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.
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.”
“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.
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