Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday February 23.
There is only one sector worth trusting – consumer staples. They have strong balance sheets, are flush with cash and strong margins because of falling costs. Low gas and advertising costs are paying off and even Campbell’s, Cramer’s least favorite name in the sector, is showing strength. Most other sectors, apart from oil and gold, are bad, and the only financials worth considering are Mastercard, Visa, Goldman Sachs and Morgan Stanley. Fund managers like consumer staples, and the stars of the sector are Pepsi, Coke and Colgate.
Demand destruction and Saudi oversupply aren’t to blame for oil’s crash from $147 to $33; Cramer says hedge fund manipulation was responsible. Redemptions forced selling that brought oil prices down. However, Cramer thinks oil is headed back up on increasing demand and decreasing supply. Devon CEO Larry Nichols said oil supplies will decline as drilling projects will dry up, given the difficult credit markets. It is simply too expensive to drill for oil given the current low prices. In addition, OPEC is expected to cut production. Transocean also indicated that only underwater drilling projects are going forward. Demand will be roaring back in China, Cramer says, pointing out the country is investing in Petrobras to ensure it has enough oil. Americans are returning to their gas guzzlers as prices at the pump decline. On oil’s upward trend, Cramer would buy BP, which is the cheapest and best integrated oil and has a rich dividend of 8.3%.
Cramer’s Outrage: UltraShort Financials ProShares (SKF)
Cramer has already discussed the problem with Ultrashort ETFs; these funds increase the intensity of short-selling and can destroy share values. The returns aren’t even as they “should be;” in spite of a decline in the financial sector, the SKF is down 14% over the past three months. Another casualty of Ultrashort Financials is confidence, an important commodity in a bad market. With these ETFs constantly attacking value, it is hard to sort out good financials from bad, and virtually impossible for banks to raise capital if they can’t inspire confidence due to their destroyed stock prices. Cramer thinks the SEC should abolish these ETFs, but ironically, ProShares keeps introducing more and more of them, trying to benefit from bearish sentiment, “If you want to get outraged about something,” Cramer said “This should be it.”
Executive Decision: Devon Energy (DVN) CEO Larry Nichols
Devon is trying to find its right price: The stock’s high was $127, the stock has fallen to $45, but estimates indicate the stock should be worth $75 or $88. Cramer asked CEO Larry Nichols how to account for the discrepancy. The CEO indicated this is a “short-term problem and a correction will come “very quickly” as companies reduce drilling and production. He reports there are plenty of places to drill, and Devon’s balance sheet is so good, the company doesn’t need to hedge oil and gas prices. New SEC rules in 2010 will allow the company to account for its reserves in accordance with current market conditions. This will allow Devon to give more accurate earnings results and may reduce volatility that is harming the stock price.
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