Cramer's Mad Money - Silence of the Bulls (1/4/11)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday January 4.

Silence of the Bulls: Fluor (NYSE:FLR), Schlumberger (NYSE:SLB), McDonald's (NYSE:MCD), Freeport McMoRan (NYSE:FCX), Bank of America (NYSE:BAC), Peabody (BTU)

It didn't take long for the bulls to shed their disguises and reveal the bears within who cannibalized Monday's gains; the Dow dropped 25 only to reverse and close up 20 points. This Silence of the Bulls action is just a trailer for the film of 2011, said Cramer, who predicts the year will be filled with intraday reversals. What should an investor do when the bears come out and have the bulls for lunch? Cramer suggested staying the course, and to think of sell-off as opportunities to buy good stocks cheap.

"When Macy's has a sale," said Cramer, "Do you panic and run away from the mall?" So why run away from heavy discounts on great stocks? Tuesday was a great day to buy Fluor (FLR), Peabody (BTU), Schlumberger (SLB), Freeport McMoRan (FCX), McDonald's (MCD) which the bears say is "dangerous" but is actually "terrific," Bank of America (BAC) and oil stocks.

A Break for Gold?

Oil has been rising consistently for the past decade. Isn't it time for a break? While Cramer admits this sounds reasonable, any respite for gold is just a temporary breather before the yellow metal surges higher. With most of the world's major currencies suspect and too much paper money being printed in the U.S. and Europe, gold will be worth more. There is currently a shortage of gold coins, and with demand rising in China and India, they will become ever more valuable. Not everyone is on the gold bandwagon; gold currently comprises only 1% of the average fund manager's portfolio. Only when that level rises to 5% will investors have to worry about gold becoming overvalued. Yes, gold may be slowing down for a bit, but Cramer would use the pullback as a buying opportunity.

Mad Mail: NetSuite (NYSE:N), (NYSE:CRM), Annaly (NYSE:NLY)

Netsuite (N) is a "second cousin" of Cramer fave (CRM) and both are service providers for applications used over the web. makes software for the front end of businesses, while Netsuite's applications are mainly for the back end and the internal running of companies. Netsuite beat estimates, raised guidance and said the company has a significant increase in business. However, there is one problem with the stock; it is too high. The stock has doubled in less than six months and has nosebleed valuations. Netsuite's growth rate is only slightly higher than Salesforce's, but NetSuite is much more expensive. Although Cramer thinks Netsuite's long-term story is terrific, he would not be a buyer at the current level, would take a substantial amount off the top and would wait for a significant pullback before buying.

Cramer reassured a viewer about Annaly's (NLY) issuing more shares, and said the company is raising money to buy more mortgages, not to pay off its dividend. Annaly "knows how to play this market better than anyone in the world," he said.

To another viewer who suggested a new ETF to track the VIX, or the volatility index, Cramer exclaimed, "Enough with the ETFs! There are too many ETFs! Buy a stock with a good dividend. Isn't that a better way to go?"

Are There Any Cheap Oil Stocks? Hess (NYSE:HES)

Given the rising demand for oil worldwide and significant shortages, it is not too late to buy oil. However, most oil stocks have seen tremendous runs. Cramer would buy Hess (HES), which is among the least expensive integrated oils, even though it is just under its 52-week high. Cramer likes Hess because it is the most levered to higher oil prices and has very little natural gas. While many people think Hess is all about gas stations, the stock is really "all about oil." Only 10% of the company's revenues come from gas stations and the remaining 90% are from exploration and production. Hess is also a terrific turnaround story, and while the company used to behave like a "cowboy" with a high risk, high reward approach to drilling, Hess has now found more realistic ways of finding oil. The market is still skeptical about Hess, which is one reason the stock trades at a 10% discount to its peers. Cramer thinks 2011 will be the year Hess will get some well-deserved recognition.

Off the Charts: Oil Service HOLDRs (NYSEARCA:OIH)

Even with demand for oil raging worldwide, oil bears seem to think the basic rule of supply and demand does not apply in the case of black gold. Bears argue the commodity has risen too high and ascribe the rise in oil to hedge funds gone wild rather than real demand. However, Cramer urged investors not to "overthink it," and in this case, the majority is right; oil is headed much higher.

If the fundamentals are not convincing enough, Cramer consulted the charts and the analysis of John Roche of WJB Capital. The S&P 500 Energy Index is breaking out of its April 2010 highs and is above its 40 week moving average, which is the most basic bullish sign for technical analysis. This movement indicates a longer term trajectory that is poised to go considerably higher.

Oil Service HOLDRs (OIH) got hammered in 2008, bottomed in 2009, traded sideways in 2010 and is now breaking out of its range. Roche predicts a major breakout for the OIH, especially considering the large base which serves as a launching pad.

The fundamentals and the charts agree, Cramer concluded, it is not too late to buy oil.


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