Cramer's Mad Money - In the Treehouse (3/10/09)

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday March 11.

In the Treehouse (THS)

The trade-down thesis seems to be a sound one; consumers are reaching for private-label instead of the more expensive brands. Treehouse Foods is a main beneficiary of this trend. Kroger Supermarket, a leading buyer Treehouse products has seen double-digit growth, and lower raw costs will benefit both companies. Treehouse CEO Sam Reed predicts these low costs will continue into the second half of 2009. One way Treehouse expands its variety of brands is through M&A activity. The company's clean balance sheet and cash flows should enable it to continue making acquisitions. Reed said Treehouse is “quite ready to expand again in a large-scale way.” Cramer thinks that while there is significant opportunity in Treehouse, belief in a cyclical recovery might hurt the stock. He likes Treehouse but urges caution.

The Big Three Sectors: Apple (AAPL), Hewlett Packard (HPQ), Amazon (AMZN), IBM (IBM), Google (GOOG), Exxon (XOM), ConcoPhillips (COP), Citigroup (C), JP Morgan (JPM), Morgan Stanley (MS), Goldman Sachs (GS)

Wednesday saw a 379 point rally in the Dow, a rally Cramer thinks is sutainable if oil, technology and gold stay strong. Tech seems to be doing its part, with even the semiconductors up, Apple up 4.6% on the iPod shuffle announcement, good news from HPQ, a strong quarter from IBM and upward moves in Google and Amazon. Oil's performance was a bit disappointing; news of higher inventory brought oil prices down $3 which caused declines in Exxon and ConcoPhillips. Gold was up. Cramer says the opposite should happen - gold should be down and oil should be up - to sustain the rally. Financials were strong; JP Morgan reported a profit for January and February, as did Wells Fargo and Citigroup. Goldman Sachs upgraded Morgan Stanley, and Goldman made Cramer's personal conviction buy list.

Cramer's ultimate recipe to extending the rally: upgrades for tech and banks, a rise in oil prices and a decline in soft-goods. In the meantime, Cramer would buy good quality companies on declines.

Taiwan Semiconductor (TSM), Intel (INTC)

Cramer has hated the seminconductors, but Taiwan's pre-announcement of better-than-expected sales and margin numbers because of increased demand from China and a strong dollar caused Cramer to change his thesis. Inventories have been kept so low that the sudden rise in demand spells a significant upside for chipmakers.

Cramer prefers Taiwan seminconductor because of its efficiency and its customers are companies like Qualcomm, NVIDIA, Broadcom and Marvell Tech which have strong demand for chips but do not have the facilities to make their own. In addition, China is spending $40 billion to develop its wireless infrastructure and is seeing increasing demand for LCD televisions as well as PCs.

Taiwan semi signed contract with Intel to build chips for its Atom processor which will be used for smartphones and other electronic gadgets. While TSM is trading at an apparently expensive 27 times earnings, Cramer would instead look at its price-to-book multiple of 2.5 and noted Taiwan semi took off the last time it was at this valuation. Cramer thinks the 4.6% dividend is safe, and would buy as soon as this $8.66 stock reaches $7.

Stop the Shorts

Cramer reiterated his call for the reinstatement of the uptick rule, which makes investors wait for a stock to tick up before selling short, banning of UltraShort ETFs which send down stocks and infectious bearish sentiment which is bringing down the market. He also applauded JP Morgan CEO Jamie Dimon for requesting that Fed Chairman Ben Bernanke relax regulations of mark-to-market accounting. If Washington paid attention to these issues, the market would look a lot brighter, according to Cramer.

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Comments

[epeon:]

Here is my problem, most of my money is in my self-directed IRA. I cannot write shorts directly. Short ETFs are a good vehicle for me to short the market in that format. I have used them to good effect. Why should I not have this tool available to me? The big boys certainly can and do short. All ETFs do is allow the little boys to take advantage of the same strategy.

Mar 12 09:20 AM

[J M Keyes:]

I'm an anti-short guy' but you bring up an excellent point. I hope the yo-yos in DC are aware of it.

Mar 12 10:25 AM

[Harry Tuttle:]

Cramer wants to ban the shorts? Many want to ban Cramer.

Whatever happened to freedom of expression?

Nobody shorts cheap stocks.

Mar 12 11:09 AM

[bassmaster17:]

It seems as if the Buffett crowd is throwing him under the bus and giving up on his stocks. COP is a good company, this kinda compares to Freeport when it went to $15.

Mar 12 11:11 AM

[bassmaster17:]

COP better get going, FCX is on its tail, when Cramer gave up on FWLT it was time to get a bit interested. Nobody shorts cheap stocks, just Cramer's picks, right?

Mar 12 12:40 PM

[Analyst SSG:]

These guys like to manipulate the opinion of the crowd. Only selected know the real statuq quo.

Mar 12 01:57 PM