Cramer's Mad Money - How to Game Shadow Inventory (1/15/10)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Friday January 15.

Altisource (NASDAQ:ASPS), Ocwen Financial (NYSE:OCN)

While there is skepticism surrounding the idea that "shadow inventory" will overwhelm the housing market with an influx of foreclosed homes, those who believe the phenomenon will happen might want to buy speculative pick Altisource (ASPS). The company provides outsourcing services such as property valuation and closing and mortgage software to help banks manage foreclosed properties.

Ocwen Financial (OCN) spun off Altisource as a way to attract more outside customers, but 43% Altisource's sales are from Ocwen. While Cramer is usually leery of such an arrangement, Altisource shows signs of attracting more customers. The stock trades at a multiple of just 9.7 which is cheap given its 20% growth rate. Cramer warned that Altisource is very speculative with a market cap barely over $500 million and only one analyst covering it. He suggested doing further homework on the stock and waiting for a pullback before buying.

Game Plan: JP Morgan (NYSE:JPM), Intel (NASDAQ:INTC), Citigroup (NYSE:C), Bank of America (NYSE:BAC), Morgan Stanley (NYSE:MS), Wells Fargo (NYSE:WFC), Goldman Sachs (NYSE:GS), American Express (NYSE:AXP), Huntington Bancshares (NASDAQ:HBAN), IBM (NYSE:IBM), Seagate (NASDAQ:STX), Skyworks (NASDAQ:SWKS), American Microdevices (NYSE:AMD), Google (NASDAQ:GOOG), CSX (NYSE:CSX), UNP (NYSE:UNP), Starbucks (NASDAQ:SBUX), Coach (NYSE:COH), Johnson Controls (NYSE:JCI), Schlumberger (NYSE:SLB)

Cramer said one of the biggest market-moving events in the coming week isn't an earnings report but the Masschusetts senators race between Democrat Martha Coakley, who has been the favorite to win, and Republican Scott Brown, who is gaining on his competitor. A Brown victory will threaten the Democrats' majority in the Senate and may be an impediment to healthcare reform. While HMOs have been moving higher since it has been clear that Obama's proposals will be diluted, Cramer expects the healthcare sector to rally if Brown wins.

The following financials are scheduled to report in the coming week: Citigroup (C), Bank of America (BAC), Morgan Stanley (MS), Wells Fargo (WFC), Goldman Sachs (GS), Capital One Financial (NYSE:COF), American Express (AXP) and Huntington Bancshares (HBAN). Cramer expects subdued reports, since crowing about success may inspire Washington to further increase taxes on the financial sector. Cramer expects to hear good things from tech stocks IBM (IBM), Seagate (STX), Skyworks (SWKS), Advanced Micro Devices (AMD) and Google (GOOG). He predicts Google will bounce back from the China controversy and will deliver a "colossal upside surprise.'"

Since rails are a reliable gauge of the state of the U.S. economy, CSX's (CSX) report on Wednesday and Union Pacific's (UNP) earnings on Thursday should give investors a clearer idea of where the market is headed. Cramer thinks Starbucks (SBUX) and Coach (COH) will be sold off after reporting good numbers on Wednesday and would buy Starbucks on a decline at around $22 because he thinks the company is turning itself around.

Johnson Controls (JCI), Schlumberger (SLB) and General Electric (NYSE:GE) report on Friday, and Cramer predicts all three will predict a strong 2010. Since General Electric is a conglomerate, it will give the clearest indication of the economy's health.

An IPO Cramer would watch is Symetra Financial which will do well if Brown wins a Senate seat. Cramer would try to get the offering and likes the fact that Warren Buffett owns a stake in the company.

The One Strike Rule: L-1 Identity Solutions (NYSE:ID), Tessera Technologies (NASDAQ:TSRA)

Cramer discussed two faulty calls he made so viewers could avoid making similar mistakes. The first was L-1 Identity Solutions (ID) which he recommended in October for $6.86. The stock rose slightly and fell to break even. Cramer said he had too much faith in the management's confident remarks and should have been more concerned about the fact that L-1 Identity Solutions is an ill-blended combination of different businesses.

Cramer made a similar misstep with Tessera Technologies (TSRA). Although the company missed its earnings, Cramer was so enamored of the stock's story that he had too much confidence in the company.

Based on these two errors, Cramer devised the "one strike and you're out" rule; going forward, any company that misses earnings has to redeem itself before he will make a recommendation; CEOs saying the worst is over won't be enough to make Cramer bullish.

Mad Mail: National Beverage (NASDAQ:FIZZ), PepsiCo (NYSE:PEP), Blackrock (NYSE:BLK), Take Two Interactive (NASDAQ:TTWO), IMAX (NYSE:IMAX)

While National Beverage (FIZZ) is offering a special dividend of 11%, Cramer doesn't like the carbonated beverage business right now and in any case, it is too late to collect the dividend now. Cramer prefers Pepsico (PEP) which is diversified beyond fizzy drinks and has a stable 3% dividend. Cramer thinks Pepsi has some upside potential in its bottling business. Cramer told another viewer that he doesn't like Take Two Interactive (TTWO) right now, in spite of the fact that Carl Icahn and Blackrock (BLK) own signficant stakes in the company. He might revisit the stock once the game Grand Theft Auto comes out. On the success of the film Avatar, one viewer suggested looking for plays on the 3-D thesis. Cramer said there are no pure plays in this group, and IMAX (IMAX) has already risen too far.


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