Farewell Financial Bear Raids - Cramer's Mad Money (10/14/08)

Includes: BA, CSH, DE, HEI, UPLMQ
by: Joan Wickham

Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Tuesday, October 14.

Farewell to financial stock bear raids Cramer told viewers. The Treasury Department's new protection plan finally puts an end to this devastating, but legal, practice. Cramer said the market was able to hold onto most of its gains on Monday because the possibility of another Great Depression was taken off the table. He said that the government's plan to take taxpayer money and invest it directly in banks has finally broken the cycle that has plagued the sector, panicked investors and brought many of the industry's finest companies to their knees. Cramer described the process in which short-sellers and hedge funds targeted banks and destroyed them. By using unregulated credit default swaps, short-sellers were able to create unsubstantiated fear in a stock. Once the fear took hold, the short-sellers would exacerbate the situation using naked shorts and puts to lower the stock price even further at very little cost to them. With stocks under heavy pressure, rating agencies were forced to lower ratings, causing media speculation and eventually banking customer panic. Cramer said the Securities and Exchange Commission's prior moves to ban short-selling on financials didn't go far enough to prevent the credit default swaps from being used to spread fear. However, that has changed with the government's new rescue plan for financial companies and its huge influx of capital. Cramer said short-sellers now have to once and for all cover their positions and leave the financials. "The financial stocks no longer have a bulls-eye on the them," he said. "SEC-endorsed bear raids are a thing of the past."

CEO Mike Watford - Ultra Petroleum (UPL)

Ultra Petroleum president and CEO Mike Watford spoke about  how his company is holding up after its stock declined from $102 a share to $46 a share from a wave of short-selling. Watford said even at $6 natural gas, Ultra Petroleum makes a tremendous amount of money for its shareholders. He noted the company's net asset value is $10 billion, substantially higher than its current market capitalization. When asked about Ultra's Pinedale field in Wyoming, Watford noted that the region is still the country's third or fourth largest natural gas reserve, yet spans just 60,000 acres, making it incredibly dense and easy to drill. He said Ultra has yet to set up production on 92% of the region, which has an estimated 14 trillion cubic feet of natural gas. Cramer called Ultra a buy, noting that the wildcat driller is one of the lowest cost producers of natural gas, well below the industry average. While growing reserves at 29% a year and delivering 43% annual production growth, he said the company is a solid play that doesn't require the credit markets for some years to come.

A Recession Fixture - Cash America (NYSE:CSH)

Pawnbrokers have been a fixture in hard times, and they figure to play a big role in this coming recession. Cramer said pawnbroker Cash America is one company that will prosper as Americans get poorer in the tough times ahead. Cash America derives 60% of its revenues from pawnshop operations, with another 38% from payday loans and 2% from check cashing fees. While its payday revenues are now threatened by increased state regulation, Cramer said the company has already begun lowering or removing entirely revenues from payday loans in Ohio from its forecasts in anticipation of increased regulation in that state. He expects the company to take similar action for other states. Still, Cramer said Cash American is a desirable stock because the barriers to enter the pawn shop market are high. Cramer's thesis lies in the fact that 71% of Cash America's inventory is jewelry, specifically gold jewelry. With gold prices still up 24.8% since last year, the price the company can sell unclaimed items for should rise substantially over time. Furthermore, Cramer said Cash America's recent acquisition of a Mexican-based pawnshop company will be immediately accretive to earnings, further bolstering the company's bottom line. He said he expects the company to beat the earnings expectations in the upcoming quarter. Cramer called Cash America one stock that works well during times economic misery, and he'd be a buyer, especially now with its stock price tumbling.

Mad Mail - John Deere (NYSE:DE), HEICO (NYSE:HEI), Boeing (NYSE:BA)

John Deere should be bought now that the credit crisis is coming to a resolution. Cramer is not a fan of HEICO amidst a strike at Boeing and a possible Obama administration.

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