Cramer's Mad Money - Has Bank of America Bottomed? (8/16/11)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday August 16.

Has Bank of America (NYSE:BAC) Bottomed? other stocks mentioned: Wells Fargo (NYSE:WFC), ING (NYSE:ING)

Bank of America (BAC), one of the worst performers in the beleaguered financial sector, has dropped from $10 to $7.40 in the past couple of weeks. Cramer, along with technician Dan Fitzpatrick of TheStreet,com, looked to the charts to see if maybe BAC has bottomed. The weekly chart paints a picture that "lacks pulchritude." The stock has been stuck in a downtrend since March 2010, when it fell below its 200 day average, which measures the long-term trajectory of the stock. BAC kept trending lower until January, when it moved above this 200 day moving average, only to tumble below it again in April. The selling reached its climax on August 4, when the stock was taken down to $6.31 on heavy volume. This was the level at which the bulls capitulated, and the stock lost 34% of its value in only three days. The worst part of the action in BAC is that it is impossible to find a support level, because the stock keeps dropping, and there is no real floor beneath it.

The daily chart for BAC shows that the stock has been bouncing back slightly, but the small rallies are not convincing, because they seem to be a function of short covering, and there do not seem to be real buyers coming into the stock. Even with the buying, the highs are lower; if there were committed buyers the highs would get higher or at least there would be more volume. If BAC falls below $7.20 again, it might be headed back to the $6 range, or since there is no real floor beneath the stock, perhaps even lower.

BAC's fundamentals don't inspire confidence. When it purchased Countrywide Financial, it bought up the bank's bad mortgages which have been causing it nothing but headaches, including legal entanglements, ever since. The company barely has a dividend, with no indication of when it is going to be raised. In short, "Bank of America is one of the worst performers my charitable trust has ever had," said Cramer, regretting that he did not get out of the stock earlier. Although banks are bad, he would consider buying almost any other bank besides BAC, which is suffering the most from bad mortgages.

Cramer took some calls

Wells Fargo (WFC) reported a monster quarter, and Warren Buffet has been buying stock. However, in the end, it is still a bank stock, and it might be some time before investors will see returns from WFC.

ING (ING) is a sell.

Home Depot (NYSE:HD), Wal-Mart (NYSE:WMT), McDonald's (NYSE:MCD), Abbot Labs (NYSE:ABT), Statoil (NYSE:STO), Conoco-Phillips (NYSE:COP)

With the German GDP numbers down, investors could have foreseen the drop in the Dow on Tuesday. It is becoming increasingly clear that sometimes the macro news from Europe seems to matter more to the U.S. stock market than domestic data. While Europe teeters on the brink of bank failures and a possible recession, the best strategy is to look at individual stocks that are working. While great earnings results from two of America's largest retailers couldn't trump the gloom from Europe, at least investors who held shares in Home Depot (HD) and Wal-Mart (WMT) saw some gains. McDonald's (MCD) and Abbot Labs (ABT) are both recession-proof stocks that were up on Tuesday, and they may be an indication of the kind of stocks to buy as the economic situation becomes more grim.

Cramer took some calls

Statoil (STO) has not been effective at replacing its reserves. Cramer prefers Conoco-Philips (COP) which has a nice yield and growth to go along with it.

Home Depot (HD) is "incredibly well-run" and is "monster good" according to Cramer. He says he hopes the stock comes down so he can recommend buying some.

CEO Interview: Steve Sadove, Saks (NYSE:SKS)

While most high-end retail has been doing well, Saks (SKS) has dropped 32% since March, with the S&P 500 down only 19% during the same period. The company reported a decent quarter, with slower than expected earnings loss and fantastic same store sales, but issued cautious guidance. The stock fell 4.6% following earnings. CEO Steve Sadove explained that the company has made significant improvements, including cleaning up its balance sheet, closing stores that aren't working and opening a few new locations. He pointed out 50% growth in the company's website sales, and added he would like to see operating margins rise from the current level of 4-5% to 7-8%. Saks is seeing 15% top line growth, and is projecting mid to high double digit growth for the fall. The first two weeks in August have already been in-line with fall targets.

Sadove told Cramer he is not concerned with vendors competing with Saks, since this game has always been played and can be a "win-win situation."

"I don't understand Sak's price," Cramer said, "but maybe that means it should be bought."

CEO Interview: Mark Ordan, Sunrise Senior Living (SRZ)

Sunrise Senior Living (SRZ) is a speculative play on one of the biggest demographic trends-- the graying of the Baby Boomers. It is a high-end, high-priced senior care facility operator that is less dependent on Medicare than its competitors. Nonetheless, the stock was hammered down with similar names because of fears of Medicare cuts. The stock fell from $12 to $6. The company also suffered from major debt problems, but is back from the brink, with occupancy rates higher than they were a year ago and the broadest remodeling project in the company's history. SRZ is covered by only one analyst, and Cramer thinks the stock could gain more attention once The Street realizes that the worst of SRZ's problems are probably behind it.

CEO Mark Ordan explained that the company has weathered rough economic winds by focusing on its core demographic. SRZ combines a pleasant living experience with 24 hour care. The company has dramatically reduced its debt and is seeing occupancy rates steadily increase.

"This is a terrific story," said Cramer, "and a remarkable turnaround."


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