Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday January 6.
10 Reasons to buy Bank of America (BAC)
Even on a day when the Dow slipped 26 points, it is a good idea to take a step back and think about America's long-term return to greatness. Expecting an improvement in jobs in 2011 and a housing recovery for 2012, Cramer recommended Bank of America (BAC) on the comeback of America. He gave ten reasons why BAC is worth buying, even though it is "the most despised stock" and has a huge short position. However, Cramer predicts pain for the shorts.
1. Bank of America's chart is incredible compared to what it was in 2007, when it resembled the north face of Mount Everest. Cramer thinks the chart itself is a "screaming buy" and wonders why it is inspiring so much negativity.
2. The bank is well-capitalized and doesn't need to raise more money.
3. Dividend boosts are on the way.
4. Bank of America managed to snag 20% of the mortgage market during the downturn. While having so many mortgages was a liability not long ago, it will be an asset as the housing sector returns.
5. BAC owns the most houses, and will do well in the housing shortage Cramer is predicting for 2012.
6. Fed Chairman Ben Bernanke is determined to keep the banking sector strong, and BAC will be a prime beneficiary, given its "gigantic deposit base."
7. It owns Merrill Lynch. As stocks are looking more attractive now that President Obama is not raising taxes on dividends, more Americans will increase their investments and seek advice from Merrill Lynch's advisers.
8. While the jobs number on Friday may be weak, Cramer would buy BAC on the weakness, since he thinks the long-term outlook for employment is bullish.
9. Fin Reg is over.
10. Now that BAC has settled its claims with Fannie Mae and Freddie Mac, a major risk factor has been taken off the table.
Cramer called Bank of America "the single best call on our country's return to greatness."
Sell Block: Green Mountain Coffee Roasters (GMCR)
Even though Green Mountain Coffee Roasters (GMCR) is up 10% from where Cramer told viewers to sell in September, the stock is simply not worth buying, even though it is the producer of the revolutionary Keurig. In his days as a hedge fund manager, Cramer developed a hard and fast rule that any whiff of accounting regularities means staying away, even if a company has a great fundamental story. His rule of thumb is to wait two quarters before buying the company.
For so many reasons, buying stocks plagued by accounting problems isn't worth it. First, the stock price gets initially poleaxed once the news hits. Such problems also may indicate a more complex and fundamental problems with the company itself, and such problems do not go away overnight, but often involve extensive investigations by the SEC. With so many great stocks to buy, it is just not worth buying a company with accounting irregularities. In such a case, even though Green Mountain may seem like a terrific stock to buy, discipline should prevail.
Don't Run Away from Retail: Amazon (AMZN)
Retail stocks were dumped on Thursday on the mistaken idea the consumer is weak and the time of year is not good for the sector. Cramer's father, who ran a business that sells packaging to retailers, always noticed that business actually picks up after the holidays. This is even more true after the difficult winter, which kept shoppers at home and buying online.
Cramer would buy Amazon (AMZN), which is becoming the online one-stop shop for everything under the sun. The stock is one of Cramer's high growth stock picks, and although the stock didn't get hit with the rest of retail on Thursday, investors can still make money buying deep in the money calls, or the April $170 calls. Since the stock has had a big run, up 56% since January 2010, calls protect investors from losing money. Amazon will report its quarter before these calls expire and the downside is limited. While Amazon has grown tremendously, it is poised to grow even further at a rate of 26% per year, and is quickly becoming "the best retailer on Earth."
Analysts and the Quiet Game: First Republic (FRC)
Everyone knows that an upgrade often causes a stock to rise, but how to predict when an analyst is going to upgrade a stock? Cramer recommends playing "the quiet game"; when a stock has its IPO, there is usually a waiting period before analysts pile in to initiate coverage of a stock. After a strong IPO, a smart investor will buy during this waiting period before the upgrades begin.
One stock Cramer expects to see significant coverage of is First Republic Bank (FRC), "the best bank you've never heard of" which mainly deals with high-end clients on the West Coast. Its wealth management business is strong and the bank has the reputation of "making loans to people who don't need the money." The stock had its IPO at $25.50 and is up only $3 from that level. When it was spun off by Merrill Lynch, First Republic retained its management, its clients and its identity as a bank. While the stock trades at twice its book value, a seemingly rich level, it is actually less expensive than similar quality banks and deserves to be higher. First Republic is a "pristine high net worth bank...and has a super safe portfolio of loans," said Cramer, who expects aggressive coverage of the bank and buy recommendations galore.
The Painful Upgrade: Chipotle Mexican Grill (CMG)
Cramer called Piper Jaffrey's upgrade of Chipotle Mexican Grill (CMG) "painful," since analysts have been disliking the stock fo the last 164 points. The reasons for liking the stock: unique culture, stellar balance sheet, and the growing popularity of fast, casual concepts are not exactly new. What can be learned from this "painful" upgrade? When the analyst community seems to dislike a supercharged growth stock, they are eventually going to have to surrender their bearishness and upgrade. This is yet another reason such stocks should be bought on any pullback.
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