Cramer's Mad Money - 10 Reasons Financials Will Rally (3/10/10)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program Wednesday March 10.

10 Reasons Financials Will Rally: Citigroup (NYSE:C), JP Morgan (NYSE:JPM), Huntington Bancshares (NASDAQ:HBAN), Wells Fargo (NYSE:WFC), Zions Corp (NASDAQ:ZION), Comerica (NYSE:CMA), U.S. Bancshares (NYSE:USB)

While the financial sector has been underperforming for the past few months, Cramer thinks financials will make a repeat performance of their rally last year that initiated the bull market. Cramer gave ten reasons why financials are ready to make a comeback:

1. Huge credit losses are a thing of the past. JP Morgan (JPM), Huntington Bancshares (HBAN), Wells Fargo (WFC) and Zions Corp (ZION) have seen the last of these losses and are ready to turn around.

2. Government proposals to reform the financial sector are running out of steam.

3. Citigroup (C) CEO Vikram Pandit's master performance before the Congress renewed confidence in the bank and in the sector. His gracious "thanks for the help" remark left investigators with no ammunition.

4. Comerica's (CMA) common stock offering and Citi's secondary proved there is demand for bank offerings that allow financials to clean up their balance sheets.

5. Banks want to raise their dividends; the government won't let them. This is the case with U.S. Bancorp (USB), JP Morgan and Wells Fargo.

6. A commercial real estate collapse is not going to happen. In fact, there is significant demand for commercial mortgages.

7. The FDIC hasn't taken over many banks, at least not compared to the amount taken over in the S&L crisis. Cramer thinks bank failures are stopping.

8. Financials are playing catch-up. Since the sector hasn't been performing well lately, money managers may be ready to buy on the decline.

9. Retail numbers are strong, consumers are spending, and that is good news for banks that issue credit cards.

10. The unemployment number finally stopped rising. This means that consumers will be better candidates for credit.

When can financials be bought? When the Fed feels it is in a position to raise interest rates just enough that the sector won't be adversely affected. Cramer says now is the time.

Walter (NYSE:WLT), Arch Coal (ACI), Peabody (BTU)

Cramer has been a fan of natural gas rather than coal, but there is one kind of coal he can get behind; metallurgical coal used to make steel. Walter Industries (WLT) is the only pure play on met. coal in the U.S, and China is one of its biggest customers. While the Middle Kingdom was once a major exporter of coal, it is now one of the biggest importers; in 2009, China imported 35 million tons of metallurgical coal compared to just 7 million tons the previous year. Walter Industries' volume growth is at 34%, its margins are competitive and Walter is in a position to sell metallurgical coal at higher prices than its peers.

Walter has the perfect catalyst; with benchmark met. coal contracting season coming up, 60% of Walter's coal hasn't been priced yet. Walter has $11 million in debt compared to $165 million in cash and trades at a multiple of 9.3, which is low for the sector. Cramer would swap out of even cleaner coal stocks like Peabody (BTU) or Arch Coal (ACI) and buy Walter (WLT); "Be ready to purchase more if it gets hit.”


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