Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday June 1.
While the Dow closed down 112 points and the S&P dipped 1.7% amid myriad domestic and international headaches, Cramer urged investors once again not to give up and to stay in the game. While there are dozens of reasons to worry, "don't succumb to the negativity" Cramer said, and talked about why the main bogeymen affecting stocks are not reasons to despair.
2. Deep Water Drilling Will Be Banned. Cramer thinks this might well happen in the U.S, but he strongly doubts similar measures will be taken in China, Russia and Brazil.
3. European Debt Problems. The European mortgage problem is much more manageable than the U.S. crisis was. Even a European collapse might be good for the U.S.
4. Another Flash Crash. Cramer thinks the SEC will wake up and regulate the kind of financial innovations that caused the Dow to fall nearly 1,000 points in one day.
5. Chinese economy. The Chinese are simply preparing for a soft landing. No reason to worry there.
6. Obama's Anti-Bank rhetoric. Congress has benefited too much from the banking sector to punish it very harshly.
7. The Worst May in 40 Years. The fundamentals of the economy show signs of improvement, although there might be some pain short-term.
Cramer suggested investors have substantial exposure to gold, keep a lot of cash handy and to buy accidental high-yielders and defensive stocks.
Oil stocks are behaving like nuclear power stocks did after the terrible Three-Mile Island disaster, and even though not every oil stock is levered to offshore drilling or the Gulf of Mexico, the whole sector is getting punished. Unfortunately, the fundamentals don't seem to matter short-term, so Cramer suggested consulting technician Dan Fitzpatrick about OilServices HLDRS (OIH) chart.
Lately the ETF has been trading very heavily and, according to the chart, its prospects are not so good in the near term. Even before the Gulf of Mexico spill, the stock was experiencing a "bearish wedge" which indicates investors were not interested in holding the stock, but were selling into gains. The stock is seeing a series of lower highs, and Fitzpatrick thinks the ETF won't find support until $65. Cramer would use the decline as an opportunity to buy stocks in the index that are not levered to the Gulf of Mexico. Weatherford (WFT) has significant overseas exposure, yet is "distinctly hated" and has seen a 24% decline. Cramer would buy Weatherford along with Nabors (NBR) and Patterson-UTI Energy (PTEN), both of which are land-based.
Last summer, BJ's (BJ) won the match with Costco (COST), and since then, its stock is up 25% compared to Costco's 17% gain. However, Cramer thinks BJ's rise is unsustainable, especially given the bullish data coming from Cosco. He declared a rematch of the two companies. Costco beat BJ's in 5 crucial metrics:
1. Costco's sales per square foot is double BJ's.
2. Costco has more private label brands, which comprise 20% of sales compared to 10% of BJ's. With the economy still in the doldrums, consumers are not switching from private label to mainstream brands, but are continuing the frugal trend.
3. Costco's comps were up 10% in April and the company has seen accelerated earnings growth. BJ's comps were less stunning; while March of 2010 was 11% higher than last year, April saw a smaller gain of 5%.
4. Costco's traffic has been rising by 4% the last four months, while BJ's has been dropping.
5. Membership fees, which comprise 65-70% of earnings generated 11% more money this year for Costco and renewal rates rose a record 87.5%. BJ's rate of revenues from membership fees was up just 5%.
Cramer thinks BJ's just threw in the towel in this face-off and declared Costco the new champion.
Eureka Moment: How the U.S. Can Prevent a Liquidity Crisis
Cramer thinks the U.S. should take advantage of the demand for Treasuries and avoid a liquidity crisis; "The greatest financial risk to our nation is a liquidity crisis brought on by the fact that we have too much short-term debt," Cramer said. "At some point we might have to roll it over and pay much higher rates."
The solution: Cramer thinks the government needs to refinance by selling $2 trillion worth of 30-year treasuries to lock in low rates as Europe is increasingly viewing America as a safer place to put its money. He added; "If we were to pay a mere $150 billion to protect our country from a liquidity crisis for five years, that’s a very cheap price considering how leveraged we are right now and the rapid increase in government spending that’s going on as we speak. If we sold $2 trillion in debt now, we could take a liquidity crisis out of play for thirty years."
The time to act is now, before demand wanes.
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