Cramer's Mad Money - 10 Reasons We Need a Pullback (10/27/10)

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 |  Includes: AEM, BGS, GLD, JNY, S, WHR
by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday October 27.

Why the Pullback Was Needed: Whirlpool (NYSE:WHR), Sprint (NYSE:S), Jones Group (NYSE:JNY)

The Dow was down early on Wednesday, before it rallied 100 points and closed down 43. Cramer said he was disappointed by the mid-day rally because what the market needs is a good pullback. Here's why:

1. The Republicans might not win big. Wall Street is counting on a big win for the Republicans next week, but Cramer says this is not a sure thing.

2. QE2, the Fed's solution for stimulating the economy, is so baked in that stocks are not going to be affected by it.

3. How many more days can we run on these great earnings?

4. The rally was not so staggering.

5. There were some highly visible losers. Whirlpool (WHR) was dead in the water, losing 4.1%, Jones Group (JNY) dropped 22% and Sprint (S) fell 10%.

6. The strong dollar is not good for industrials which drive the economy.

7. Why tempt fate with the employment number?

8. The bull/bear ratio. The bull/bear ratio is now nearly 50%. Cramer is uncomfortable with a bull ratio above 45%

9. The shorts are losing steam. Short covering has been a big driver of recent rallies.

10. It's October. Historically a "down" month. Cramer expects mutual funds to sell off at the end of the month.

What to do in the meantime? Cramer would buy banks, and other quality stocks as they take a dip.

CEO Interview: Sean Boyd, Agnico-Eagle Mines (NYSE:AEM), SPDR Gold Trust ETF (NYSEARCA:GLD)

While bears are grumbling about a gold bubble, Cramer says "I need you to buy gold." There is no such thing as a bubble for a commodity that is in a "multi-year super cycle." He emphasized gold is not really a commodity, but a currency that is good anywhere and there are shortages. Every portfolio should have 20% gold, and Cramer likes the SPDR Gold Trust ETF (GLD), but he prefers Agnico-Eagle Mines (AEM) which is up 17% since Cramer spoke to Sean Boyd on August 10 and 28% since Cramer became bullish on the stock in February. AEM doesn't just benefit from rising gold prices, but it is also revving up production by 140% over last year. The company beat its 51 cents earnings per share estimates when it reported EPS of 73 cents.

Boyd says the risk the company took opening five new mines in five years is paying off with increased production. He is not nervous about a pullback in gold, nor does he think it is a bubble. Like Cramer, Boyd emphasizes gold is a currency, not just a commodity. However, production increases are becoming more challenging as it is difficult to find new sources of gold. Cramer says AEM is a stock that "sells itself" and is going to $120.

CEO Interview: David Wenner, B&G Foods (NYSE:BGS)

Cramer devoted a segment to discussing a stock no one asks him about, B&G Foods (BGS). This is a forgotten stock, even though it is up 44% since Cramer spoke with the CEO in August 2009 (actually 57% counting the dividends) and offers a 5.7% yield. The company buys up unloved food brands and breathes new life into them; it has reinvented Cream of Wheat, Ortega taco shells and Maple Grove farms. The company beat earnings by two cents and saw increased sales for its leading brands, most of which are #1 or #2 in their category.

David Wenner said he was proud to be able to raise the dividend and return more money to shareholders and sees more increases in the future. He spoke of how B&G reinvents brands; it created a Cinnabon Cream of Wheat, since the cereal had not seen any innovation for years, and started an aggressive coupon campaign. When the company bought Ortega taco shells from Nestle, the brand generated $80 million in sales, and now it produces $130 million for B&G. Wal-Mart is an important client for B&G and the company is steadily gaining share on the shelves of the retail giant.

Cramer said at the end of the interview: "One of my favorite stocks that I've never heard anyone own."

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