Exercise Caution - Cramer's Mad Money (10/13/08)

Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Monday, October 13.

Caution Advised - Morgan Stanley (MS)

Viewers of Jim Cramer's "Mad Money" TV show probably expected words of optimism after Monday's historic 926-point rally. Instead they received only words of caution. "This stock market still cannot be trusted," Cramer told viewers bluntly. He called the meteoric market rise just a logical response to what had become incredibly oversold conditions. In sorting out whether Monday's monster rally was sustainable or simply a flash in the pan, he looked at the news on which it was based. He said without details on the Treasury Department's latest banking bailout plans, there's no way to know whether it will help or not. Which banks get the money? How much will they get? How will it be implemented and when? All of these questions remain unanswered, said Cramer. The other "positive" news of the day came when it appeared Morgan Stanley won't be going out of business. "What kind of positive news is that?" asked Cramer. According to Cramer, the pressing issues of the day still remain. He has yet to see details on how anything the federal government has done to get credit flowing to consumers and help small businesses get financing. While another Great Depression may be off the table, the chance of a severe recession still remains on the table, he said. Cramer continued to advise investors to exercise caution and invest only in recession stocks with large, safe dividends and those who’s beaten down value is almost equal to that of the cash they have on hand.

Sell-off - Kinder Morgan (KMP), Trinity Industries (TRN), Broadwind Energy (BWEN)

He noted Kinder Morgan as one such beaten-down stock with great fundamentals.

With so much of last week's sell-off driven by hedge fund redemptions, Cramer said the time is right to buy wind power plays Trinity Industries and Broadwind Energy, both of which have seen their shares beaten down by hedge funds. "The time for wind has never been better," said Cramer. With the recent passage by Congress of an extension for wind tax credits, he said the bull market in wind continues to improve. Texas, for example, is spending $5 billion on wind power, while New Jersey recently allocated $1 billion for its first offshore wind power facility. Trinity has been pushed down over 40% from year ago levels, but continues to transform itself from a railcar- to wind-power play. The company currently derives only 30% of its revenues from rail, down from 54% a year ago, and expects to see $800 million to $900 million in revenue from wind power by 2014. "Broadwind is an outright buy under $8 a share," said Cramer, noting that the company continues to help build new wind facilities and expand its precision gear systems.  In both cases, Cramer said the current share prices only reflect broken stocks and not broken companies. He said the case for wind power is stronger now than when he first introduced his "Wind-ex" index of wind stocks earlier this year.

Ready for Recession - Chesapeake Energy (CHK)

Aubrey McClendon sold $569 million of his own stock, and Cramer thinks this one’s a buy, even if CHK did pop over $3 on Monday’s rally. The stock is still $6 lower than its close a week ago. Cramer told viewers not to be concerned with CEO Aubrey McClendon's recent sale of company stock. He said he'd buy one-fourth of a position now at current levels, and purchase more on any weakness. Cramer still likes the natural gas story, especially Chesapeake's. The company has no debt due until 2012, the company’s meeting its debt covenants, it has expected cash flows of $2.5 billion to $3 billion, and there are sellable assets here. Chesapeake has also hedged 81% of its 2008 production at levels $3 higher than current natural gas prices and continues to hedge portions of its 2009 and 2010 production at favorable levels. With 63% of US homes heated by natural gas, Cramer said Chesapeake is set to weather even a harsh recession. The company also has assets to sell in the unlikely event it needs more cash.

Stepping Back - Waste Management (WMI), Republic Services (RSG)

Cramer checked in with David Steiner, CEO of Waste Management, to get the low-down on the company's decision to withdraw its bid to acquire competitor Republic Services. Steiner said that while he still likes what Republic can offer the company, he was not prepared to take on the financial risk during uncertain times. Waste Management is also sitting on a nice pile of cash now that the company has withdrawn its $6.73 billion offer. He said investors look to Waste Management for solid, dependable earnings and he's going to continue to generate cash for his shareholders. Asked what the company might due with the cash on its balance sheet, Steiner said he's considering a stock repurchase plan and boosting the company's dividend, but he also said he'll proceed cautiously due to current market conditions. “We’re a safe harbor in uncertain times,” CEO David Steiner told Cramer. Cramer reiterated his buy on Waste Management, with its 3.5% dividend yield and consistent management.

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Comments

[Ben Dinsmore:]

I've never been a huge fan of Cramer. Investing for the short term may work for some people, but when I tried day trading a few years ago I lost my shirt!

People argue that you can make money if you know what you are doing but even then, the amount of research that goes into making a "good buy" for short term investing doesn't seem worth it if you are playing around with less than $100K.

On the other hand, I do enjoy watching running around his studio with his typical "hysterical" demeanor.

2008 Oct 13 10:00 PM

[Freedoms Truth:]

Wow, an awesome contrary indictator.
Time to go long was last Friday and he was super negative.
Rally skepticism is great, it will keep it from overshooting.

2008 Oct 13 10:22 PM

[Mia:]

I agree one hundred percent with Crammer - CHK is one of the best buys available today.

2008 Oct 14 01:50 AM