Cramer's Mad Money - 5 Stocks Immune to Healthcare (3/18/10)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday March 18.

BP (NYSE:BP), Devon Energy (NYSE:DVN), DuPont (NYSE:DD), Kinder Morgan Energy Partners (NYSE:KMP), Verizon Communications (NYSE:VZ), Eli Lilly (NYSE:LLY), Altria (NYSE:MO)

It seems that, like it or not, healthcare reform is likely to become the law of the land. Cramer predicts a big selloff as soon as Monday. Not only will healthcare reform cause employers to reconsider hiring new employees because of the expense involved, but it might empower Obama to enact his other proposals, such as increasing taxes on capital gains and dividends. Cramer often recommends buying stocks with good dividends in difficult times, but given rising taxes on yields, investors need to look for great rather than good dividends. Cramer created a diversified portfolio of 5 great dividend stocks:

1. BP (BP) yields 5.8%, is making cost cuts and has consistent growth. Cramer applauded its purchase of properties from Devon Energy (DVN).

2. DuPont (DD) is a versatile conglomerate and a good play on emerging markets. Its dividend, which it has raised 422 consecutive times, is at 4.4%.

3. Kinder Morgan Energy Partners (KMP) is a natural gas pipeline play that isn't exposed to commodity prices and yields 6.5%.

4. Verizon (VZ) is likely to further boost its dividend which is at an already generous 6.5%.

5. Eli Lilly (LLY) has raised its dividend for 42 years, and Cramer doesn't think healthcare reform will affect its yield of 5.4%.

For those who want a higher yielder than DuPont, Cramer would buy Altria (MO) which has a 5.7% yield.

Don't Buy These 3 IPOs: Crude Carriers (NYSE:CRU), Baltic Trading (NYSE:BALT), Diana Shipping (NYSE:DSX), Nordic American Tanker (NYSE:NAT)

As shipping rates rise, new shipping IPOs are appearing, but beware. Many companies in the sector are facing financial distress and are spinning off IPOs to make money; in effect, they are duping investors with unsustainable businesses. Baltic Trading (BALT) and Crude Carriers (CRU) have already gone public and Alma Maritime's IPO is next week. These IPOs are so bad that two out of three don't own any ships. For those who want to be invested in this sector, Cramer would stick with Diana Shipping (DSX) and Nordic American Tanker (NAT). The latter's dividend is expected to go up "substantially."

Qwest Communications (NYSE:Q), Frontier Communications (NYSE:FTR), Windstream (NASDAQ:WIN)

While Qwest Communications (Q) has been considered a single-digit spec since it fell from its 2008 high of $10 to $2 and change later that year, the company is finding its way back, and Cramer says the technicals indicate it is a "screaming buy." One sign of a continued upward trend is that while investors are waiting for pullbacks in Qwest to buy, they are buying the stock at higher and higher levels. Now that the stock has crossed the $5 mark, institutional investors who avoided the stock under that level will now get into the game. Qwest's "on balance volume" or the volume the stock is bought or sold compared to its share price, is good, and shows that investors are increasingly willing to pay up for the stock.

Qwest made a smart move switching its partnership from Sprint (NYSE:S) to Verizon (VZ), and plans to reduce its debt by 25% in the next year. With extra cash, the company might consider purchasing a good telco like Frontier Communications (FTR) or Windstream (WIN) while keeping its 6.4% dividend at current levels. The one drawback in buying Qwest is that it needs an economic recovery to perform well, but it isn't the purely high-risk spec it once was; “Qwest has gone from a speculation to an investment,” Cramer said, “and that process should drive it higher over the next year.”

CEO Interview: Niq Lai, City Telecom (H.K.) (CTEL)

Cramer likes Qwest Communications (Q) for its fundamentals and its dividend, but the stock needs a strong U.S. economy to perform well, and with healthcare legislation looming, Cramer would look for an overseas equivalent. He chose City Telecom (CTEL) which provides phone, internet, TV and data services to Hong Kong and has a 4.2% dividend.

While the company controls just 5% of the internet market in Hong Kong, it has plenty of room to grow and has proven its ability to succeed with broadband, of which it has 19.6% market share. CTEL has been paying down its debt, and its dividend is secure. The company is also developing a free TV service funded by advertising. Cramer asked Lai what was the secret to CTEL's success, and he replied the population density in Hong Kong makes utilities like telco more profitable than in other countries. Cramer says CTEL has a bright future.


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