Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday February 12.
It may sound morbid, but death can be big business, at least for Life Partners. The company developed a system of matching terminally ill patients with investors willing to buy their life insurance policies. Life Partners saw 39% growth in the last 8 quarters as well as a 39% earnings increase. But is this trend healthy? Cramer looked at the technicals. Life Partners’ technical breakout during the first week in January was followed by a heavy volume pullback. Both the buyers in the breakout and the sellers in the pull back turned out in large numbers, a sign of conviction. The chart says the big players are leaving Life Partners for dead. The fundamentals are not so hot either. The business model might disturb and put off many investors. CEO Brian Pardo is being investigated for misrepresenting financial results at another company, and Life Partners is facing other legal difficulties. A full 19% of the stock is held short and the company has been hit hard by the recession. Cramer concludes that the Life Partners may be losing its pulse.
In his hedge fund days, Jim Cramer avoided Knight Capital, which was known to be the most disreputable brokerage. All that has changed under the leadership of Tom Joyce, who has modernized trading, made clients the main focus and has generally cleaned house. The result: Knight beat estimates by 19 cents per share, has $5 per share in cash and is aggressively taking share, even in this sour market. Joyce discussed plans to get rid of its lagging hedge fund business which will further increase cash at Knight. When asked about insider selling, Joyce said it was merely a prudent move at the time and was done to diversify a bit, but he added that he has signed a four year contract and is “all in.” Cramer and Joyce lamented the fate of Joyce’s former employer, Merrill Lynch, which was forced to part with of a lot of talent. Cramer called Knight’s turnaround “unbelievable” especially in this economic climate.
The Bogus Rally: IBM (IBM), Apple (AAPL), Google (GOOG), Amazon (AMZN), Research in Motion (RIMM), Cisco (CSCO), Coca-Cola (KO), VF Corp (VFC)
The euphoria that categorized the end of the day rally, which brought the Dow up 255 points will, at best, provide an opportunity to ring the register on Friday, said Cramer. Obama’s “sweet, quick victory” as his $789 stimulus bill passes is short-lived; evidence shows the housing crisis is too deep to be resolved any time soon. Foreclosures have merely been stalled and they will rear their ugly heads again in the coming months. Cramer says while the plan does provide tax breaks and handouts, it will do remarkably little to heal unemployment, housing and the financial mess. The tech rally is also a pipe dream, and was started by IBM’s move upward. The only aspect of tech that may have legs is smartphones. Even the four horseman need a breather: Research in Motion has maxed out, Apple and Amazon are too expensive, and Google jumped 20%. Cramer cited Cisco CEO John Chamber’s remarks that things are bad, and while there are many who want to try to keep numbers up in the sector, the fundamentals don’t support the moves. Cramer would take profits in tech and buy defensive stocks like Coca-Cola as well as VF Corp, which is in the vulnerable retail sector, but has a strong dividend of 5%.
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