Cramer's Mad Money - The Best and Worst Earnings (2/3/09)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday February 3.

The Best and Worst Earnings Reports: Colgate-Palmolive (NYSE:CL) and Textron (NYSE:TXT)

Cramer tells readers to do homework on stocks by studying conference calls, but what facts deserve attention? Cramer looked at the best and the worst conference calls of the earnings season so far to show what a good call looks like and a bad one. “Everything that could have gone right for Colgate did,” said Cramer. Raw costs were low in spite of inflation and low commodity prices helped Colgate. Sales grew organically in spite of the stronger dollar even though 70% of Colgate’s revenues are from abroad. While its competitors were struggling to survive, Colgate released new products and took market share. Customers stayed loyal to the brand and kept buying Colgate.

Textron saw a steep decline in sales and a 77% growth in non-performing assets in its financial division. It credit losses may be two to four times as bad as in previous downturns. Textron’s manufacturing business is heavily dependant on failing autos. The company lost 20% and expects further declines of around 25%. The company can’t pay off its debts or get financing. Cramer thinks its dividend is not sustainable. At Tuesday’s close, Colgate was up 3% and Textron dropped 40%.

Good Banks, Bad Banks: Schering-Plough (SGP), Merck (NYSE:MRK), ExxonMobil (NYSE:X), Verizon (NYSE:VZ), (NYSE:CRM), Microsoft (NASDAQ:MSFT), General Mills (NYSE:GS), Kellogg (NYSE:K), McDonald’s (NYSE:MCD), Bristol Myers Squibb (NYSE:BMY), Citigroup (NYSE:C), PNC Financial Services Group (NYSE:PNC), Goldman Sachs (GS)

There has been a lot of talk about good banks and bad banks, but Cramer’s definition of a bank might seem a bit broad. Basically any company that is sitting on a pile of cash, whether it sells mortgages or cereal, can be thought of as a bank. Those “banks” that don’t need TARP money and can raise capital are “good” banks. Cramer listed Schering-Plough, Merck, ExxonMobil, Verizon,, Microsoft, General Mills, Kellogg, McDonald’s, Bristol Myers Squibb as good “banks” that have plenty of cash to offer generous dividends and buy back stocks. “Bad” banks are what are usually considered banks: Citigroup, PNC Financial Services Group, Sun Trust and Goldman Sachs. All of these companies rely to some degree on government funds and fell an average of 5% Tuesday even thought The Dow was up 141 points.

Freeport McMoRan (NYSE:FCX) Is a Technical and Fundamental Buy

Cramer often likes to compare and contrast the technical with the fundamental approach to investing, but in the case of Freeport, the chart and the fundamentals agree. Looking at the chart, Freeport is well below its 200 day moving average, which means there is significant room to the upside. The chart also indicates there are more value investors in Freeport and that buyers are holding. This makes the stock safe from capricious selling. In addition, new buyers will have to pay more since value investors are sitting on their positions; this will send up the stock price.

Looking at the fundamentals, Freeport has more available cash than in the past, is cutting costs, reduced its dividend and made a $750 million shelf offering. Freeport is also slowing production to improve margins. Cramer says Freeport is the one to buy now before demand for copper rises again. Another stimulus plan in China might get the ball rolling.

What? No Witch Hunts?

Cramer was outraged that new Attorney General Eric Holder announced there were going to be “No Witch Hunts.” Cramer’s response: “Hey, Holder, this isn’t Salem, this is Sodom!” Refusing to prosecute those who committed dire financial crimes is a license to create a dozen more Bernie Madoffs. Richard Fuld and John Thain, who ran Merrill Lynch and the New York Stock Exchange into the ground, need to be held accountable if confidence in the markets is going to recover. If justice is not done, people will continue to think the whole system is rigged. “How about putting these guys in stocks across from the place where we trade stocks?” suggested Cramer.

Mad Mail: Bad Luck for Fortune Brands (FO) and Macy’s (NYSE:M)

Cramer complained that Bruce Carbonari, CEO of Fortune Brands came on his show and misled him about the health of his company. While Fortune keeps missing the quarter, Carbonari keeps talking about taking market share. Cramer doesn’t trust the dividend and says the stock is down “hideously.” Cramer says he isn’t sure what to do about Macy’s. Although he wanted people to sell it into strength, he made a sell call when the department store giant cut its dividend; “What am I supposed to do, say I love it?”

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