Cramer's Mad Money - Goldman's 'Arrogance' Is Not Illegal (4/16/10)

 |  Includes: A, AMZN, BAC, C, CAT, DE, F, GS, HD, HOTT, INTC, JPM, PPG, UPS
by: Miriam Metzinger

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

The Real Story Behind the Goldman Sachs (NYSE:GS) Scandal

Cramer began his view of the Goldman Sachs scandal (GS) with a disclaimer; he got his "big break" in 1982 when Goldman Sachs hired him for sales and trading. Cramer also has friends still working at Goldman, but nonetheless, he declared; "I am probably one of the most pro-prosecution people on this planet… I always give the government the benefit of the doubt." But he added, "With so many cases the government could take on, why would they go after the weakest one?"

"Nor, do I condone the behavior of Goldman or the named in the matter that I am about to describe," he continued, "It does not smell good to me… I do not want to be associated with it myself… but I am not sure that there was anything illegal… I am not sure that there was anything immoral, or even unethical about it, when you pull it apart… so let’s do so."

It all started when Goldman Sachs created a product for a "not very smart" hedge fund client, Paulson & Company, because they wanted to bet against housing. Goldman Sachs made sure the product was properly vetted first and put out a document, ABACUS2007-AC1. After reading the document, Cramer said he would never have bought such a piece of paper, but added no one put a gun to the head of those who did.

"Did Goldman do something illegal when it put this booklet together? Showing everything that was in it, totally transparent… or did the very sophisticated German bank that bought it just do something really stupid when it made the purchase? I think the latter," said Cramer. He added that Goldman actually lost money from this deal, and while "that does not absolve them," Cramer thinks the SEC is desperate to bring cases out of their intense zeal for financial reform, and Goldman Sachs is perceived as "the most arrogant and least reformed in the room." Cramer commented, "While it may be a terrible personality trait, arrogance is not illegal."

Goldman Scandal Game Plan: Intel (NASDAQ:INTC), PPG (NYSE:PPG), UPS (NYSE:UPS), JP Morgan (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C), Boeing (NYSE:BA), Caterpillar (NYSE:CAT), Deere (NYSE:DE), Hot Topic (NASDAQ:HOTT), Amazon (NASDAQ:AMZN), Ford (NYSE:F), Home Depot (NYSE:HD), Scott's Miracle-Gro (NYSE:SMG), Apple (NASDAQ:AAPL)

As stocks tumbled on Friday, the question on many investors' minds was, "Is the Goldman scandal going to cause a major correction?" Cramer's answer: "No, because this is not a rigged game. The stock market is not a huge con against you. We cannot countenance you leaving this market simply because the government is pursuing Goldman Sachs for selling some security that perhaps it should not have sold, or at least without more disclosure, and maybe without the fairness that we expect from really good institutions like Goldman."

The Goldman case does not affect corporate profits, which are "roaring back" along with world economies. Investors who have a diversified portfolio and hold stocks with solid dividends should not be hurt by the tempestuous market. Profit-taking after major gains is always a good idea, and can protect investors from the volatility caused by headlines and the mercurial nature of the current market. Cramer urged viewers to stay in the game; "There has never been a greater wealth generator in history than good dividend paying US stocks. Nothing you or I heard today should change our opinions about that."

Cramer would wait for stocks to settle down on Monday after the weekend's negative headlines. Then by mid-morning, he would buy stocks of companies that have recently reported strong numbers and have nothing to do with Goldman Sachs; Intel (INTC), CSX (NYSE:CSX), PPG Industrials (PPG), and UPS (UPS) on its bullish pre-announcement.

Financials that reported "fabulous" quarters but whose stock prices have not risen: JP Morgan (JPM) and Bank of America (BAC), are good buys right now, in spite of Goldman Sachs' woes. Cramer would take advantage of Citigroup's (C) 5% decline to buy, and predicted it will reach $12 by 2012. Of course, some of these banks will probably also be investigated, but Cramer expects the interrogation to be brief, and the temporary decline will be forgotten.

Although he admitted this strategy is a bit more risky, Cramer sanctioned buying industrials that have gotten unfairly hit by the Goldman scandal ahead of their earnings. He would buy Boeing (BA) on its 2% decline, because he sees a 7 year aerospace cycle coming. He also likes Caterpillar (CAT) and Deere (DE). Cramer says Ford (F) is "rolling" and predicts it will see $17 shortly after it reports. Other picks include Hot Topic (HOTT), Scott's Miracle-Gro (SMG), Home Depot (HD) on a decline and Amazon (AMZN) which is down 3% and is reporting Thursday. Before Goldman hit the headlines, Apple (AAPL) was headed up, but on the news it declined $1. Cramer sees the stock reaching $250 and emphasized he does not recommend buying the stock for the quarter, but for the long-term.

IPO Alpha and Omega Semiconductor (NASDAQ:AOSL)

With more IPOs "than we know what to do with" and the mobile internet tsunami storming ahead, Cramer discussed Alpha and Omega Semiconductor's (AOSL) well ahead of its April 28th release, because he believes the IPO is going to be "strong." AOSL provides a broad range of power semiconductors for computers and is a play on the need for more sophisticated power management chips that save energy and extend battery life. The analogs semi market is growing at a rate of 10% per year. In spite of the fact that the first quarter is historically weak for tech, ten semi companies revised their first quarter guidance upward.

Alpha and Omega is expected to price within the $17 to $19 range, and Cramer would buy at that level up to $23, where he would buy half. However, as usual, he recommends getting in on the deal and not chasing the stock aftermarket.


Jim Cramer was up 31% in 2009. Click here now to trade alongside him.

Get Cramer's Picks by email - it's free and takes only a few seconds to sign up.