Cramer's Mad Money - When Obama Stumbles, Stocks Soar (9/20/09)

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday August 20.

WellPoint (WLP), Triple-S (GTS)

Cramer has found a direct correlation between two charts: that of the S&P 500 and Obama's disapproval rating, and both have been rising at the same pace since March. This is no coincidence; many of Obama's lofty proposals, such as cap and trade legislation, forced arbitration for unions and healhcare reform are not seen as business-friendly. Now that many of these reforms are off the table, the stock market is breathing a sigh of relief.

With the pressure off Cramer sees a huge buying opportunity in HMOs. In fact, he thinks every portfolio should contain, along with 20% gold and 20% international stocks, 20% healthcare. HMOs such as WellPoint and Triple-S should see multiple expansion, as both were trading at depressed P/E ratios of 8 and 7 with historical levels at around 13 or 14. Returning to their former multiples would mean a 35% upside for WellPoint and a 57% gain for Triple-S. “We've been positive about this group since it became clear that the agenda's stumbling, now it's time to go pedal to the metal on this beaten down sector,” says Cramer.

Shaw Group (SGR) CEO Jim Bernhard

Cramer has been a fan of natural gas, but he is also intrigued by the prospect of nuclear energy, which has not enjoyed much popularity in the U.S. Shaw Group is trying to change that; CEO Jim Bernhard is seeing encouraging signs in Washington and looks forward to new legislation which should expand reactor sites. Currently, fossil fuels and nuclear energy projects comprise 61% of the company's backlog. Bernhard has just hired 1,000 new workers to manage the nuclear part of the company and expects to hire 2,000 more people. The company is working on technology to recycle plutonium and reduce hazardous nuclear waste. Shaw Group is currently building reactors in Georgia and North Carolina and expects to complete the projects on time. Up 23% in spite of a lackluster quarter, Shaw Group may see more upside, according to Cramer.

Netflix (NFLX), Coinstar (CSTR)

Cramer suggested playing the entertainment sector using an old-fashioned hedge fund technique - buying a strong stock and selling a weaker stock in the same group. Although this may mean less of a return on an investment if a certain sector gets "hot," it reduces risk if investors turn against a particular group of stocks.

While consumers aren't buying DVDs as much anymore, but are staying home to watch movies, Cramer is looking for an ideal way to play DVD rentals. Netflix has been successful renting DVDs by mail, but even more popular has been Coinstar's "Red Box" kiosks that allow customers to rent DVDs for a dollar. Cramer thinks Coinstar's 37 multiple is cheap considering its growth rate, and while it has just 14% market share, growth is projected at 61% in the coming year. While lawsuits over content distribution may make the stock risky, Cramer thinks Coinstar's growth outweighs the risk. He would therefore buy Coinstar and sell Netflix.

Marc Benioff of Salesforce.com (CRM)

Salesforce.com is one of the rare companies out there that raises estimates as well as revenues, in other words it is "a double play." Cramer invited CEO Marc Benioff, who called the quarter "a beat on the top line and the bottom line" and discussed the 32% increase in customers despite the economic climate. Benioff says the company will improve even more as the economy recovers and as users add more licenses. Salesforce raised $1 billion in cash and was able to raise revenue and earnings-per-share guidance. The technology allows business to custom-create their own cloud computing platform to fit their needs. Cramer says Salesforce should reach a "minimum of $70."

::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

Seeking Alpha publishes a summary of Jim Cramer's stock picks every day including: Mad Money Recap, Lightning Round and his Stop Trading! Picks.

Get Cramer's Picks by email-- it's free and takes only a few seconds to sign up.

Seeking Alpha is not affiliated with Jim Cramer, CNBC or TheStreet.com

Comments

[Paula:]

Jim Cramer::

Although I have been a critique of your show, I have been watching and have grown fond of your goofy education methods. You are a bright spot in the middle of an endless supply of cry baby, bloated by excess, pundits that seem to proliferate throughout the media.

I have an alternate theory to your curve that correlated President Obama’s growing unpopularity to the growth of the stock market.
The stimulus has been working, manufacturing is increasing, housing starts are beginning to increase, and cash for clunkers was enormously successful by taking off the market clunkers worth less than $4500 and replacing them with new fuel efficient autos. The operative word is clunker. Some of the cars barely made it to the dealers and many buyers could not have afforded a new car without getting this windfall. There were not replacing them with BMWs or Mercedes and their payment were nowhere near the levels that some pundits have suggested that would take them out of any other retail market. There are plenty of us left with old cars worth over $4500 that are waiting for 2010 to buy.

Therefore, it is my opinion that your curve correlates to the growing angst among Republicans and the increase in negative attack ads and pugnacious staged town hall meetings. I believe the gang of five and short sellers of the American dream would throw the American people under a bus in order cause Obama’s presidency to fail.

Aug 21 09:06 AM

[stocknerd:]

Jim might be loud and wild, he is also right way more than wrong. The poor republicans just don't know what to do, the world is changing too fast for them and theri only response is, "say no." If they had their way there would be no unions, child labor would make a comeback and we'd all be working $1.50 an hour. Plenty of jobs, eh?

Aug 21 09:25 AM

[ccerenz2:]

Nice try to the two posters before me, but they clearly haven't been paying attention to the market. In early 08, the market rallied and fell depending on how Hillary was doing in the primaries as it was assumed a Dem would win the presidency. When the AP announced that Hillary lost to Obama in the primaries, the market fell over 100 points within 10 minutes. It didn't stop until July 7th, almost a month later. Then it began to recoup a bit as the real campaign began and McCain looked like he had a chance. As that began to fade and Obama's popularity began to increase, the market faltered badly. It didn't stop until two weeks before the election when McCain started to rally. The market then rallied for two weeks in hopes of a late inning comeback by McCain as he pulled ever closer to Obama. When Obama won, that night the markets started another two week route where it fell 20%! It wasn't until he started announcing well known business types to his organization that the market began to recover.
That went on until early January when Obama took the mike and told us that unions "were the solution, not the problem." The market fell until early March when Obama took the mike again and said he would buy stocks, signalling that he was going to support business at least somewhat.
I appreciate Cramer for being honest and right so much more than he gets credit. While Obama's henchmen clearly went after him last March, the reality is that he was right about what he was saying at the time. And he is right today by stating what is obvious to anyone willing to connect the dots, except the diehard Obama supporters above.

Aug 21 10:01 AM

[willynill:]

I agree with ccerenz2. I think the high negative correlation between Obama's ratings and stock market movements simply means Obama supporters (with stimulus money, no less) are trying to "buy" favor with voters by buying more stocks when the polls show that Obama is slipping. Have you noticed that quite often the market will surge upward at the end of a down day? China has done the same thing--the Shanghai market had a 100% runup in the past 10 months. And it seems evident that market has risen with the "help" of stimulus money also.

Aug 21 10:31 AM

[Charles Gol...:]

Re CRM raising guidance:
EPS guidance raised by 1c/share, stock-based compensation guidance cut by 3c/share - hard to explain considering they haven't cut headcount.

Aug 21 12:54 PM

[Tomos:]

I agree with ccerenz2 as well, Obama is destroying the American economy in any way he can.

Aug 21 05:49 PM

[Greko:]

The Obama administration released their ten year deficit projection of over 9 trillion dollars. 9.x for the deficit, 1 trillion for healthcare, and other spending programs, etc. We are looking at least doubling the federal debt on the backs of the middle class.

If he is still using the rosy projections he used before then it could be whole lot worse.

I think Cramer has it right. What is best for America is for Obama is to accomplish nothing.

Aug 23 05:09 AM

[su dan:]

if obama will just "sit out" the next 40 months, maybe we can fix the damage he caused and return to following our constitution

Sep 20 09:22 AM