Fickle money managers often present the rest of us with great buying opportunities. A company’s earnings might not meet Wall Street’s expectations, or maybe a firm refused to raise guidance, and that’s enough to send a stock tumbling. Something similar happened with Panera Bread just this week, as that top performer lost almost $4 on Wednesday despite reporting a 39% profit jump.
Scotts Miracle-Gro, the world’s largest supplier and marketer of consumer products for do-it-yourself lawn and garden care, took a similar hit after fiscal second-quarter earnings actually beat consensus estimates. The problem, though, was that the company guided its full-year 2009 earnings forecast to the upper half of its previous range – Wall Street wanted guidance raised outlook. As a result, the stock has slipped 12% since.
But that’s your opportunity. Cramer likes SMG as a play on Americans’ increasing love of gardening – 43 million households are expected to grow their own fruits, vegetables, berries and herbs this year, a 19% jump from 2008. They’ll get their supplies from Scotts Miracle-Gro.
More importantly, though, business is already good at SMG, for a number of reasons. Sales growth played a big part in this week’s earnings beat. The company finally has been able to cap its commodity costs by locking in 85% of its corn, diesel, resin and other product needs at low prices. And Home Depot and Lowe’s account for 46% of sales. If housing bottoms June 30, as Cramer predicts it will, then both stores – and SMG – should see more business.
Cramer said he expects improvement in the company’s weakest division, its global professional business, during the second half of the year, and a better currency translation by then as well. That should make up for the 5 cents in earnings that SMG lost in the first half of the fiscal year because of the strong dollar.
The stock trades at 14 times earnings, making it well worthy of a Friday speculation play, Cramer said. Especially considering that those commodity costs are now down and gardening’s popularity in the U.S. is on its way up. Of course, the final decision is yours. So do some homework over the weekend and then decide if you want to buy when the market opens Monday.
Cramer’s charitable trust owns Home Depot.
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