Cramer's Mad Money - Doug Kass Is Too Bearish (8/26/09)

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday August 26.

While Cramer doesn't think the Dow will reach 10,300, he doesn't agree with Doug Kass that investors should give up on the idea of making profits in the remaining months of 2009 and sell stocks. While job losses, consumer debt and the rising government deficit are not exactly bullish signs, Cramer does not believe in standing at the sidelines; “There’s just not enough bad to trigger that kind of sell-off."

While Doug Kass was correct in calling the Dow bottom at 6,500, Cramer doesn't agree that there is no more upside. The beginning of recovery in the auto industry, housing, banking and the slowing of unemployment may spell more gains for stocks, but Cramer admits he is less bullish the closer the Dow approaches 10,000. He also predicts a gentle pullback of 3-5%. Cramer's strategy for the remainder of the year is to sell gains and to buy good stocks on down days. “The market's gone from being too cheap to too expensive without more data changing the underlying economic picture,” Cramer said. But “there's no reason to panic, no reason to sell everything wholesale.”

Is Big Lots (BIG) the Discount King?

Even though the economy is improving, there must be a best-of-breed name worth buying in the discount retail group. This reasoning has inspired Cramer's week long search for the discount king. Big Lots looks like a good candidate; apart from Apple and Salesforce.com, it is the only company this earnings season to beat numbers and raise 2009 guidance. While Cramer was worried that thinning inventories at major stores might be bad news for Big Lots, which sells overstock and closeout merchandise, Cramer thinks the diversity of Big Lots' items makes it less vulnerable to this trend than TJX, which specializes in apparel.

While same-store sales are down 2.5%, Big Lots says it can improve that number by the end of the year. Inventories have been trimmed 4% and gross margins are at 40%. Cramer's one complaint with Big Lots is the stores are rather disorganized, but the company has launched its "Food Refresh" program to make its stores more organized, especially in the way it sells food items. With a multiple of 12.5 compared to Costco's 18, Cramer thinks Big Lots is cheap.

Ultra Petroleum (UPL) CEO Mike Watford

Natural gas is at a seven year low, and yet, after reducing the drilling budget by $50 million, Ultra Petroleum is now increasing it by $65 million. A company doesn't do this unless it expects things to get better, observed Cramer, particularly since Ultra Petroleum is taking financing to expand its drilling in Pennsylvania's rich Marcellus shale. Mike Waterford said the company can afford to expand because it keeps an eye at costs at all times and doesn't opt for expensive offshore drilling.

Waterford thinks Washtington is finally waking up to the idea that natural gas is the best "bridge fuel," and in November, new pipelines will span the country and make the transport of natural gas from coast to coast more efficient than ever. Cramer says Waterford is "the real deal" and is a buyer of Ultra Petroleum.

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Comments

[steven s:]

I just remember Cramer saying stay out of the market for the next five years
that was about a year ago
what a farce

Aug 27 06:43 PM