Cramer's Mad Money - Two Banks That Don't Need TARP Funds (1/28/09)

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday January 28.

JP Morgan (JPM), Wells Fargo (WFC), Metlife (MET), State Street (STT)

The Dow rose as financials rallied on the collective hope that the Treasury’s creation of a bad bank to buy ailing assets will mend the financial crisis.While Cramer has supported the “bad bank” solution, he doesn’t think it is going to be so simple. For instance, will MetLife be able to just dump its commercial real estate holdings or can State Street just send away its asset-backed securities without any conditions? Will the taxpayers have to bear all of the burden? Cramer predicts banks will have to pay a fee before dumping their bad paper. While the Resolution Trust Corp, established to repair the Savings & Loan crisis in the 80s, was effective, Cramer warned that such measures will destroy value of stocks of participating banks. While the best solution is still not obvious, Cramer recommended looking at two banks that do not need TARP money; Wells Fargo and JP Morgan. In fact, Wells Fargo is doing so well, that it refused to take TARP funds until Treasury Secretary Henry Paulson forced it to. Cramer would buy Wells Fargo or JP Morgan on any pullback, since these banks are the least likely to be hurt by government reforms.

CEO Interview: Dan DiMicco, Nucor (NUE)

Cramer likes steel as a play for those who think Obama’s stimulus plan will work. Nucor beat its estimates for the quarter, and is Cramer’s “absolute favorite” in the steel business. While America may help pull the rest of the world out of a global recession, Nucor CEO DanDiMicco says America has to help itself first and “Buy American.” If every country gets its own house in order, he said “the whole world is going to come up.” DiMicco added, “We are never going to pull ourselves out of this mess, and we’ll end up in something much worse than a severe recession.” DiMicco said this isn’t protectionism, but is enforcing the laws and trade agreements already on the books, and added China is the biggest protectionist in the world. Cramer asked the CEO how he managed to make money when production was cut in half, and DiMicco said the Nucor’s variable costs help create flexibility. When asked about acquisitions, DiMicco emphasized they are on hold, not cancelled. Cramer would prefer waiting for a pullback before buying Nucor, but called DiMicco “The King of Steel.”

McCormick (MKC) CEO Alan Wilson

“This is a Tale of Two Cities market,” said Cramer and investors need to buy both for the best of times and the worst of times. No one is sure whether the economy is going to pick up within the year or whether recovery will take a long time. Therefore, he would own McCormick, which will survive a downturn and Nucor, which will be on the rise if the economy picks up. McCormick is the largest spice maker in the world, and exceeded The Street’s estimates for the next 6 quarters. The stock is currently trading at a discount to itself at 10 points off its high. Allen Wilson commented the stock has been resilient because it is in a stable industry and benefits both from restaurant sales and the consumer cooking at home. McCormick offers value and premium products and is successfully integrating its Lowery’s acquisition. Since 40% of revenue comes from outside the U.S., the higher dollar hurt McCormick in last quarter, but Wilson believes the acquisition will compensate for this loss. Cramer called McCormick a resilient company and he is bullish.

Seeking Alpha publishes a summary of Jim Cramer's stock picks every day including: Mad Money Recap, Lightning Round and his Stop Trading! Picks.

Get Cramer's Picks by email-- it's free and takes only a few seconds to sign up.

Seeking Alpha is not affiliated with Jim Cramer, CNBC or TheStreet.com

Comments

[Ishortyou:]

the problem with tier 3 or tier 2 assets is that most of them are wraps from mortgages and credit loans, the uncertainty comes from the housing bubble, to fix it requires to decrease the 9 to 11 months in the oversupply in housing inventories and eliminate or bann temporarily the 500k+ new house and permits starts, then you will have your economic miracle.

Jan 29 07:30 AM

[ZZ:]

I often roll my eyes when I read the headlines of why the stock market is up or down for a given day or hour. But I realize the headline writers are required to write a headline, so they pick some event that's in the news.

Wednesday, there was a big rally and a 200 point gain in the Dow. Yet the headlines focused on the FOMC meeting which was rather late in the day. Even on CNBC when they mentioned the rally in bank stocks, there posted the graphs of 5 big banks/investment houses, but ignored the real reason for this rally: WELLS FARGO.

Wells Fargo posted earnings before the market opened. The headlines all pointed to a big reporting loss. If you read the details and know the story, you would see why Wall Street got so euphoric: Wells Fargo is doing fine. And the stock went up 30% + on the news. Why it dragged along all the loser banks I don't understand. But I don't understand why they dragged it down from about $27 to $14 when BOA was getting creamed a couple weeks ago.

When Wells bought Wachovia they took Tarp money and got a big concession on income taxes due to the merger. I guess the big worry was that they had underestimated the toxic assets of Wachovia. In the guidance along with yesterday's earnings, management basically said they are fine, the big loss is what we already told you to expect from Wachovia, we are not cutting the dividend that we just increased last quarter, and we won't be needing any more Tarp money.

In other words, Wells Fargo is head and shoulders above any other big banks in this country and always have been. Assuming unemployment is capped under 10% they will not be in trouble, and have expanded themselves to the East Coast in a big way and nearly instantly. They did raise money with a common stock offering last November to help fund the Wachovia purchase, which hurt the share price as the new common got priced at $27 which brought down the rest of us to that level from $35. It was bad timing as the markets got routed for 2 days just before the offering. They sold $11 Billion of stock for $27 to much more sophisticated buyers than me. I certainly don't have access to new stock offerings. So WFC buyers thought $27 was a steal on November 6. What's changed since then? Lot's of bad news from other banks. And business as usual from Wells Fargo. Yesterday it gained $5 on the earnings and governance news to $21. Why not all the way back to $27?

Yes, I'm long WFC

Jan 29 02:19 PM