was mistakenly upbeat heading into the quarter. The company said it saw weakness in three of its business segments accounting for 30 percent of total revenues—the public sector business that sells to state and local governments, its cable business that makes set-top boxes and lastly, Europe.
On Thursday, Cisco announced it will add another $10 billion to the $4.5 billion it has left in its buyback plan. Cramer views the buyback plan as an apology, of sorts, but he wants nothing to do with it. He thinks it will "squander loads of cash" without creating any real value. He also thinks this stock lacks the momentum necessary to turnaround any time soon.
While Cramer has become disdainful for CSCO, he has developed an appetite for food-services provider Sysco . The Houston-based company markets and distributes a range of food and related products to restaurants, hospitals, schools and hotels. It sports a 3.6-percent dividend yield and has raised its dividend every year for the last four decades.
Lately, Sysco has benefited from an uptick in how often people eat out. Same-store sales at middle-market casual dining chains have been up for four consecutive months. As a result, many restaurant stocks are at or flirting with 52-week highs, including Yum! Brands (KFC, Taco Bell and Pizza Hut), DineEquity (IHOP and Applebee’s), McDonald’s , Panera Bread , Chipotle and Darden .
In particular, Darden’s same store-sales numbers have been very strong. It's largest chain, the Olive Garden, is up 2.7-percent year-over-year. At DineEquity, Applebee’s same-store sales turned positive for the first time since the beginning of 2008, up 2.7 percent for the first 11 weeks of the third quarter.
Cramer noted that Sysco’s also the largest player in the highly fragmented US food distribution business. It boasts a 17-percent market share, which is more than its next five closest competitors combined. This business, he said, should also take off soon.
When Sysco reported its most recent quarter on Nov. 8, it slightly missed on earnings. Sales rose by 7.4 percent, however, and it revealed that strong case volume growth was higher across all regions—the largest improvement in volumes since the second quarter of 2007.
Volumes should only continue to increase, Cramer said, because higher restaurant traffic creates more demand for food. He isn't worried about weaker margins courtesy of pricing concessions, as Sysco’s gotten huge volume boosts out of those concessions in most cases. Food-cost inflation doesn't concern him either, given that roughly half of Sysco’s business is based on contracts that automatically pass inflation through to its customers.
With the stock at less than two and a half points off its 52-week low and selling for just 13.6 times earnings, Cramer thinks SYY is cheap considering its long-term growth rate of more than 10 percent, a 3.6% yield and its long history of raising its dividend.
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