Cramer's Mad Money - Bank of America Will Double (8/4/09)

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday August 4.

Bank of America (BAC)

In spite of CEO Ken Lewis' mistakes, Cramer predicts Bank of America, "could rally another 50%...and maybe even double." This would be in addition to the 400% move the stock has already made so far this year. Why? Cramer thinks Bank of America is undergoing "volatility expansion"; it was stuck between $12 and $13 for several months, but recently hit $16, and is making its way to $25, according to Cramer. He also likes the fundamentals.

Bank of America is a cyclical play which will recover along with the economy, according to Cramer. This "dominant retail banking player in this country,” which holds 12% of U.S. deposits is expanding its real estate exposure to prepare for the rebound in housing prices. Cramer applauded the bank's "deep talent pool," which transcends the difficulties it has with the CEO, and says Bank of America is the best way to play economic recovery.

Apple (AAPL), Joy Global (JOYG), Wynn Resorts (WYNN), Potash (POT), Mastercard (MA)

As long as fund managers need to buy, the market is going to seem resilient, according to Cramer. The Dow dropped on Tuesday, but this decline didn't last long before money managers, who sat on the sidelines in bearish mode for too long, found ideal entry points for Apple, Joy Global, Wynn Resorts, Potash and Mastercard. As long as money managers won't let the market drop, Cramer thinks the bulls will remain in control.

Go North, My Young Man: TransCanada (TRP)

“If you think the United States is headed off the rails,” Cramer said, “I want you to take a trip to the Great White North and join Cramer’s foreign legion with TransCanada.” Cramer likes this Canadian company because of its 5% dividend, immunity to natural gas prices and its huge pipeline project scheduled for 2010. TransCanada is the largest natural gas pipeline company in North America and the leading private power company in Canada.

Its major project, the Keystone Pipeline, is expected to pump 1.1 million barrels a day from Alberta to Texas; 83% of the pipeline's capacity has been contracted out for the next 18 years. The business is pretty well-hedged and the majority of its output has been sold forward next year.

Cramer's Outrage: Ken Lewis Should Pay

While Cramer likes Bank of America's stock, he thinks CEO Ken Lewis has a lot of nerve to expect shareholders to cover the $33 million settlement fee for misleading investors about the Merrill Lynch merger. Why should shareholders be punished twice when Ken Lewis ought to pay for his own mistakes?

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Comments

[JohnnyInThe...:]

How about our current and former Treasury Secretaries? Should they also give up all the money they made when this (BOA/Merrill-Lynch) merger eliminated the biggest competitor Goldman-Sachs had?

Cramer was all over Goldman-Sachs right before they boomed, was this a fair weather speculation due to the lack of players in their market, or is he still bullish on it?

Also, when will current and former Goldman-Sachs executives be prosecuted for their manipulation of the system? They are the greediest bunch ever! Damn, do I wish they had come out as silent partners in the Madoff scheme.

>>While Cramer likes Bank of America's stock, he thinks CEO Ken >>Lewis has a lot of nerve to expect shareholders to cover the $33 >>million settlement fee for misleading investors about the Merrill >>Lynch merger. Why should shareholders be punished twice when >>Ken Lewis ought to pay for his own mistakes?

Aug 05 10:37 AM

[Wise Investor:]

Do you all recall this post from me?

Aug 05 12:50 PM

[Wise Investor:]

BofA: How to Spend $50B to Lose $170B

Since the deal with Citigroup went down on Friday, all the doomsdaysayers (most likely short sellers or put buyers) are coming out of the woodwork intimating that BAC is next in line to follow the same path of shareholder dilution. Since pessimistic individuals seem to feed on this frenzy and are more than willing to bring BAC down to the same destructive level as C, let me put my 2 cents worth of contribution in this matter so that individuals with a clear and level head can appreciate and perhaps benefit tremendously from it.

First off, let's compare Citigroup with Bank of America. Citigroup has not been profitable since the Fall of 2007. Yes! 2007! They have had losses compiling in every single quarter (7 now) since the Fall 2007 earnings report. They are much more exposed to losses that have contributed to more than 3x that of BAC even with the Countrywide and Merrill Lynch deal inclusive. Up until the most recent quarter, BAC has been positive with earnings. Due to the dilution with the Merrill deal, it has caused the most recent quarter to go negative, but CEO Lewis has reiterated that current fiscal year 2009 will be net positive with over 100 Billion in revenues by year's end. So, you cannot fairly put BAC and C in the same destructive category. Citigroup has been much more exposed to risk taking investments (domestic and international) that have all but decimated its balance sheet through the past 7 quarters. Adding the recession factor environment that we're in, Citigroup has all but exacerbated its demise to its current levels. Remember that Vikram and the board of directors went to the government for such aid in its most recent attempt to stay solvent and it was "not" the government's choice to do this. Lewis had reiterated many times over that BAC will need no further intervention from the government and only needed the last injection due to the Merrill deal that the government promised to back when Lewis wanted to back out of it in December.

Now here's some "Food For Thought" in the differentiation between BAC and C and why BAC will not follow the same path as C into requesting the government for extra help:

1. Positive revenue streams for 2009 with BAC with 100 billion+ revenues for fiscal year 2009. Losses still compiling for C.

2. CEO Lewis and other BAC execs have most recently "PURCHASED COMMON SHARES", first in the 5.30 to 5.88 range and then again in the 3.60 to 3.93 range. Now I ask would a CEO risk his "OWN MONEY" and buy nearly a million shares of BAC common shares if it was on the road to shareholder dilution? Common sense people.

On the other hand, Vikram Pandit has not purchased "ANY" common shares of Citigroup during this whole debacle in the last 2 quarters. That shows you he has no confidence in the very company he helms. This differentiation is distinct, concise and clear to me.

3. The government forced CEO Lewis to go through with this deal and since they're equally liable in BAC's freefall due to market fear of the unknown, they will do whatever it takes to make sure the company makes it through this Merrill deal without causing dilution to its common shares. Remember again that Vikram Pandit and it's board asked for the preferred shares to be converted to common and it was not the government idea.

4. Chairman Bernanke stipulated that private ownership is the way to go and that banks will "not" be nationalized. The press secretary for the President issued a similar statement on the same day Bernanke gave his statement. Bernanke reiterated his stance the next day also. Even though Citigroup has gone this route of letting the government grasp up to 36% of its common shareholder value due to the preferred share conversion to common, he still remains in charge of its operations. It is still not "nationalized" by any means no matter how you look at it.

These are just a few thoughts for the common shareholder to mull over and let them think exactly where things stand. Don't let all the negative individuals come out of the woodwork to influence your emotional buying and selling of BAC. Research the facts so that you know what is really going on and not be influenced by the "doom and gloom" crowd. They want you to dump shares for their own benefit whether it be shorting the equity for their own personal gain or just writing something to sensationalize the events that are going down.

Lastly, let me share with you something that happened back in the '87 crash. BAC dropped to a low of 5.25 on that fateful October Black Monday morning. I was 17 at the time and my father jolted me out of bed that morning and said we should go buy shares of BAC. We purchased 3000 shares of it when everyone else was bailing. At the height of BAC's value, it increased more than 53 times our original investment, although we sold many shares throughout the years, I proceeded to sell off the last remaining 15000 shares when the shares most recently dropped below 28 dollars. Needless to say, BAC has contributed immensely to our savings and now the current market environment has provided potential longterm investors with an opportunity of a lifetime. True, BAC has been burned by the Merrill deal, but it will persevere through this and be a survivor in the financial markets and once again flourish to be the ultimate banking giant in the industry. I predict that once that it pays off its TARP money in the next 3 years, the equity will be trading in the teens and when it is wholly private again, it will fly into the high 20s to low 30s. Don't let the doomdaysayers affect your judgment in making good decisions that could add considerably to your wealth in the future.

Disclosure: Bought shares of BAC in the past week at hit prices of 3.28 and 2.88.
______________________...

I wrote this back on March 1st and to those that took advantage of BAC's depressed share price and had the tenacity to hang onto your shares, congratulations. BAC is outperforming even beyond my expectations. Perhaps in another decade or score from now, a new generation will have the same opportunity to purchase BAC at a discount.

Happy investing to all !

Aug 05 12:56 PM