Cramer's Mad Money - Knight in Shining Armor (9/16/09)

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Includes: AAPL, BAC, C, DOW, HBAN, IP, IYR, KCG, MLM, PPG, SWN, TIN, VMC, WFC, XTO
by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday September 16.

Knight Capital (NITE)

Retail is back, and with it, Knight Capital, whose trades are up 103% since last year. Knight's volume is around 5 million shares a day and the broker caters mainly to the retail investor. It is a "market maker" because it takes the other side of the trade for the best offer, which means good prices for investors. Trades are executed the moment traders see the prices on the screen, and 45% of orders are price improved, which means investors get a better price than the stated bid.

Cramer encouraged viewers not to believe the hype about "dark pools" of capital as unfair to investors. These ominous sounding "dark pools" are "just fluid, private institutional" markets. Cramer says dark pools are "fast, clean and honest" and add liquidity to the market." Knight Capital is the main source of off-exchange liquidity and is a great way to play the comeback in retail.

Is the Recovery for Real? Temple Inland (NYSE:TIN), International Paper (NYSE:IP), PPG Industries (NYSE:PPG), Dow Chemical (NYSE:DOW), Martin Marietta Materials (NYSE:MLM), Wells Fargo (NYSE:WFC), Huntington BancShares (NASDAQ:HBAN), Apple (NASDAQ:AAPL), Citigroup (NYSE:C), XTO Energy (XTO), Southwestern Energy (NYSE:SWN), Vulcan Materials (NYSE:VMC), iShares Dow Jones U.S. Real Estate (NYSEARCA:IYR)

Is there any way of telling if the "real" economy is back? If companies are making actual products, that is a sign of confidence, so Cramer suggested looking at materials and chemicals used in manufacturing as well as specific products that indicate an upturn. Three products to pay attention to include corrugated boxes for shipping, polyvinyl chloride plastic for house building, and brick for infrastructure projects. Companies that provide materials for these products: Temple Inland, International Paper, PPG, Dow and Martin Marietta Materials have reported an increase in business; "That tells me it’s a true bottom and the rally we’ve had since then is for real,” Cramer said, “not some so-called bear-market rally.”

On the recovery, Cramer would buy financials Wells Fargo, Huntington BancShares and Citigroup. In tech, he likes Apple and on his prediction that natural gas will double, Cramer recommends XTO and Southwestern. To the list of stocks he discussed above, he would add Vulcan Materials. In commercial real estate, a change in the tax code will benefit a good number of companies in this space, and Cramer would buy IYR.

Cramer's Outrage: Bank of America (NYSE:BAC)

Cramer had both praise and blame for federal Judge Jed Rakoff’s handling of a deal between the SEC and Bank of America. The latter paid a mere $33 million fine, “a slap on the wrist,” in Cramer’s opinion for giving $3.6 billion in undisclosed bonuses to executives at the newly acquired Merrill Lynch. Cramer thought the rebuke was sound, but panned the judge for blaming the lawyers and advisors involved and not the main culprits; “Who the heck cares about the lawyers?” Cramer asked. “They weren’t the decision makers. It’s the principals that did wrong, not their advisors.”

Instead of lecturing Wall Street about extravagant bonuses and promising new regulations, President Obama and the SEC should enforce the laws that are already on the books; “Until the president and his SEC understand that,” Cramer said, “the bad guys will keep getting away scot-free.”

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