Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday August 9.
7 Dividend Stocks That Can Be Bought Now: ConEdison (ED), Enterprise Products Partners (EPD), Verizon (VZ), Bristol-Myers (BMY), Darden (DRI), Kimberly Clark (KMB), International Paper (IP). Other stocks mentioned: Netflix (NFLX), Google (GOOG), Amazon (AMZN), Solar Capital (SLRC), Wynn Resorts (WYNN), MGM Resorts (MGM), Apple (AAPL)
Cramer discussed 7 dividend stocks that can be bought right now, or in yet another sell-off set in motion by the woes of Europe. "We need to stick to the dividend aisle of the stock supermarket," he said. Dividends give greater gains than Treasurys, and high-yielding stocks were the only stocks that were working in 2008 (not that Cramer believes we are headed toward that scenario again). A good yield acts as a cushion when a stock declines. Reinvesting dividends is the secret to making money on these stocks: divide the number 72 by the yield to figure out how many years it will take to double the money you invested.
Con Edison (ED) This New York utility company yields 4.7%. The company has boosted its dividend for 37 consecutive years and the company has no coal exposure, so it is safe from the EPA.
Enterprise Products Partners (EPD) has earnings that are on fire, and a 6% dividend which it raised last month.
Verizon (VZ) has come down hard, but yields 5.8%. Management is reducing labor costs, and the company is growing consistently.
Bristol-Myers (BMY) is getting its act together and is making new drug discoveries. The company is an attractive takeover target, and yields 4.9%. The FDA recently approved its arthritis drug, and its skin cancer treatment is doing well.
Darden (DRI) is going to benefit from lower gas prices. It yields 3.7%, not as high as the others, but not bad. Cramer would put a starter position on Darden.
Kimberly Clark (KMB) has been crushed by raw costs, since packaging is made of petroleum, but will go higher as oil drops. The stock yields 3.7%.
International Paper (IP) has great exposure to emerging markets and a 4.4% dividend.
Cramer took some calls:
Netflix (NFLX) is growing faster than the economy, and like Google (GOOG), Apple (AAPL) and Amazon (AMZN), Netflix is a buy on its rapid growth. Cramer would use deep in the money calls to buy Netflix.
Solar Capital (SLRC) is a strong financial with a good story. Cramer thinks it is going higher.
How Bernanke Killed Bonds
Fed Chairman "Ben Bernanke took out the biggest competition to stocks and shot it in the back of the head," said Cramer. When Bernanke indicated that interest rates weren't going up for bonds in a long time, he made high-yielding growth stocks look more attractive. Portfolio managers used to peddle short-term bonds to preserve their clients' wealth. Now that bonds are out of favor, high growth stocks will be the best option, and these stocks have dividends that have a better tax advantages than bonds. Cramer invited viewers to think of Apple as the equivalent of a bond with a better return. Since the European crisis is not one that the Fed has any control over, Cramer would use the gains on Tuesday to sell into strength and rid one's portfolio of stocks connected to Europe, like banks and tech. For those who are afraid of owning stocks at all, Cramer suggested selling into the current strength, but warned there is no way to benefit from Apple's gains while sitting on the sidelines.
Is it 1987 or 2008?
How can investors not worry about a 600 point decline in the Dow, as we had on Monday, even if it is followed by an open of over 200 points? Cramer compared the current situation to the crash of 1987, or Black Monday; "I lived through it...I traded through it...I had hair before it happened."
The peak before the crash came in August of 1987 when the Dow was at 2,722 and the average stock was trading at 40 times earnings compared to 12 times earnings now. Confidence began to erode with competition from the Japanese. Big funds took out insurance against declines and sold S&P Futures against holdings to lock in gains. This strategy has since been made unavailable, because of the impact it had on worsening the effects of the crash. Things looked ugly the week before the October 1987 crash; the Dow had declined to 2,471 with a huge sell-off in stocks. The Friday before the crash, Cramer had cashed out of most of his holdings. On Monday, the Dow fell 508 points and brokers could not keep up with the chaos. While the decline this past Monday was greater, 600 points, the Dow in 1987 was much lower, and the drop on Black Monday was a full 20%. The Dow eventually lost 1,000 points in the following week. What was the result? The economy barely skipped a beat and the main victim was New York real estate. The economy today is much worse than it was in 1987. However, Cramer thinks the current sell-off resembles 1987 more than it resembles 2008. Those who bought on the 1987 declines made a lot of money a year later when the stocks that got hit made dramatic gains.
Did Apple Deserve to Surpass Exxon (XOM)?
For a brief period on Tuesday, Apple surpassed Exxon (XOM) as the world's largest company by market cap. Cramer is not surprised, because Apple is the biggest manufacturer, innovator and pioneer there is. The company is taking market share like no one else in the industry and can sell its wares in any country on Earth. No one else can "dream dreams that no one else can fathom and create products that equal or beat those dreams." Apple has "the single greatest balance sheet known to man."
While some still think Apple is just a gizmo company levered to entertainment and is merely a phone and gadget maker, Apple is actually a $330 billion company that is taking a trillion in market share from its competitors and has $80 billion in cash. "Apple welcome to the top," Cramer said. "You deserve it more than any company on Earth."
Transports were flying high on Tuesday, and Cramer thinks that this is a bullish sign for the economy. In 2008, transports were the first to suffer, since they are so levered to the health of companies. Cramer would look to transports with pricing power, like the rails, and pointed out that Union Pacific (UNP) received an upgrade from Goldman Sachs. UPS (UPS) has pricing power as well, and has a 3.3% yield. He would stay away from tanker stocks, especially since rates are low. While Cramer has said Nordic American Tanker (NAT) is the only tanker he would buy, he is not happy with the fact that the company is borrowing money to pay its generous dividend. He would sell NAT on its recent rally. Cramer would also stay away from airlines.
Jim Cramer was up 31% in 2009. Click here now to sign up for Jim's Action Alerts PLUS and trade alongside him. Special discount for Seeking Alpha users.
Get Cramer's Picks by email - it's free and takes only a few seconds to sign up.