Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Monday, October 20.
Jim Cramer is taking things one day at a time despite the market's 413-point rally today. He believes Excelon's bid to purchase NRG Energy, at a 37% premium from Friday's close was positive news that the market is near a bottom. He encouraged NRG's CEO, David Crane, to accept the gracious offer. Cramer drove his point home by adding three new CEO's to his "Wall of Shame" list of the worst executives. They included Straus Zelnick, of Take Two, Oleg Khaykin, of International Rectifier, and John Lauer, of Diebold, all of whom rejected gracious takeover bids only to watch their stock price plummet afterward. International Rectifier received a takeover bid on Aug. 15 for $22.15 a share and rejected it, despite closing the previous day at $18.82 a share. The stock currently trades at just over $14. Take Two received a bid from rival Electronic Arts on Feb. 26 at a 64% premium to its share price. That offer too was rejected. Take Two now trades at roughly half that value. Finally, Diebold rejected a takeover bid it received on March 2 from United Technologies for a $40 a share, a 65% premium to its share price. That stock now trades at $28 a share. Cramer said the Excelon-NRG bid tells us two things. First, companies are starting to see value in their rivals, and second, "when you get a bid, you say yes!"
Collateral Damage – Linn Energy (LINE)
Cramer wanted to find out why shares of Linn Energy have been hit especially hard since his Oct. 2 recommendation of the company. He talked with Linn chairman and CEO Michael Linn to get to the bottom of the situation. Cramer cited Linn Energy as an example of collateral damage from the forced liquidation of Lehman Brothers, probably one of the biggest blunders in the financial crisis. Linn confirmed that the failed Lehman Brothers was the company's largest shareholder, and that when the brokerage collapsed, large blocks of Linn stock were liquidated at record speeds. While the failure took its toll on the share price, Linn said, it did not affect the company's operations, and all of its hedged production was re-hedged with other banks. Linn said that Lehman still owes the company $68 million, but does not see that amount affecting operations, or the company's 17% dividend yield. Cramer said the case of Linn is a perfect example of a broken stock and not a broken company. He said he likes the company as a capital preservation stock, with its $100 million buyback and its high-yielding dividend.
With oil dropping from $147 to just $75 a barrel, Cramer continued his hunt for stocks that benefit from falling crude prices. He said obvious choices such as Tupperware just don't work, since any savings from low cost resin is offset by lower sales in a weak economy. But there is one stock that Cramer said he'd be a buyer of. That's medical supply company Becton Dickinson, which not only benefits from lower oil prices, but also shines bright in a weakening economy. Becton Dickenson makes medical equipment from syringes and needles to infection systems and lab analyzers, just the type of equipment hospitals need regardless of record declines on the Dow. He called the company a sister stock of his other favorite oil play Kimberly Clark. Becton Dickinson is a solid performer, growing at 12% to 15% a year. Sixty-five percent of the company's sales come from markets where it is the No. 1 or No. 2 player. Additionally, 35% to 40% of Becton's sales are derived from needles, syringes and infection-control products, all highly recession-proof items. Cramer said Becton has been hurt by a large hedge fund short position, which has been betting on the price of resin, which represents 7% of its raw costs, to remain high. But with only three to five months of resin inventory in stock, Cramer said lower resin prices should start hitting the company's bottom line in early 2009. Becton currently trades at just 14.4 times next year's earnings, a lower multiple than its historical level of 16 to 24 times. With a 13% long term growth rate, Cramer said Becton Dickinson is cheap, and could fetch as much at $89 a share, or a 23% premium. Becton Dickenson reports it’s fiscal fourth quarter on Nov. 5. And Cramer expects good numbers from that report – the company’s beaten earnings every quarter for over a year.
Cramer said that he cannot recommend Psychiatric Solutions based on a new bill that Congress recently passed. Cramer said he foresees too many rocky quarters for the company before the bill takes effect.
Cramer likes Quanta Services, a stock which he owns for his charitable trust
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