Cramer's Mad Money - BHP Fitting the Billiton (2/27/09)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Friday February 27.

Game Plan: Weathering the Storm, McDonald’s (NYSE:MCD), Ralcorp (RAH), Treehouse Foods (NYSE:THS), Wal-Mart (NYSE:WMT), Procter & Gamble (NYSE:PG), General Dynamics (NYSE:GD), Lockheed Martin (NYSE:LMT), IBM (NYSE:IBM)

Even as things look close to hopeless, there are still ways to make money in this market. The first thing Cramer would do, however, is to shore up enough cash needed to make it for four and a half years. He would even sell stock to do this, and would look for rallies in the coming week to provide selling opportunities. A cash position is not a bad idea, nor is dividing investments between gold, Treasuries and Municpal bonds. While he doesn’t often recommend shorting names, it might be an idea as the market declines. Cramer does expect a recovery, but until then, he would buy companies producing things the consumer and the government absolutely need: McDonald’s, Ralcorp, Treehouse Foods, Wal-Mart and Procter&Gamble. After Obama’s cost-cutting shook the healthcare industry, Cramer fears for the defense sector and is wary of owning General Dynamics and Lockheed Martin. However, once in a while, a rally does take up individual stocks, as in the case of McDonald’s and IBM last week. Cramer would also include gold and oil in every portfolio.

Speculation Friday: Allos Therapeutics (NYSEARCA:ALT), Celgene (NASDAQ:CELG), Cephalon (NASDAQ:CEPH)

Even in hard times, a little speculation can build wealth in increments. Cramer thinks Allos is a great speculative small-cap stock which has as its catalyst the expected Food and Drug Adminstration’s approval of its orphan drug called Pralatrexate, or PDX, which treats peripheral T-cell lymphoma. Orphan drugs are those that treat rare conditions and are usually given fast-track FDA approval and have little or no competition, since there is no other treatment for this type of T-cell lymphoma. Obama’s Medicare reforms may hurt other companies, but not Allos, and American drugs in Europe usually fetch at least as much if not more than they do in the U.S. PDX has been shown to work in cases where other treatments have failed and for a longer period of time. FDA approval is expected by the end of June and the drug could be worth as much as $400 million. The company could get a takeover bid from Celgene, Cephalon or another company. Cramer would buy Allos after its earnings report on Tuesday March 3, and only at $6 or $7, but no higher.

Obama-proof BHP Billiton (NYSE:BHP)

After the beating the healthcare sector took following President Obama’s Medicare reform, Cramer is searching for Obama-proof stocks. BHP Billiton fits the bill, since the Australian company is expected to reap substantial benefits from China’s expected recovery and in particular, its $600 billion stimulus plan. The company is the world’s top producer of coking coal used for steel production, the second-largest of iron ore and the third largest producer of copper and nickel. The expected decline in iron ore sales in China is expected to reverse, thanks to government intervention.; sales are up 25% since October, and hot-rolled steel sales are 25% higher since November. Chinese, unlike Americans, are buying homes, which of course, require raw materials to build; new home sales have doubled since last year. Even though BHP missed its earnings, cash flow is up 74% and the dividend has increased 41%. The stock is down from $95 to $36, but the company’s dividend is safe and has loads of cash and a strong balance sheet.

Mad Mail: Permian Basin Royalty (NYSE:PBT), SPDR Gold Shares (NYSEARCA:GLD), BP (NYSE:BP), Johnson & Johnson (NYSE:JNJ)

Cramer said that while PBT is a good stock and the company has a lot of oil, other oil stocks were down; “I told people to pay around $8. You have to listen to me.” Cramer explained that SPDR Gold Shares keeps buying gold and is driving all the purchases. He suggested letting gold pull back before buying more. While Cramer says he thinks BP can pay the dividend because he believes oil is going higher, he suggests monitoring the stock. Cramer defended his statement that Warren Buffett is “selling American” and not “buying American” when he sold Johnson & Johnson.

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