Jim Cramer's Mad Money In-Depth, 1/10/08: Bottom's Up

Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Thursday, January 10. Click on a stock ticker for more analysis:

Countrywide Financial (CFC), Bank of America (BAC), Washington Mutual (WM), Citigroup (C), Bear Stearns (BSC), Merrill Lynch (MER), KB Homes (KBH), Centex Homes (CTX), Beazer (BZH), MGIC Investment (MTG), MBIA (MBI), Blackstone (BX), Thornburg Mortgage (TMA)

Cramer would look for buys among the devastated financials and housing stocks. He is interested in the rumor that BAC may buy CFC, and predicts WaMu is a potential takeover target. While Citigroup seems like a real loser, it will profit from a Fed rate cut, and while Cramer already likes BSC, he prefers MER. In housing, Cramer's picks include KBH and CTX, although BZH is "still too troubled." While he does not advocate selling MGIC or MBIA, Cramer would not necessarily buy them either. He would not buy more BX, but would buy TMA, although he would confine buying to preferred shares, since he thinks the company may get a bid.

Benefiting from Bankruptcy: EPIQ Systems (EPIQ)

Cramer likes EPIQ as a "hedge against prosperity" since the company makes money from bankruptcies and foreclosures. EPIQ is growing 38% but trades at less than double the company's growth rate. EPIQ's secondary offering should increase liquidity to further allow the company to profit from rising bankruptcies.

Interview with the President of VFC Corp (VFC), Eric Wiseman

While retail has become a no-man's land for some, VFC is thriving thanks to its diversity of brands and channels as well as its 30% international business, said Eric Wiseman. VFC doesn't need to make many markdowns because of its superb marketing strategies. While Cramer is usually cautious about freshman management, he admits Wiseman is the exception to rule.

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Comments

[Victhom]

Jim pay attention to Mike Perry CEO of IMB

www.indymacbank.com/

IMB own this Gem:

www.financialfreedom.c.../

Explanations...

"With that said, management and certain key employees (about 130 employees total) have over $40 million in the deferred compensation plan, and the company has arranged to be able to “open this plan up” and for individuals to be able to use these funds to purchase IMB stock….and several of us, including myself, plan to do this (personally, I am planning to invest more than $1.5 million)."



Shareholder’s Email:

Mike,

It’s been some time since we’ve had a chance to meet and talk. I’m a shareholder once again … While I realize that the decline in IMB’s stock price has been painful to you in many ways (not just financially) I think there can be no stronger message about the viability of IMB as an institution than significant insider buying at these depressed levels. If management can’t step up at these levels, then imagine what a “leap of faith” it must be for outsiders to purchase the stock at these levels. Thanks for taking the time to read my email in what must be an incredibly hectic time for you. Best of luck.

Mike Perry’s Response:

I completely agree with the point of your note. I think you know I bought $1 million of our stock earlier this year at $29. In addition, we have had a lot of other managers and some directors purchase this year, too.

Also, management and the board have lost more personally this year than anyone else by far…as most of us have not sold any stock or options in 2006 or 2007 (no sales from the CEO, President and CFO during this time). As a result, most of us are not in a personal financial position to purchase shares…even though we would like to.

With that said, management and certain key employees (about 130 employees total) have over $40 million in the deferred compensation plan, and the company has arranged to be able to “open this plan up” and for individuals to be able to use these funds to purchase IMB stock….and several of us, including myself, plan to do this (personally, I am planning to invest more than $1.5 million).

Unfortunately, our window for insiders to trade IMB stock is currently closed.

I would expect that the window will reopen once we release 4th quarter earnings in late January, and I would expect to see myself and other insiders purchase in a material way (for management) at that time. I hope that makes sense.

mike

www.financialfreedom.c.../

Unlocking of Value

Another intriguing part to Indymac thats not well appreciated is a business it owns, a reverse-mortgage originator called Financial Freedom, that sits on its books for $80 million. Financial Freedom is the largest player in the reverse mortgage space. This is an area of tremendous opportunity and market focus. As the population ages, the reverse-mortgage business has been booming and is widely expected to grow at 20% or more annually for years. There lately been a lot of interest both from private equity and strategic buyers. For example, earlier in the year Seattle Mortgage, the third-largest player, was bought by Bank of America.

Indymac had bought Financial Freedom from Lehman Brothers for $112 million in 2004. The acquisition has been a home run: last year First Freedom earned $54 million. Should Indymac decide to sell this business, it’s not hard to imagine a price of, say, 15 times trailing earnings, or $800 million. To put that into context, Indymacs total market capitalization is $420 million. For myself, I'll be delighted to see the company sell a minority stake to show the value of this business.

[luke]

When all this volatility in the mortgage business shakes out, I'm willing to bet that those banks that are heavily invested in reverse mortgages (non-FHA, proprietary products) are going to do very well. The default rate is nil and the ROI is very high.