Cramer's Mad Money - Oil Is Well (3/19/09)

Includes: AA, BP, BPT, FDX, KIM, PBT, PLD
by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday March 19.

BP (NYSE:BP), BP Prudhoe Bay Royalty Trust (NYSE:BPT), PermianBasin Trust (NYSE:PBT)

Cramer doesn't understand why oil stocks are trading as if the commodity costs $30 when it is at $50 a barrel. While Cramer doesn't usually recommend subsidiaries, he likes BP Prudhoe Bay Royalty Trust, BP's subsidiary, which pays out a generous amount to shareholders in exchange for tax benefits and is directly levered to the price of oil, which Cramer predicts is going higher. Oil has risen 52% from its 52-week low, while Prudhoe Bay is up a mere 23% from its low of $50 a share. Even if crude oil stays at the current price, BPT will still see a $15 gain and the dividend will also rise even higher from its already generous yield of 10.7%. Cramer says BPT is similar to Permian Basin Trust which is up 27% since his recommendation. He prefers BPT, which is a pure play on oil whereas PermianBasin has natural gas exposure.

Unwieldy Yields: Alcoa (NYSE:AA), Kimco Realty (NYSE:KIM), Prologis (NYSE:PLD)

Cramer has encouraged investors to look for generous yields so they can be paid to wait out this bear market, but not all yields are created equal. Some are actually unsafe and may take the "trust" out of Real Estate Trust. Kimco Realty has lost 44 cents a share and has to issue $1 billion in equity to survive. Prologis needs to refinance $260 million worth of bonds by August. It is safe to say that dividends offered by such companies are not safe, especially considering the companies' high vacancy rates and credit woes. Alcoa is also a name to avoid, since it diluted shares with its secondary offering in a desperate move to raise cash. Cramer would avoid all three stocks.

Market Leaders: FedEx (NYSE:FDX)

In the not so distant past, a whisper of unflattering news about a company would flatten a stock. Now, stocks aren't falling even on bad news, and investors are starting to see the glass is half-full rather than half-empty. For instance Fed-Ex's share price didn't plummet even after CEO Fred Smith revealed the company's profits declined 75%. However, investors listened to his more optimistic remarks that the worst of the declines are over. What changed? Investors now have faith in market leaders and therefore, are able to believe good news. Oil is rising to $50, banks are coming back and there are shining lights in the tech sector. "People feel like the worst is over. They are following the leaders," says Cramer.


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