Use Judgment, Not Rules - Cramer's Mad Money (7/14/08)

by: Joan Wickham

Stocks discussed in the in-depth session of Jim Cramer's Mad Money TV program, Monday, July 14.

 Judgment is Better than Rules: Wachovia (NASDAQ:WB), Fannie Mae (FNM), Freddie Mac (FRE), General Motors (NYSE:GM)

 "It's time to unlearn a common myth about investing," Jim Cramer told viewers of his "Mad Money" TV show Monday. "The best way to invest is not to buy a bunch of stocks and just sit on them."

 Cramer said the arguments that frequent trading result in high commissions are just false. "Commissions have been dirt cheap for years," he explained. He said that paying taxes on gains is a good thing, much better than posting a loss.  Instead of buy and hold, he said investors should buy and do the homework.

 Cramer told viewers that they should spend at least an hour a week on a stock checking on the fundamentals of a company's underlying business. When it's time to sell, then sell and move on. "Sooner or later you always have to sell," said Cramer.  Cramer called the strategy of buying more anytime a stock declines 50% or more wrong. If you had adopted that strategy and bought stocks such as Wachovia, Fannie Mae, Freddie Mac, General Motors, as well as the former Enron, you would have seen them plunging beyond 50%, many towards zero. He recommended mutual funds as great investment vehicles for those who don't have the time to do the homework and manage their portfolios.  He urged investors to remain involved in their portfolios. "The results are completely worth the effort," he said.

 Downey Financial (NYSE:DSL), Corus Bankshares (CORS), FirstFed Financial (FED), BankUnited (BKUNA), National City (NCC), Washington Mutual (NYSE:WM), First Horizon (NYSE:FHN), Citigroup (NYSE:C), Wachovia (WB), Bank of America (NYSE:BAC),  Lehman Brothers (LEH), Merrill Lynch (MER)

 Cramer reminded viewers of another rule in book Real Money. Control your losses and the winners will take care of themselves, he said. He expects the IndyMac scenario to repeat itself. He then instituted a new rule for the financial stocks: If a bank stock falls below $5 a share, it's time to sell.

Banks trade on earnings and dividends. And with millions of home loans in default, banks aren't getting any of the former, so they're slashing the latter. Therefore, these stocks cannot be owned.  Cramer made a clear distinction between the customers and depositors of the failed and nearly failed banks and the shareholders of these entities. He said he does not feel customers need to run out and withdraw their money in a panic. "Your deposits are safe," he said.  However he went on to say that while deposits are fine, the stocks of the banks are not. And that's the real "danger," he said.

Cramer said he doesn't believe anything remotely positive has happened yet for the banking industry. The many plans, frameworks and blueprints that have been espoused don't change a thing.

Cramer is most worried about Downey Financial, Corus Bankshares, FirstFed Financial  and BankUnited.

He considers National City, Washington Mutual and First Horizon almost as bad as the worst.

Cramer said that Citigroup, Wachovia and Bank of America, and even brokers such as Lehman Brothers and Merrill Lynch should not be owned either.

Natural Gas is Back:  Chesapeake Energy (NYSE:CHK), Spectra Energy (NYSE:SE), Williams Brothers (NYSE:WMB)

Cramer proclaimed his "year of natural gas is back!" highlighting the successful secondary offering of shares by Chesapeake Energy last week.  Cramer has talked endlessly about the sector for some time now, covering virtually every company that owns a drill.  On Monday, he said the next opportunity is the pipeline companies. Cramer believes in Spectra Energy but also feels that Williams Brothers is a great company to own. Cramer said it's simple: The more gas that gets pumped, the more money these guys make.

Williams, he said, is expanding from the New York City area further in the mid-Atlantic region, where there are millions of potential customers. The company is also building pipelines to transport more gas from the Rocky Mountains. Cramer also finds Williams' drilling operations attractive. With over 22 trillion cubic feet of proven gas reserves, the company is drilling as much as it can while remaining a low-cost producer. Williams also has 50% of its 2008 production un-hedged, allowing it to realize huge gains as the price of gas continues to rise. Williams is a realistic play in the oil and gas sector, he said.

 Kinetic Concepts (NYSE:KCI) CEO Catherine Burzik

 In his quest to find stocks not levered to mortgages or the rising price of oil, Cramer talked with Catherine Burzik, President and CEO of Kinetic Concepts, for an update on her business. Burzik said Kinetic Concepts is a lot more than just wound care products. With the recent acquisition of LifeCell Corporation, Kinetic Concepts now has products to treat complex hernias as well as breast reconstructive surgery after mastectomies. She also touted the company's hospital beds as the best in the industry for aiding in the treatment of ulcers and other conditions. Burzik said she feels the company's stock is grossly undervalued, but hopes investors begin to see the synergies realized from the merger. Cramer said he likes the healthcare group, but wants to see one more quarter of results before recommending the stock.

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