Cramer's Mad Money - Unhealthy Interest in AIG (5/14/09)

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday May 14.

Sell Block: Unhealthy Interest in AIG (AIG)

The infamous AIG's stock price fell from $77 in 2007 to just 33 cents in March of this year, but the stock has recently rallied to $1.37 on "unhealthy interest" in buying. Why would anyone want to buy AIG? Cramer has heard the reasons; how badly could a stock under $2 perform? or How could AIG fail if the government has a 78% stake?

In addition to the failed financial products division that got in trouble selling credit default swaps, a continued downturn would require eight of AIG's subsidiaries to raise $6.8 billion. Its insurance business has underperformed the whole sector and losses in this area totalled $7.9 billion in 2008.

Perhaps the company could sell assets? No one wants to buy them, and the AIG's businesses are all in decline. In addition, AIG owns $17 million in mortgages- bad news given the state of commercial real estate. CEO Liddy said he can't promise that he won't need more government funds. Cramer concluded; I cannot think of a single reason to own the stock,” Cramer said, “while there are countless reasons to worry that AIG could get even worse.”

Can-Do Yahoo (YHOO), Google (GOOG), Microsoft (MSFT)

Cramer made an unexpected internet pick - Yahoo, which has been much-maligned until the arrival of its new CEO Carol Bartz.. Cramer discussed this CEO's midas touch when she was head of Autodesk; the stock price increased 997% during her tenure there from 1992-2006. She has wasted no time making major improvements at Yahoo; Bartz plans to trim the workforce by 5%, and has cut back on spending on marketing while seeing impressive growth.

Yahoo search users increased by 14% in April, year over year, exceeding Google's rate, and page views have grown 26%. Comments from Disney, Time Warner, CBS and News Corp point to a bottom for advertising, and internet advertising is expected to garner 15% share by 2011. Considering the fact Yahoo is flush with cash, has a clean balance sheet and valuable international holdings, the stock is cheap, especially compared with Microsoft.

Tech is Back: Apple (AAPL), Research in Motion (RIMM), Google (GOOG), Amazon (AMZN), AMD (AMD), Intel (INTC), Salesforce.com (CRM), VMWare (VMW)

Tech's resurgence could be an indication that the selloff is over. In his 30 years on The Street, Cramer has noticed a familiar pattern that in a major selloff, the strongest sector gets hit first but also recovers first. The action in tech on Thursday may allay fears of further declines. However, semis started the rally, and cloud computing, capital equipment and advertising led the recovery from the selloff. However, semis are not "out"; Cramer still likes AMD and Intel. The four horsemen of tech; Apple, Research in Motion, Google and Amazon were back in the saddle on Thursday. Salesforce.com's cloud computing model is catching on, commented Cramer, and he predicts VMWare could get a bid. Even though the selloff might be over, it is important to be careful; "Caution is always warranted," said Cramer. "Be skeptical of the bears on down days, and also of the bull on up days."

Cramer's Outrage: Give Herbjorn a Break! Nordic American Tanker (NAT)

Nordic American shareholders aren't happy with CEO Herbjørn Hansson; they think the secondary offering is connected with the dividend rather than aimed at raising money to buy more ships. Cramer discussed Nordic American Tanker's track record of creating value; it issues stock to buy more tankers, has offered a generous 15% dividend and is flush with cash. Cramer urged patience with Nordic American; while a secondary share offering might be painful for current shareholders in the short term, NAT is a long-term buy at $36 a share.

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Comments

[Jasper M:]

I normally avoid Cramer like the plague, but the observations re AIG are intriguing.

May 15 03:04 AM

[sophistwatch:]

Cramer is an idiot. Look at where the stock was headed today before Mark Rouck of Fitch provided his ridiculous analysis and the down grade.

May 15 12:01 PM

[Big K:]

Motley Fool says NAT raises dividend money by selling stock. Cash flow from operations doesn't cover the dividend. I've also heard this from other reliable sources such as Value Line. Cramer seems to disagree. Cramer needs to explain the discrepancy here, not simply deny it. Give us the numbers in a sober detailed analysis of the balance sheets. Yes, NAT has no debt and is not a failing company, but I don't understand how they can pay out dividends that are bigger than their cash flow and/or earnings. Apparently, dilution is the solution to dividend contribution.

May 16 03:57 AM