Worst Downgrades - Cramer's Stop Trading! (9/5/08)

by: Joan Wickham

Recap of Jim Cramer's comments on Stop Trading! Friday September 5.

Unemployment Rises - Apache (NYSE:APA), Transocean (NYSE:RIG), Mastercard (NYSE:MA), Potash (NYSE:POT), Union Pacific (NYSE:UNP)

The market rebounded after an early decline due to a higher-than-expected unemployment number. Cramer attributed the gains to an end in redemption-covering stock sales by hedge funds. Investors in underperforming funds want their money back, Cramer said, so managers have been selling their holdings to raise the necessary money. Hedge funds usually have five days to return money, and “that finished today.”  

Cramer said “You saw all these names bottom today,” pointing out Apache, Transocean, Mastercard, Potash & Union Pacific. Cramer said, “because…the selling’s done to return the money.” But that “doesn’t mean that we aren’t fundamentally in trouble,” Cramer said. “There are fundamental problems with every one of those stocks,” so this isn’t a reason to buy. He just wanted to offer a reason to the market action Friday.

Downgrades - Merrill Lynch (MER), American International Group (NYSE:AIG), Lehman (LEH)

Cramer called the downgrades of Merrill Lynch and American International Group “two of the worst calls that I’ve seen in a long time.” He has little doubt that there are more write-offs coming from Merrill, but the company raised capital enough for him to think it’s a buy at $22 or $23, though he said that probably won’t happen. And AIG, in addition to Lehman Brothers is usually a stock that declines ahead of others when there’s bad new, like today’s unemployment. But neither stock is down. In fact, Cramer was going out on a limb here, he named Lehman his “screaming buy” for the last couple of hours of Friday trading. It “can’t get any worse there,” he said. “If that Dick Fuld does not do something this weekend, he name is mud.”

Don’t Trade the Hurricanes - Anadarko Petroleum (NYSE:APC), Apache (APA)

Cramer reiterated his warning against trading hurricanes. He believes that natural gas, which has fallen much further and faster than oil, is trying to decouple from it. “Natural gas is trying to put in a bottom,” he said, at about $6 or $7. Anadarko Petroleum is buying back stock – something he always likes – and Apache is “right.”

Retail OK - Sears Holdings (NASDAQ:SHLD), Home Depot (NYSE:HD), Phillips-Van Heusen (NYSE:PVH) and Urban Outfitters (NASDAQ:URBN)

Cramer did see areas for optimism. "We've got to stop being so negative about retail, about banks, about housing," he said. "Those are all up, but people think they're down." Sears Holdings is down after a critical article in The Wall Street Journal, but not as much as Cramer thinks it should be. “That tells me it’s OK.” But look at Home Depot, Phillips-Van Heusen and Urban Outfitters. “Why aren’t these down if retail’s so bad?” Cramer asked.

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