Trade Down Play - Cramer's Mad Money (10/15/08)

Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Wednesday, October 15.

No Need to Fear

After a day in which Dow Jones Industrial Average plunged 733 points for the second biggest drop in the index's history, Jim Cramer told viewers that they don’t need to be "as fearful this time around." Cramer said the markets are "ever-so-slightly" better off now than they were just a week ago. He said the markets last week thought the entire banking system was going under, but they know that's not the case this week with the Treasury's rescue plan in place. This fact alone, he assured, should make today's retesting of last week's lows a little less scary.

Forget Earnings

Cramer told viewers to forget about earnings estimates, which he said can no longer be trusted, and stick with high dividend-paying stocks. "Investing in non-dividend paying stocks is just a leap of faith," he said, noting that only the size and safety of a company's dividend matters in this volatile market. Cramer also advised viewers not to purchase their stocks all at once. Instead he said they should follow the strategies in his book Real Money and scale into positions over time, buying on weakness. "A good dividend pays you to wait," said Cramer, adding that is exactly what investors need to do in a scary market where the selling isn't likely to be over. Don’t buy it if you can’t “eat it, drink it, smoke it or medicate with it.”

Trade Down - Family Dollar (FDO), Dollar Tree (DLTR)

In tough economic times, Cramer said the smart money is on the "trade-down" plays. These are companies people turn to in order to save money. But he noted in the battle of the dollar-store chains, only one can emerge victorious. Cramer said by all accounts, Dollar Tree, with its better metrics, should be the obvious choice, but there's a problem: The company is just too loved by Wall Street. “The good news is baked into Dollar Tree.” That's why Cramer is recommending Family Dollar as the dollar store chain to own. Cramer believes Family Dollar, while not the better company, is the better value and the better stock. He said Family Dollar outperformed rival Dollar Tree handsomely in the last recession between 2000 and 2002. Family Dollar “kicked butt” the last time around. And since the company is not trumpeted on Wall Street, Cramer said there's a lot of room for analyst upgrades as the economy worsens. Cramer said Family Dollar is improving its product mix to include more items that people need, like food, as opposed to other items they merely want. Family Dollar also now accepts food stamps and is adding credit card payments to all of its 6,500 locations. A similar move at Dollar Tree saw an average ticket increase from $6 to $16. Cramer also noted that Family Dollar is acting responsibly by suspending its stock repurchase program to preserve cash and reducing its inventory. He said the company last reported its earnings on Oct. 3, beating estimates by 4 cents a share. Family Dollar is already bigger now it needs to be better.

Am I Diversified?

Portfolio One:

1. Citigroup (C)
2. Flotek (FTK)
   
3. Dendreon (DNDN)
   
4. Chesapeake Energy (CHK)
   
5. Yamana Gold (AUY)

Cramer said Flotek and Chesapeake are both in the oil patch, and one of them needs to be sold to be diversified.

Portfolio Two:

1. Exxon Mobil (XOM)
2. General Electric (GE)
   
3. Dupont (DD)
   
4. Altria (MO)
   
5. Clean Energy (CLNE)

Cramer said he loved this portfolio. The caller has got it right.

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Comments

[MarvinMBA:]

This is a good time to be out of the market. If you are not out already, the market is going to TAKE YOU OUT as the real economy and its negative outlook come into play....so take you choice...out yourself or be taken out as we go to under 5000.....MarvinMBA

2008 Oct 16 12:37 AM

[Socialism c...:]

@User 118015 (Marvin): if you are not already out, you are hurt by GOING out. Losses are only on paper until you sell. You must have some big short positions! I'm not helping you with those. You claim to have an MBA? Yet you sit here telling us we are heading under 5000? Noone knows...don't claim to.

2008 Oct 16 11:05 AM

[cynic69:]

Wait a minute. Are you taking advice from Cramer? Isn't he the guy that called the bottom a month ago, right before the big crash? I guess I would be a little worried about taking advice from a guy with a record like that.

2008 Oct 16 12:35 PM

[Pessimistic...:]

If you got out about a month ago good for you. If you rode the 1000 point down coaster bottom feeding will have a whole different meaning to it. If you are still in, you must have cold liquid steel in your veins. I have graduated to that position of loosing one third of my retirement savings in a 457. I will not need it for 7 to 10 down thew road but geze.. tough pill to swallow. I guess my saving grace was averaging down.
Now we segway to Cramer. He does that and I can see the methods to his madness. I have been doing that for 25 years not really thinking about it. Buying on the cheap isn't all bad. No money lost as I haven't pulled any. I suppose another 8 to 10 year before I need it will not hurt.
I continually hear about the bottom Cramer called. Looks like he was wrong.He owned it. But he also called 8000. I know because I pulled out of my hobby stocks prior to the poleaxing. I said it before and I will say it again, I am glad he is there.
By the way, did you see him with Boone today? Pretty cool. Oretty funny too. To bad it wasn't under a different situation. Boone has a great sense of humor. He is a General. Some of you hope Cramer goes off the air. If Boone goes to Washington with his march, Cramer stated he would take that day off Mad Money and march with the masses. So haters cross your fingers for that day. You could get your wish for one day.
Get Warren on there and I think you have three of the most influencial men in the stock market. I know there are some others but that is a good start. Oh and while we were mentioning the bottom, I have also heard many others call a bottom but they are never mentioned. Just Cramer. Why is that? Does it have anything do do with the fact that he is the most visible, in your face realist the stock market has going for it? I like the guy. I will not follow every move he makes or says to make but he has taught me a great deal about and for that I appreciate him.

2008 Oct 16 08:52 PM

[old guy:]

WOW A MBA AM I IMPRESSED!!! IT IS BACK TO SCHOOL FOR YOU !!!

2008 Oct 17 12:33 AM

[option_trader:]

How about putting ND (like most of the others here in the midwest) after the MBA suffix.......then, along with your vanity plates on your car, it will match the 5+ line legend on your email legend. The good news, is that most of these MBA - "email-only" positions are getting squeezed, as bad / overleveraged business models are being taken out..........FINALLY!!

All the synergistic, collaborative, cross-functioning TEAMS don't seem to be working collectively across all aspects of the multifaceted corporations. (did I use enough superlatives to get my MBA?)

DNDN has been a great $$ generator for 6+ months, by simply selling covered call and naked puts at the strike price of $5. It should move too far for a few more months, when trail results get reported.

2008 Nov 12 02:42 PM