Cramer Sees the Light - Cramer's Mad Money (9/4/08)

by: Joan Wickham

Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Thursday, September 4.

The Light at the End of the Tunnel - Wal-mart (NYSE:WMT)

“Behind all of the losses and ugliness in the market, there is something positive,” Jim Cramer told viewers. While finding a bull market may seem like looking for a needle in the haystack, it's out there, he said. Cramer reiterated his belief that the markets will not fall below the lows set on July 15 and that a bottom is forming thanks to lower oil and natural gas prices. He listed six reasons sees the light at the end of the tunnel.

  1. A bottom is forming in the housing stocks, signaling a bottom in the housing market that he says is coming in 300 days.

  2. The Federal Deposit Insurance Corp. has announced a plan to fix ailing banks, allowing stronger entities to buy good assets while the government assumes the bad loans.

  3. Both presidential candidates are likely to lower individual tax rates, which will help spark consumer spending.

  4. Commodity prices have crashed across the board, helping to lower the raw costs for every company that uses commodities.

  5. The price of gasoline is coming down even lower than Cramer first expected. “This is almost a tax cut in and of itself,” he said.

  6. The stock of Wal-mart, a place where millions of Americans shop, is showing some strength.

Given these six reasons, Cramer told investors to begin looking for bargains amid the rubble.

Stepping Back to Success - H&R Block (NYSE:HRB)

Cramer said the stock of tax-preparer H&R Block may be attractive, even in the off-season. The stock took a huge hit today, down 9.7% after the company missed earnings estimates by 5 cents a share. But Cramer called the weakness a buying opportunity.Cramer recommended H&R Block on March 19 in the middle of the busy tax season. Despite a 17.8% move up so far, he said the company is still a buy. Cramer said his belief is that no matter who becomes president in November, one thing Americans can count on is a new tax code. That will create confusion which is H&R Block's bread and butter. H&R Block is focusing on its core tax business, a plan which Cramer applauds. In addition, the company plans to purchase a large franchise operator in Texas and neighboring states, allowing it to convert 385 franchised locations into company-owned locations, which should provide a 5-cent-a-share boost to its bottom line. Cramer emphasized that all of these points, along with the company's 2.3% dividend yield and stock buyback program, make H&R Block a buy at these deflated levels.

Sell Block - Hovnanian Enterprises (NYSE:HOV), Toll Brothers (NYSE:TOL)

In this segment, Cramer condemned builder Hovnanian Enterprises to prison, without a trial, after the company's terrible earnings report. He compared the company to rival Toll Brothers, whose stock was up fractionally despite the horrible market action. Cramer said Hovnanian's run is over. He said he heard nothing positive on the company's conference call. The negatives included a $2.67 a share loss for the quarter, unit orders down 38% year over year, and a 33% cancellation rate on home orders. He predicted $9.60-per-share loss for the year. Cramer said the rising tide is not lifting all home-building boats. Hovnanian issued 14 million new shares of stock in May, which further diluted the struggling shares. Cramer also noted the company's $600-million bond sale, which now costs the company an interest rate of 11.5%. “Hovnanian is a lot more expensive than it looks,” said Cramer, who predicted the company will languish in ever increasing debts and market problems. As he said, “Hovnanian has mortgaged its future to survive for the next few quarters. It’s still going to be a case of survival of the fittest. And, to me, Hovnanian is supremely unfit.”

Howard Atkins, Sr. Executive VP and CFO of Wells Fargo (NYSE:WFC) Responds

Cramer talked with Howard Atkins, Sr. Executive VP and CFO of Wells Fargo, about the controversy surrounding the company's $1.75 billion bond offering earlier this year. Bill Pimco had said earlier in the day that the bond offering was being sold to retail investors. But Atkins characterized the offering as an institutional offering, noting it was pretty standard for Wells Fargo. He said that more than 100 institutions participated in the transaction, which was oversubscribed on the offering day. Atkins went on further to call the deal very successful for Wells, calling its tax-deductible nature appealing for all who bought in. Cramer said he felt it important to allow Wells to clarify the offering, amidst scrutiny in the market. He said he remains bullish on the stock.

Sudden Death - ValueClick (VCLK), CIRCOR International (NYSE:CIR)

Cramer was bearish on ValueClick and CIRCOR International. He says you cannot touch ValueClick and CIRCOR’s group represents great value but “boy are they for sale.”

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