HMOs on the Sell Block-Cramer's Mad Money (7/10/08)

by: Joan Wickham

Stocks discussed in the in-depth session of Jim Cramer's Mad Money TV program, Thursday July 10


Hospira (NYSE:HSP)

 "Healthcare stocks have nothing to fear," according to Jim Cramer.  "The healthcare sector is the place to be given the current market conditions." He expects big money managers to flock to the historically recession-proof stocks and advised investors to get in ahead of the rotation.  Cramer recommended Hospira as his next investment idea in the group. "Hospira is transforming itself from a boring drug delivery and medication management company into a faster growing, higher-margin oncology powerhouse."  Cramer said "Hospira has met or beat earnings expectations for the past seven quarters, giving it a solid track record of results.  Hospira is currently the No. 1 maker of specialty injectable pharmaceuticals, with 17% market share in the U.S. The company also has real potential for growth in Japan, where generic drug use by the government-run healthcare system accounts for only 16% of all drugs used, compared to 50% in the U.S."  Cramer is especially high on Hospira's injectable oncology division. "This business provides Hospira growth that Wall Street has failed to notice."


Cramer also liked the fact Hospira is cutting costs. The company closed five facilities, which should add 9 cents a share to the company's 2010 earnings. It has also increased its operating margins, from 14.9% in 2004, to just over 16.9% today, with the goal of reaching 19.9%. "I think Hospira has what we want from the healthcare stock," said Cramer.


Chesapeake (NYSE:CHK)


"I think the moment's right to start buying natural gas," Cramer said.  He's still a fan of Chesapeake Energy. Last night, Chesapeake completed a secondary offering of 25 million shares at $57.25 a share." Today the stock closed at $61.58 a share for a 6.7% gain in just a single day. "That's the all-clear signal we've been waiting for," said Cramer. "The company plans to use the money to increase drilling, a move that's seen as wildly bullish for the stock," he said.

Cramer cited five of Chesapeake's previous secondary offerings, noting that all five have made money. Cramer also voiced his support for Chesapeake CEO Aubrey McClendon, whom he said is the most bankable CEO in America.


Healthspring (NYSE:HS), Humana (NYSE:HUM), Healthnet (NYSE:HNT), Coventry (CVH), Triple-S (NYSE:GTS), United Healthcare (NYSE:UNH)


In the "Sell Block" segment, Cramer gave viewers a list of stocks which he said are the real losers of the new Medicare spending bill that Congress just passed Wednesday and that is veto proof. According to Cramer, the managed care providers will be hardest hit by the new $12.5 billion spending package.


Cramer told viewers to "stay the heck away from the managed care companies or HMOs which are already down a lot and are going much lower."  To determine which companies are the worst, go by the amount of exposure each company has to Medicare.  He said that Healthspring, which gets 88% of its revenues from Medicare, will be hardest hit by the new plan. Also on the list are Humana (80%), Coventry (32%), HealthNet (28%) and Triple-S (20%).  Cramer also added former favorite United Healthcare, which only has 12% exposure to Medicare, to the list, calling the company "a serial killer of wealth."  Cramer said managed care companies are also poised to be hit by the shrinking economy. "When unemployment grows it hurts these stocks," he said. With these companies getting hit from both ends, Cramer said "HMOs don't have a chance. They just can't be owned."


Wachovia (NASDAQ:WB) New CEO Bob Steel


Cramer had high praise for Treasury Under-Secretary Bob Steel, who resigned his position to head the ailing Wachovia Bank. Steel knows what he's doing and understands what is needed.  He called Steel "one of the great behind the scenes players" and one of the integral players behind the recent JP Morgan Chase and Bear Stearns merger.

Cramer said the turn-around of  Wachovia will take time, and he still would not be a buyer of the bank at this time.


Cramer was bullish on Clean Harbors (CLHB), Spectra Energy (NYSE:SE) and Johnson & Johnson (NYSE:JNJ).

He was bearish on CVRD (NYSE:RIO).

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