Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Monday, July 28.
FCC Finally Approves Merger: Sirius Satellite (NASDAQ:SIRI), XM Satellite (XMSR)
Cramer once again blamed financial stocks for weighing down the market to Monday’s 239 point drop. Cramer noted some positive things that occurred in the market, mainly the Federal Communication Commission's approval of the merger between Sirius Satellite and XM Satellite, which took an unprecedented 18 months to accomplish. He reflected on why the stocks of both companies were down on the news. On the surface, the combined Sirius/XM should have lower subscriber acquisition costs and lower content costs, and the merger should also take bankruptcy off the table. But Cramer warned that it will still be difficult for the combined company to make money with three-quarters of its new subscribers coming from now declining new auto sales. The delay in approval of the merger has cost both companies dearly. Sirius lost $327 million in 2007, while XM lost an additional $341, taking the combined debt of the companies to $3 billion. With this much debt, Cramer said it's the bond bullies and not the stock holders, who are in control.
Cramer said common stock of the combined entity is untouchable until the company becomes profitable. He recommended going after the $550 million worth of senior sub-ordinate notes being offered by XM instead of common stock. Cramer said these convertible notes will yield 6% to 6.5% and offer the possibility of exchanging them into common shares in the event they do well. “You get all of the upside with none of the downside for six years,” he said. “The FCC has reduced the common stock to almost nothing,” said Cramer, adding the way to play the merger is with XM's new bond. “Radio is completely and utterly dead.”
Happier Days Ahead: United Parcel Service (NYSE:UPS)
“Happier days could be here again with the price of gasoline continuing to fall,” Cramer told viewers. He reiterated his price target of $3.50 a gallon for gasoline and said that the stock of United Parcel Service is one way to play cheaper gas. Cramer has been bearish on UPS since October 2006, when he recommended selling the stock at $76.05 a share. Since then, shares have fallen 19%, and Cramer would buy given the expected low gas prices. “It's time to become a United Parcel bull,” he said. Cramer said when the company reported last Tuesday and cut guidance from $3.90 a share to $4.20 a share to $3.50 a share to $3.70 a share, the stock rebounded 4.4%, signaling the arrival of the bottom. The stock has already been through the meat grinder, said Cramer, noting that Wall Street was clearly expecting even worse numbers from the company. Cramer is not predicting a rebound in shipping, but instead he likes UPS simply because of the decline in gas prices. With fuel costs up 67%, UPS has much to gain from lower gas prices, Cramer said. The company's outlook sees oil at $149 a barrel, so any decrease in that number goes straight to the bottom line, he said. In addition UPS has put in place a hiring freeze further lowering costs and has negotiated a new contract with its union to save an estimated $640 million over five years. It has a 10 year contract with DHL. Cramer said he also likes the company's 2.9% dividend yield and its history of aggressive stock buybacks. Cramer said in difficult times, he looks for smart companies, and UPS is one of the most pro shareholder companies around.
“No stock should be the target of naked shorting,” Cramer asserted. He called the practice of shorting a stock without having to first borrow the shares just immoral. This actually would allow investors to potentially short more stock than actually exists. He told viewers that while the practice is already illegal, the SEC has systematically failed to enforce the rule. Tomorrow is a landmark day, as the SEC reconsiders its emergency rule that protects 19 selected financial shocks from the practice of naked shorting, he said.
Cramer warned that without the emergency protection, the financial stocks will go much lower, as hedge funds and others once again pummel the stocks. He called into question the character of such hedge fund managers, who employ such company-destroying tactics to make a quick buck for their funds. Cramer advocated for not only the rule to remain in effect, but for the protection to extend to all stocks. “No one should be allowed to destroy a company,” he said. He noted such hard-hit stocks as Washington Mutual, AIG and National City were left off the initial emergency protection list.
Harley Davidson (NYSE:HOG): The company has great management and is doing everything right. Eventually it'll be a buy. They also have a cool new Trike.
E*Trade (NASDAQ:ETFC): Cramer wants to see another quarter before making a recommendation on the stock.
AIG (AIG): Cramer only sees value in AIG below $20 a share.
Sudden DeathCramer was bullish on Costco (NASDAQ:COST).Cramer was bearish on Baidu.com (BIDU).
Seeking Alpha publishes a summary of Jim Cramer's stock picks every day including: Mad Money Recap, Lightning Round and his Stop Trading! Picks.
Get Cramer's Picks by e-mail -- it's free and takes only a few seconds to sign up.