Musical Chairs - Cramer's Mad Money (10/3/08)

by: Joan Wickham

Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Friday, October 3.

Despite the passage of federal bailout package, Jim Cramer said that he did not trust this market. He reminded investors to sell into any moments of strength and play defensively as the details of the bailout plan begin to play out.

Musical Chairs - Wachovia (NASDAQ:WB), Wells Fargo (NYSE:WFC), Citigroup (NYSE:C)

Wachovia shareholders have good reason for hope after some nifty behind-the-scene moves by CEO Bob Steel. Cramer praised Steel for working out a deal with Wells Fargo. He admitted he was wrong when he placed Steel on his Wall of Shame list of the worst CEOs on Monday. He said he did so because he was disheartened by the federal government's decision to sell Wachovia's assets to Citigroup and the fact that Steel had not come forward to defend his position. However, after today's announcement of a deal with Wells Fargo, Cramer said he had an entirely different view of Steel. Cramer credited the CEO for putting his company before his own reputation and staying quiet while the Wells Fargo deal was being done. "I thought the shareholders were finished," he said, "but now there's hope." He added that Steel should be commended for not quitting and giving up on his company. Now, if you'd bought Wachovia on Monday, you could've paid less than $2 for the stock. If you'd bought it on Tuesday, you could've paid less than $3 for something that's now going to $7, and perhaps higher if the bidding war Jim predicted on tonight's show happens. So objectively, not trusting Steel was the wrong move because it was a missed opportunity. But I don't think it was the wrong move at the time. Hindsight is perfect. On Monday what we knew was that most CEOs of financial companies had been, to put it mildly, way too optimistic and bullish.

New Addition – Prudential (NYSE:PRU), MetLife (NYSE:MET), Hartford (NYSE:HIG)

Filling the empty slot in the Wall of Shame, Cramer added Sen. Harry Reid (D., Nev.) for a comment he made Wednesday that a major insurance company was preparing for bankruptcy. Cramer said that irresponsible comment caused the stocks of Prudential, MetLife and Hartford to suffer double-digit percentage drops. Cramer said Reid deserved to be on the Wall of Shame for adding fear to an already fearful market.

Recession Proof - Genzyme (GENZ)

If biotech stocks were the best performers during the last financial crisis in 1990, Cramer thinks they could work again for this one. That’s why he interviewed Genzyme Chairman, CEO and President Henri Termeer for Friday’s Mad Money. Cramer spoke with Termeer to find out if the biotech stock has what it takes to be a recession-proof stock. Since Cramer last recommended Genzyme on August 12 at $79 a share, the stock is down just 3.8% in a turbulent market. But he said he's now high on Genzyme's prospects since biotech companies often shine during recessions and should fair even better if a Democrat assumes the White House. Termeer noted that Genzyme's strategy is different from that of most other biotechs, in that the company focuses exclusively on "orphan" drugs, or drugs for rare diseases or diseases where there are no other treatments. These are treatments for diseases found in only five out of every 10,000 people. He said that while these markets are small, patients often start treatments and stay on them for life, creating stable earnings for the company. Termeer also said insurance companies are often not resistant to paying for these treatments since they work well and are often the only option available. He said that while the FDA remains a big, complex hurdle for drug approvals, Genzyme is managing the process effectively. Cramer said he likes Genzyme for its diversification into drugs in larger markets such as cholesterol, MS and renal failure. Termeer confirmed that the company does have drugs in late stage testing in all these areas.

A New Metric - KBR (NYSE:KBR), Nucor (NYSE:NUE), Freeport McMoran (NYSE:FCX)

While Cramer remains bearish on the market as a whole, he's now beginning to prepare for the situation to improve. He continues to look for value in stocks that have been relentlessly beaten down by seemingly endless hedge fund redemptions. One sector that's been hit especially hard is the industrials. Cramer said he's evaluating the industrial stocks by two simple measures: their dividend yield and how much cash they have on the balance sheet. Price-to-earnings multiples just don’t work in this environment, Cramer said. Industrials and mineral stocks are in danger of rate cuts, not increases, these days because their PEs are too high. So investors have to use a different strategy for valuation.Earlier in the week, he recommended KBR, a company where two-fifths of its market-cap is cash. Tonight he recommended two other companies that he says are approaching the "value" threshold. The first on his radar screen is steelmaker Nucor, with its 3.6% dividend yield. The company was downgraded today by an analyst at Merrill Lynch. With a share price below $30, Cramer said Nucor is solid value stock. Cramer also recommended Freeport McMoran, a stock which he owns for his charitable trust as another company close to a value moniker. With a 4.4% dividend yield, Cramer said he's beginning to buy additional shares to reinforce his position for his trust. Admittedly, Cramer said gold and steel prices continue to fall, but in the case of Freeport, the stock has fallen from a high of $127 to $44 today. With such a decline, Cramer believes the downside has to be minimal going forward.

Mad Mail – Manulife (NYSE:MFC), McDermott (NYSE:MDR)

Cramer told a viewer that “I’m not recommending any insurance companies. None. Just too complex right now” and that includes Manulife (MFC).
Cramer told a second viewer that McDermott is way, way too low to sell, but until we have every hedge fund blow it out, which won’t happen until the end of December, I will not counsel buying any more McDermott – unless [Senator John] McCain wins because he seems to be in favor of dirty coal.”

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