Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Monday, August 25.
Housing Continues to Hurt - Freddie Mac (FRE), Fannie Mae (FNM)
“We need housing to stop hurting us,” Jim Cramer told viewers. He said that until the crisis that hangs over Freddie Mac and Fannie Mae is finally resolved, the markets will continue to trade lower. Cramer said that sometimes the market just lies as it did today when Freddie and Fannie shares were up while the rest of the financial service stocks fell. While it's wrong to take all stocks lower because of problems of a select few, that's exactly what will continue to happen until the U.S. Treasury steps in and takes action. He called Fannie and Freddie “the root of all market evil.” In order for the market to finally bottom, said Cramer, housing must stabilize. That requires lower interest rates, lower home inventory and higher home sales, things that cannot happen until the fate of Fannie and Freddie are resolved. Cramer said he stands by his prediction that the markets will not take out the lows set on July 15, but that prediction fail if the government doesn't step in soon. He started a new “Mortgage Mess Countdown” to see how just how long it takes the Treasury to act and save the market from its continued slide.
Cramer said he's putting his money with House Speaker Nancy Pelosi and investing in Clean Energy. He cited a recent Wall Street Journal article, which reported that Pelosi owns somewhere between $100,000 to $250,000 worth of stock in the alternative fuel provider. “It’s even better than Warren Buffett being a shareholder,” Cramer said, because Buffett doesn’t control the House of Representatives.” Cramer last recommended Clean Energy and Fuel Systems on August 1. While Fuel Systems rose sharply and is up 46.6% since he mentioned it, Cramer said Clean Energy should also spike soon on the heels of its political connections. Cramer said Clean Energy stands to get a boost from the passage of a November ballot initiative in California, which calls for $5 billion to be set aside for the purchase of 70,000 trucks and 150,000 cars in the state to be converted to compressed natural gas. That initiative, which is currently drawing a 60% approval rating in the polls, would be a windfall for Clean Energy, which builds and operates natural gas fueling stations, and is much larger than any of the company's other current projects. Cramer also likes Clean Energy on the heels of its better-than-expected quarter, where it reported a loss of only 5 cents a share compared to analyst estimates of 11 cents a share loss.
Cramer told investors to read between the lines when it comes to the stock on Nordson, which fell 23% on Friday after it missed earnings estimates by 5 cents a share and lowered forecasts by 16%. On the surface, said Cramer, it may seem like an overreaction to take a stock down 23% and destroy $60 million in market cap on just a 16% decline in estimates. But Cramer explained that the seemingly small earnings miss signifies something much more profound. Cramer said Nordson has unknowingly gone from a dependable growth stock to a stock that no one wants to own in this environment, and in so doing, is now making the slow transition from a growth stock to a value stock. “Management's credibility is gone,” said Cramer. With 22% of the company's sales in the housing sector and another 7% exposed to autos, Cramer predicted zero chance of a rebound for the stock in such a tough market. He said the transition from growth to value could take as long as 18 months, during which time the stock will likely be headed low down. Cramer said Nordson traded at 17 times its forward earnings before last Friday, and even at today's numbers it still trades at just 14 times earnings. He predicted that the stock will have to retreat another 12 points before value investors would consider the company a bargain and begin replacing the droves of growth investors that are currently leaving the company.
Electronic Prescription Systems Required - Allscripts (MDRX)
Glenn Tullman, chairman and CEO of Allscripts, spoke about what the recent Medicare bill means for his company. Cramer last recommended the stock on July 1, but also advised investors to take profits in the company after the bill was passed. Tullman said the Medicare bill not only requires physicians to use electronic prescription systems like the ones Allscripts offers, but actually penalizes them for not doing so. “So you can’t ask for a better endorsement than the government actually pushing your product,” Tullman said. He said that using technology to improve a business process makes sense and he's pleased with the progress his company, and the industry, has made thus far. When asked about the company's upcoming special cash dividend payment, Tullman said that while there may be a short-term downdraft from the payment, he's confident in the company's long-term value. “If you believe in the long-term premise,” he said, then that dip is a buying opportunity.” Cramer called the company a good story and recommended again owning the stock.
Cramer was bullish on Windstream. He believes their payout is better and there is a chance of a takeover.
He was bearish on Banco Santander-Chile. The bank is well run, Cramer said, but it has too much exposure to bad European mortgages.
Vodafone Group PLC has a dividend Cramer likes but he likes Windstream’s dividend better.
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