Merrill Fire Sale - Cramer's Mad Money (7/29/08)

Includes: C, CL, CLB, KMB, MER, NYX, T, VZ, WFC, WMIH, X
by: Joan Wickham

Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Tuesday, July 29

Tuesday’s Market Influences

1) Financial Fire Sale: Merrill Lynch (MER), Citigroup (NYSE:C), Wachovia (NASDAQ:WB), Washington Mutual (NYSE:WM)

Merrill Lynch's fire sale of financial sub-prime mortgage-related assets could offer a way out of the jungle of problems that have weighed on financial stocks and the market. Cramer was heartened by Merrill's decision to sell its “bad bonds and collateralized debt obligations.” He said the move was significant because it finally offered both a buyer and a seller for its financial toxic waste. As a result, the moves could pave the way for other financially plagued institutions such as Citigroup, Wachovia and Washington Mutual. He said it offers them a model for “what they have to do to save themselves.”

2) Great Earnings: Colgate Palmolive (NYSE:CL), US Steel (NYSE:X)

The “remarkably great earnings” of Colgate Palmolive and US Steel helped ignite a 266.48-point rally in the Dow Jones Industrial Average. The response to their results, according to Cramer, is “a sign that market wants to rally.”

3) Oil Prices Collapse

The collapse of oil prices helped fuel Monday's rally. He said a fall of oil prices to $110 would drop gas prices to $3.50 a gallon.  And he said the rally is not over if the the federal government issues decent “employment numbers” on Friday.

Looking back at the Merrill deal, Cramer said he was unhappy at how he was hoodwinked time and again by John Thain, the company's chairman and CEO, who, he said, “overpromised” and “underdelivered” both at Merrill and at NYSE Euronext (NYSE:NYX).

Unconcerned about Oil Prices: Core Laboratories (NYSE:CLB)

Core Laboratories shouldn't be falling along with oil and gas prices. That's the contention of David Demshur, CEO of the company, who maintains his company should do well as long as oil stays above $70 and natural gas is above $6. Core Labs employs proprietary technology to analyze rock in and around oil fields and then uses that information to show clients how best to use that information. It applies the same kind of analysis to natural gas. Despite a drop in the stock in the past month, Demshur said the company is insulated from volatile commodity prices because the demand for its services is “inelastic.” That's the reason why the company has been able to report record profits in 11 of the past 21 quarters, he said. Moreover, he said the company has guided for record revenue and profits for the third quarter and full year. Demshur said he is an advocate for off-shore drilling. If Congress were to allow for such drilling, “we could eliminate all of our imports from the Middle East,” he said.

Turnaround Likely: Kimberly-Clark (NYSE:KMB)

Kimberly-Clark is a classic defensive play that investors normally would flock to during these tough times, Cramer says. However, the company has taken its lumps because oil is an active ingredient in many of its health and hygiene products. For every $1 in the average price of oil increases, the company’s annual earnings lose a penny. And for every $1 increase in natural gas, Kimberly-Clark’s annual earnings lose 4 cents. Cramer says the company is in a position to turn things around. He says the company's conservative guidance and the downward trend in oil and gas prices will help. The company is planning a price increase which should also help. There's a real chance of a turnaround here, he predicts.

Mad Mail

AT&T (NYSE:T): Cramer told the caller that analysts have been “ridiculously negative” on AT&T. He says the stock is cheap and he likes the dividend.

Verizon (NYSE:VZ): Cramer also likes Verizon and predicts both stocks will be much higher at year's end.

One viewer said she was not saving any money using gas/ethanol mixture, Cramer reiterated his dislike of ethanol mandate. “No one wants it. It's all about politics. It should be scrapped,” he said.


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