Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Monday, August 18.
Freddie Mac (FRE) and Fannie Mae (FNM)
“What we have today is just some serious profit taking,” Jim Cramer told viewers. He described today's market action as simply giving up some gains. Cramer explained that while the market considers the repercussions of a possible government takeover of Freddie Mac and Fannie Mae, he cares more about the true underpinnings of the market, mainly the price of oil and natural gas.
The Price of Oil - Anadarko Petroleum (NYSE:APC)
Jim Hackett, CEO of Anadarko Petroleum, discussed just how big an impact the declining cost of natural gas is having on his company. Hackett said there will be continued strong demand for natural gas until a viable alternative fuel is developed. He described the decline in his company's stock as normal market volatility and felt it was nothing to be concerned in the long term. Hackett confirmed that raw costs are indeed up 50% since the beginning of the year, but said that his company has minimized those effects by hedging and what he called “smart drilling.” The effect to Anadarko's bottom line has been on the order of just 5% to 7%. Cramer and Hackett agreed that the price of many oil and natural gas stocks are trading at a big discount to the price of the commodity itself. Cramer reiterated his buy on Anadarko and the sector as a whole.
Outrage of the Day - Transocean (NYSE:RIG), Rowen Drilling (NYSE:RDC), Chesapeake Energy (NYSE:CHK), XTO Energy (XTO), Ultra Petroleum (NYSE:UPL)
Cramer cautioned viewers not to take their eyes off what's important in the market. While the media may be focused on Iran, the events in Georgia and the looming tropical storm in the Gulf of Mexico, Cramer said it's the supply and demand for oil that controls the market. In the past, said Cramer, any one of these events would have instantly taken oil to $150 a barrel. Yet today, oil remains at $110 a barrel and is likely to fall even further. This only confirms that supply and demand rules the day and at $4.50 a gallon, the demand for oil and gas just isn't there. Cramer cautioned investors to scale out of the oil stocks that are directly affected by the decline in oil prices. They include companies such as Transocean, Rowen Drilling, Chesapeake Energy, XTO Energy and Ultra Petroleum. He said while it may be tempting to buy into these names ahead of the media events, the market is indicating there is more pain to come.
The Magical Kingdom's Formula – Disney (NYSE:DIS)
Bob Iger, president and CEO of Walt Disney (DIS), talked about the effects of a slowing economy on his company's business. Iger said that Walt Disney should not be viewed as a media company, since only 20% of the company's revenues come from advertising. He said that Disney has made an intentional decision to continually lower that number as the company diversifies its assets. “We are in the media business, but that's not what we're all about,” he said. Iger said that Disney is in the business of creating and building great, long-term brands that can be leveraged around the globe. Disney, he said, is the No. 1 brand in its space because of the high quality it offers. Iger said the company fares well in tough economic times because the company's business is not as cyclical as analysts believe. He said that Disney offers a great, affordable product and flourishes from its global reach.
Cramer told viewers to consider some of the beaten-down bank stocks. He suggested looking into Lowe's and Macy's, both of which recently reported better-than- expected numbers.
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