Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Tuesday, August 12.
The Dow Jones Industrial Average pulled back 140 points Tuesday, erasing some of the gains from the past week’s rally. Cramer said Oil and natural gas might finally be at a level that could attract demand. Cramer had been predicting that the price per barrel of crude, now at $113, would even off in the $110 to $120 range, putting fuel for autos at around $3.50 a gallon. Cleaner natural gas at $8 costs about as much as dirty coal at this point.
Bank Analysts point to weak earnings and tough equities markets, while the Securities and Exchange Commission is easing up on its enforcement of key short-selling rules, that keep bear raids at bay. Cramer suggests “If you don’t already own an oil and a bank stock, start buying into Wednesday’s raiding.” He is confident there will be plenty of action from hypernegative hedge funds. The rails could also get hit, he said. Oh, and “banks are not any safer than their weakest link,” Cramer said, whether we’re talking about Washington Mutual down 10% Tuesday or Downey Financial down a whopping 25%.
Biotech Buy – Genzyme (GENZ)
Cramer on Tuesday added Genzyme to his list of biotech stocks to own. The company has exclusive rights to a number of high-cost drugs and a pipeline that’s attractive to both investors and big pharma firms looking to expand. Why Genzyme? The company develops and sells “orphan status” drugs, meaning they treat diseases found in only five out of every 10,000 people. Both the U.S. and the European Union grant exclusivity rights of seven and 10 years, respectively, on any company that undertakes such an initiative. And Uncle Sam adds on tax credits for research and development costs. That’s a nice headstart for Genzyme. Don’t think the small number of patients means this company doesn’t make any money. In fact, all of Genzyme’s drugs cost between $220,000 and $300,000 a year for just one patient. Cramer thinks Genzyme should be trading at $92 a share rather than $78. “I believe the time is right for biotech,” he said. “I think Genzyme, with its orphan drugs, is going to be a big winner come November. The Democrats love this kind of company as much as they hate big pharma.”
J.P. Morgan’s downgrade of Tyco on Tuesday should push that stock closer to Cramer’s recommended buy-in level, he said. Tyco is another name from his list of stocks that reported fabulous earnings last quarter. The only problem is that these companies are all up in price as a result, so he’s giving viewers what he thinks is the best entry point for each of his picks. Tyco finally seems to be benefiting from breaking itself up into a number of different businesses, including number-one electronic security firm ADT and a strong flow-control company. Cramer credits higher margins than expected from flow control as a major reason for Tyco’s beat – a 31% upside surprise. Flow control’s big business. It’s an integral part any water use, natural gas monitoring, oil drilling and industrial and mining processes. Tyco makes the valves, pipes, fittings, automation and other products that makes those processes happen. Just look at how flow-control peer, Flowserve, has been doing. That company’s up 66% in the past year. Cramer did admit that there was some weakness in the quarter coming from ADT, but he blamed it on a necessary exit from an unprofitable contract, and a trend in clients switching from client to pay-as-you-go service. Since ADT is not a cyclical business, he’s fully expecting this part of Tyco to find its footing soon enough. Tyco also has the buyback Cramer likes so much -- $1 billion worth, or about 5% of shares outstanding. But as good as this stock looks, it’s important to only buy in at the right price, Cramer said. He said investors shouldn’t pay any more than $42 for Tyco.
Time for Gold? Agnico-Eagle Mines (AEM)
Now is the time to get back into gold equities, Agnico-Eagle Mines CEO Sean Boyd told Cramer Tuesday. Gold’s decline to $819 and change from a high of $980 is no different from the pullback that bullion saw back in May 2006, Boyd said. At that point, gold was at $725, a 26-year high at the time, and it declined 20% twice over the span of three or four months. Now we’re seeing another decline near that level, and it’s happening right before gold’s traditional strong season of September and October. “The gold equities are on sale here,” Boyd said. Boyd put the blame for any weakness in his company’s most recent quarter on the “significant decline” in realized zinc prices. They were cut in half year-over-year. “So I think you buy a gold stock,” Boyd said. Unlike an exchange-traded fund that follows the commodity’s price, buying into a company offers investors growth through increased production and reserves without diluting the stock. “We are doing all of that,” Boyd said. As for finding costs, AEM spends $250 to extract an ounce of gold. So “we’re well below the current price,” Boyd said. “This is the best gold company,” Cramer said. Investors who think it’s time to get back into gold – as Cramer does – might want to take a serious look at Agnico-Eagle Mines.
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