Cramer's Mad Money - Marathon's Addition by Subtraction (10/31/08)

by: Miriam Metzinger

Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Friday October 31.

Over There: Verizon (NYSE:VZ), Nucor (NYSE:NUE), KBR (NYSE:KBR), Alberto-Culver (NYSE:ACV-OLD), Procter & Gamble (NYSE:PG)

 With bank bailouts, a 1% interest rate cut and plans to aid insurers, the U.S. government has done all it can do in the current economic crisis, according to Cramer. To consolidate the gains made in the recent rally and to prevent a further decline, Europe’s Central bank and China need to follow suit and cut rates. These countries are facing economic crises similar to ours, but are making the same mistake Bernanke made a year ago in blaming inflation, Cramer said. Although China has already cut rates to 6.66%, it can  reduce rates further. Until Europe and China wake up, Cramer would continue investing in dividend stocks such as Verizon, Nucor, KBR and Alberto-Culver.
Thrilling Drilling: Boardwalk Pipeline Partners (NYSE:BWP)

Moving on to dividend stocks, Cramer discussed Boardwalk Pipeline Partners, a master limited partnership that operates two gas pipelines. MLPs are required to pay out their cash flow in tax deferred dividends, and BWP currently yields 8.25% and is expected to increase its yield to 9%. If the stock price falls, the dividend will only increase further. Since MLPs can be complicated, Cramer suggests investors talk to their tax advisors to ensure they are deriving the full benefits. BWP’s dividend is secure given the $1 billion investment from the Tisch family and three expansion projects which are expected to help double the company’s revenue by 2012. 

 Addition by Subtraction: Marathon Oil (NYSE:MRO)

Marathon announced a potential breakup on its earnings call, and Cramer says the sum of the company’s parts is greater than the whole. The combination of a refinery and production and exploration business is “too complicated” for The Street, and a split will be profitable; while at $29,  MRO is 50% down from its high, its refinery business alone would be worth $20-$24 and the exploration and production business may range from $49-$73. Both business have concrete plans for expansion, but even if Marathon doesn’t break up, the stock is down so far that an upside is on the horizon, and the company might be taken over. In any scenario, investors can sit back and enjoy the 3.6% dividend while waiting for Marathon to make its move.

Mad Mail
Viewers wanted Cramer to comment on market trends, and Cramer said the next big shoe to drop is private equity; “deals done between 2006 and 2007 that are going to crater and cause gigantic problems.” Another viewer noted that the recent rallies were driven by S&P futures rather than by individual stocks and advocated a strategy of picking S&P stocks with secure dividends, an abundance of cash and resistance to the volatile market. Cramer expressed his approval of this conservative strategy.

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