Cramer's Mad Money - 10 Ways World Governments Trump Stocks (5/19/10)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday May 19.

10 Ways Governments Trump Stocks: Deere (NYSE:DE), Caterpillar (NYSE:CAT), Hewlett Packard (NYSE:HPQ), JP Morgan (NYSE:JPM), Banco Santander (STD), Home Depot (NYSE:HD), Target (NYSE:TGT), Lowe's (NYSE:LOW), Northrop Grumman (NYSE:NOC), 3M (NYSE:MMM), United Technologies (NYSE:UTX), M&T Bancorp (NYSE:MTB)

There is dichotomy between good news about companies and bad news coming from governments around the world. Fundamentals are great, but governments keep trumping the good news with discord, interference and fear-mongering.

1. Deere (DE) reported an "incredible number" and gave a huge guidance boost. However, given uncertainty over whether Germany is going to bail out Europe, Deere was down because they have significant exposure to Europe. Cramer wonders if the same fate is in store for Caterpillar (CAT).

2. Hewlett Packard (HPQ) is another solid company which, through no fault of its own, is unfairly exposed to Europe and its failing economy. Despite its strong number, Hewlett Packard is also down.

3. Occidental Petroleum's (NYSE:OXY) strong number hardly mattered as hedge funds sold off the stock. Since the dollar is rising on the decline of the euro, commodities are getting sold off.

4. JP Morgan's (JPM) strength is less compelling than concerns over where financial reform is headed. If Senator Blanche Lincoln's proposals pass, JPM can kiss its lucrative swaps business goodbye and Deutsche Bank will be the primary beneficiary.

5. Banco Santander (STD) was looking forward to acquiring M&T Bancorp (MTB), but STD has been hit because it is a Spanish Bank, and now its prospects look much less bright.

6. Target's (TGT) numbers were "terrific," but with higher taxes on the horizon, the retailer is likely to suffer.

7. Home Depot (HD) performed better than Lowe's (LOW) but the surprise ban on short selling is "what really killed us," said Cramer.

8. Northrop Grumman (NOC) has a generous 9% yield, but some of the advantage of owning dividend stocks may be compromised as Obama proposes taxing yields like regular income.

9. Oil drillers look low enough to buy, but who knows if this is a good move, given a proposed ban on offshore drilling in the wake of the Gulf of Mexico disaster.

10. 3M (MMM) and United Technologies (UTX) seem safe because they are free from European exposure, but their business in Asia is not much safer, given concerns about the Chinese economy.

Health Care REIT (NYSE:HCN)

In a difficult investing environment, Cramer suggests looking for safe, accidental high yielders whose dividends rise as the stock price falls. Health Care REIT (HCN) owns skilled nursing facilities, senior housing, hospital facilities and medical office buildings. In total, HCN has 608 properties in 39 states and now offers a generous 6.8% yield.

HCN's business is actually owning properties, not in just owning mortgages on these properties. The REIT has some exposure to Medicare and Medicaid, but its senior independent living business, which comprises 22% of its revenues is mainly supported by private money. HCN beat estimates by 2 cents in early May, has a clean balance sheet and recently raised its dividend, which it is more than able to pay.

The SEC Is Not on Your Side

Corporate earnings at one time were the main component in determining stock price, but these days, fundamentals hardly seem to matter. The big picture of European economic collapse and short-selling have coupled to trump successful earnings from individual companies and are keeping stocks down.

Short-sellers are so unrestrained because of the repeal of the uptick rule that once restricted shorts from trading until the stock was bid up slightly. Since the uptick rule disappeared, short sellers have been able to devastate stocks without mercy, and Cramer blames aggressive short-selling for Lehman Brothers' demise and for the nearly 1,000 point one-day drop in the Dow a few weeks ago.

"The market is not safe for the little guy" who has his 401(k) and kids' college tuition money riding on his investments. Instead, SEC policy is favoring high frequency buyers and sellers, but reform of the system is slow in coming. In addition, the SEC did nothing to protect innocent investors from Bernie Madoff and did not ask questions early enough. How to avoid a Madoff situation? Keep an eye on your money manager, urged Cramer and check every move he makes. If results seem too good to be true, they probably are.

Protect yourself… limit orders, diversification, no margins, higher yielding dividends, checking in on that money manager because no one else will protect you… no one…


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

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