Market Rotation Underway - Cramer's Mad Money (7/17/08)

Stocks discussed in the in-depth session of Jim Cramer's Mad Money TV program, Thursday, July 17.

 

Oil and Gas Out – Banks and Brokers In - JP Morgan Chase (JPM), Comerica (CMA)

"How did gas and oil go into an endless dive," Jim Cramer asked viewers of his Mad Money TV show Thursday. He said the dramatic reversal was in part due to the demand dropping 2%.  With oil prices plummeting and bank stocks on the move to the upside, Jim Cramer asked, "How did the whole world turn upside down?" Cramer said some good things are happening in the markets, and investors need to change their strategies to capitalize on them. Cramer said he's always believed that the rise in oil was due to supply and demand and not speculation. He said oil is "just too high" at $150 a barrel. He said consumers are finally starting to cut their usage, leading to the decline in oil prices. He predicted oil could fall as far at $110 a barrel before stabilizing. Gas will go down next week and that is incredibly bullish for the market.

 The second force that is driving the market is financials. He said it's now clear that both the Federal Reserve and Securities and Exchange Commission are stepping in to bail out the sector.  The SEC is no longer going to tolerate bear raids. This was the single greatest short squeeze in history.  With stocks like JP Morgan Chase and Comerica both reporting good results, Cramer said there may be life in the financials after all. He explained that the banks can use this strength in their stocks to raise capital and stay in business.

 Finally, Cramer said the home-build rate of single-family homes is smaller than expected, allowing excess supplies to dry up and prices to stabilize. Cramer predicted the bottom in home prices should occur in 2009.

Cramer said for the short term, investors should take profits on the banking stocks, which have moved up too much. He also suggested buying oil and gas stocks because they have gone too low.  Cramer owned up to telling viewers to begin buying the natural gas last week by saying he was wrong. He said investors who bought last week will be OK for the long term - calling the bottom last week was premature. Once again diversified portfolios will be the winners.

 Cramer Responds to Callers: 

 Grey Wolf (GW) -- The company is in talks to be acquired.  Sell tomorrow; it's time to go."

Bank of NY Mellon (BK) -- " The quarter was a disappointment.  I would do nothing.  They are better than that and have already been punished so there is no reason to get out."

General Motors (GM) -- "This one is difficult.  It is too speculative trying to call a bottom."

 Put Nursing Homes on the Sell Block:  Brookdale Senior Living (BKD), Sunrise Senior Living (SRZ)

Cramer said "It is time to throw nursing homes, or senior living communities, into his sell block," calling them "serial destroyers of value."  He singled out Brookdale Senior Living and Sunrise Senior Living as two of the worst offenders. Brookdale's stock has fallen from $48 to $17 a share, while Sunrise has fallen from $41 to just $19 a share. Cramer said the stocks could rally from here and he wants to avoid investors thinking this is the bottom. Most investors see senior living as a play on demographics according to Cramer. Although it's true the number of Americans 75 years and older will increase by 20% in the next 10 years, he said it's a mistake to own shares of these nursing homes. He said nursing homes have made the same mistakes as homebuilders, building far too much capacity for now declining demand. According to Cramer, the occupancy rates at nursing homes are flat to down, as people postpone retirement to recover losses in the markets. Furthermore, many retirees must sell their homes in order to move into these facilities and find right now they can't.  Despite this fact between 2004 and 2008, Brookdale increased capacity at their facilities by 50%, while Sunrise increased its capacity by 25%.  "Housing is housing," said Cramer, as he reiterated his sell recommendation on the whole industry.

 Speculation Friday (on Thursday) - Symmetry Medical (SMA), CR Bard (BCR)

 Cramer moved Speculation Friday to Thursday in order to talk about Symmetry Medical, a stock that he said has been on his radar for awhile. With the economy looking more like it's in a recession, Cramer reiterated that it's the healthcare stocks that will prosper.

Symmetry is a supplier of orthopedic implants to many of Cramer's larger healthcare favorites, including CR Bard, which is up 5.8% since Cramer's recommendation just last week.  "Nobody stops getting hip replacements because the economy is bad," said Cramer, who called Symmetry's products necessities and not discretionary spending.

Cramer said that bigger healthcare companies come to Symmetry to help speed up production and lower costs.  He also noted that the company is not affected by rising raw costs since its main commodity is titanium. "Think of Symmetry as the arms dealer to the medical sector," said Cramer.  Symmetry makes Cramer's speculative list because of its run-in with the SEC earlier this year, which led to earnings restatements and a $2.2 million hit for accounting and legal costs.  The situation now behind them. Cramer called Symmetry a tarnished stock but not a tarnished company. Wall Street is expecting 8.5% revenue growth for Symmetry in 2008, but Cramer said that number could be almost double. He sees the $16 stock reaching $21 a share if that happens.

 Nucor (NUE) CEO, Dan Dimicco

 The steel sector has been crushed recently, and the trend continued Thursday after Nucor announced third quarter guidance below Wall Street expectations. Despite reporting strong Q2 earnings, Nucor lowered their guidance range to at least 10 cents below current analysts' consensus. As a result, Nucor shares dropped more than $7, or 11%, by the end of trading Thursday.  Nucor Chairman, CEO and President Dan DiMicco told Cramer, "Our business is still very strong," saying he is expecting the third quarter to be strong as well. DiMicco emphasized the fact that his firm is traditionally conservative, which accounts for the lower guidance.

DiMicco offered some numbers for those who doubt his company: $580 million in profit for the second quarter, a 68% increase of last year's Q2 and a 42% increase of 2008's Q1; and the first six months of 2008 are up 36% over the first six months of 2007.  "We are firing on all cylinders," DiMicco said.  Not true is the talk of high commodity costs causing problems for Nucor.  "Since 2004 people have been saying that very thing," the CEO said. "And since 2004 we've proven them wrong every quarter for the entire time period through this quarter.  Historically when raw materials costs go up, we make more money."  Cramer said it's been hard to own steel stocks over the past few weeks, but he's not willing to give up on Nucor yet. He's betting buyers of this stock will fare better than sellers over the long term.  Cramer said that while the markets have been punishing steel, he's a buyer of Nucor.

 

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