Thursday, 01/03/08
Posted 01/04/08,  12:39 am

(Scroll down to see Jim's comments below)

 
 
Today's date:  Thursday, 01/03/08

  Dow Jones: 13,056 + 12
  NASDAQ:   2,602   - 6
  S&P 500:   1,447   +0
 
 
 
 
 
First Segment
 
 
Final Segment 1 Title: 'The Sell Block'

.  .  .  .  .

Featured Stock(s): Sell:

Legg Mason Inc.
(LM)
American International Group (AIG)
Countrywide Financial Corp. (CFC)
Capital One Financial Corp. (COF)

Buy:

Eastman Kodak
(EK)
Sprint Nextel Corp. (S)
Google Inc. (GOOG)
Unitedhealth Group, Inc. (UNH*)


2nd segment picks below...



JJC:    This is another 'redemption song' Sell Block... I'm talking about the redemptions that are now hitting Legg Mason (LM)... a stock that begs to be sold.

For all you homegamers, who are new to the term, 'redemptions'... that's when investors ask for their money back.

This is a story with a lot of angles, but it starts with the performance of Bill Miller... LM's legendary money manager, and his abysmal performance this year...  He apparently lagged the market by nearly 10%.  This is coming on the heels of a similarly disappointing 2006.

When that happens, you know what happens?  Investors pull their money out...

.  .  .  .  .

 

.  .  .  .  .

For six straight quarters, money has been pouring out of LM's domestic equity mutual fund, and there have been net outflows in four of the last seven quarters in the whole mutual fund division... that's the redemption song.

Since LM makes money taking a cut of the assets they manage, this is most surely terrible news for them...

.  .  .  .  .

But selling LM isn't our only conclusion here.

It's definitely a big conclusion, especially today, with the stock up for all the wrong reasons... It's up because State Street (STT), a very good firm, is taking care of its sub-prime problems.  But STT is an asset manager, and it's gaining monies, and putting the litigation risk behind it.

I believe that LM is not doing either of those things.  It has a ton of this structured investment vehicle product... it's got a ton of exposure to that...  I know, it made some write downs, but no, that's the last thing we expected from a firm with such a great reputation.

Frankly, we - meaning me - were aghast... We thought we were investing with Tiffany.  It turns out we were shopping in a home shopping cubic zirconium production...

And that's not even mentioning the fact that Citigroup (C*) owns 7% of LM's shares outstanding and Vikram Pandit, the new CEO... he's got to be itching to sell... especially with the stock up so much today.  C* needs the money.  They've got to pay for that dividend, and I think Pandit will dump his LM shares, even before he contemplates cutting the dividend.

But, as I said, this Sell Block is about more than just LM... This is about what LM's funds will have to sell, because of the redemptions.

Even though Bill Miller's performance hasn't been any good this year, he does own some worthwhile stocks.  And, because he's going to have to sell, I believe, to meet the redemptions, you could get some great buying opportunities...

On the other hand, he's going to have to sell some real clunkers too.  I don't want you to think about those.  As a matter of fact, I want you to get out of them before he crushes them with his redemption song.

.  .  .  .  .

The sells?...

Legg Mason Value Trust, the huge flailing flagship fund, run by Bill Miller, has some big positions in some real stinkers... including AIG (AIG)... They've got Countrywide (CFC)... If you want to own CFC, you should own the preferred... don't you dare own the common. And then one that I really think is...well, I'm trying to be polite, but it's very difficult, which is Capital One (COF) - sell, sell, sell!  

I don't like these stocks, and the fact that they're probably going to be hit by some huge institutional selling here, in response to Miller's investors clamoring for their money back... makes me want to tell you to use any strength to get out... 

.  .  .  .  .

But his selling should also create some buys...

He could knock down Eastman Kodak (EK), which he has a huge position in, represents 7.2% of their shares outstanding...  We're on record liking EK.  If Bill Miller's a seller of EK, I'd buy it. 

They own 5.1% of Google (GOOG)... Now maybe that's why the stock's going down.  Maybe he's knocking it down to pay some of the redemptions.  It makes sense right?  It's a big $600 stock.  That's definitely a deal that I'd take...

They own 1.2% of Unitedhealth (UNH*)...  UNH* I own for my charitable trust... I'm up nicely on it.  If he knocks that stock down to $54, I'd be a buyer of it...  It could happen.  

How about Sprint Nextel (S), which he owns?...  Now that stock is all the way down to $13  We've hated it all the way down but, at this level... He owns 1.7% of it.  It's too cheap, especially if Tim Donahue is given some money to be able to take it over, which is what should happen.  That would definitely be a buy.  At $13... $12... I want to own the stock.
 

.  .  .  .  .

When this kind of thing happens... when a high-profile manager, running tens of billions of dollars, starts to falter, and gets hit with redemptions, there are opportunities, and there are stocks to avoid. 

Bill Miller is just about the highest profile guy out there, so this is really going to create some serious negative pressure on a lot of stocks, but the most important one is Legg Mason (LM).

.  .  .  .  .


The Bottom Line!:
   Legg Mason (LM)'s troubles aren't LM's alone... Don't wait for Bill Miller to sell his AIG (AIG) or his Countrywide (CFC) or his Capital One (COF).  Do take advantage if he knocks down Kodak (EK) or Sprint Nextel (S) or Google (GOOG) or UNH (UNH*)... and, hey... if you actually like LM, you should wait for Citigroup (C*) to sell at least a chunk of it before you would possibly pull the trigger.  How long are they going to kill our profits?

.  .  .  .  .

 

 



See all of tonight's stocks' latest quotes on Yahoo! Finance


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Stock Snapshots - Includes all stocks mentioned above

 

 

 

Jim
Cramer's
rating on
this stock

STOCK
SYMBOL

Closing
price
that
day

Opening
price
next
day

Full Company Name/Comments
(see comments above for each)

LM

73.43

na

Legg Mason Inc. (LM)

AIG

56.45 na American International Group (AIG)

CFC

8.77

na

Countrywide Financial Corp. (CFC)

COF

46.67 na Capital One Financial Corp. (COF)

EK

20.95

na

Eastman Kodak (EK)

S

12.97 na Sprint Nextel Corp. (S)

Price target to buy:  $12-13.00

GOOG

685.33

na

Google Inc. (GOOG)

UNH*

56.93 na Unitedhealth Group, Inc. (UNH*)

Price target to buy:  $54.00

 


 
 
Second Segment
 
 
Final Segment 2 Title: 'Mad Mail'

.  .  .  .  .

Featured Stock(s): See specific stocks below...

.  .  .  .  .

 

   
 

Stock Snapshots - Includes all stocks mentioned above

 

 

Jim
Cramer's
rating on
this stock

STOCK
SYMBOL

Closing
price
that
day

Opening
price
next
day

Full Company Name/Comments
(see comments above for each)

RAD

2.28

2.28

'Mad Mail'

Rite Aid Corp.
(RAD)


Q:  
 I'm confused.  You consistently talk about keeping 20% of a portfolio in speculative stocks.  I recall you saying that gains from a spec winner can be enormous - a double, triple or more.  You've also said, 'speculating can keep investing fun.'  So, why on last night's show did you say '... the lesson to be drawn from the gains and then losses in Level 3 (LVLT) and Rite Aid (RAD) is that, when you have a gain in speculative stocks, you have to sell them'?  Are you getting cold feet?  You can't have it both ways, so which is it?

Jim:   I do talk about this endlessly in this book -
Stay Mad For Life...  Now here's the deal...  When you're up on speculation, you should take some profit.  If I said all profit, that's a mistake.  If you had sold some, at least you would have gotten something out of it.  RAD... the drug stores today were so bad... the RAD bonds traded down.  I have to tell you... I just want to be very careful.  If you have a nice gain, take some off the table.  That's really what I meant to say.  And I'm sorry if I confused people. 



CELG

49.85

49.57

'Mad Mail'

Celgene Corporation
(CELG)


Q:  
 I'm trying to keep the faith with Celgene (CELG), but it's getting harder and harder as I find myself in the house of pain.  What's going on here?  May I have your latest thinking?

Jim:   Well, they finally got... Hartz got clearance to make that acquisition, so the stock's starting to go up...  Have I lost some faith in it?... Candidly, yes.  But the stock's moving up.  Let's see where it can go.  It's obviously not as good a story anymore.  We need to see the quarter... Look, I don't want to back away from it.  Let's see where it goes.
 
         

[ end of final segment ]

   
 

Go to the next segment from tonight's show here >>

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Symbol keys:

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Stumped. - Of the 2,000+ stocks that Jim Cramer has in his head, for which he has an informed opinion, he sometimes comes across a caller with a stock he does not know well enough to opine on...  He then indicates he is stumped and will have to come back to it, after he does some homework of his own on the stock.  This usually occurs during the Lightning Round, when Jim does not know in advance who is calling, or what their stock question is about.
 

 
Definitions of key phrases used by Jim, known as "Cramerisms":

Definition:   'Pull the trigger' is Jim's phrase for making the decision at that point to trade - either to 'buy' or to 'sell' (although he usually uses the phrase for buying), as if to say you should feel comfortable enough to make the final decision without looking back...

Definition:   'Ring the Register' is Jim's phrase for selling a stock, and making it a final sale, that you should not look back on.  Put it behind you.

Definition:  'Let It Come In' indicates how you may wait for it to pull back, or have the stock price come down briefly, as your chance (after letting it come in) to buy the rest of your position (i.e., total number of shares you own in that stock).

Definition:  'backing it up' or 'doing a 'mon-back' is Jim's phrase for the metaphor of backing up a truck to load up on a stock by buying it.  'Mon-back is short for the imaginary worker saying, 'Come on back...' as the truck is backing up to receive its load... Notice that we use the little truck icon to indicate where Jim has mentioned this.  Translation for buying stocks:  This recommendation by Jim indicates that, after you do your own homework on the stock, you should feel comfortable loading up on it, as it is in a good position to be bought at this point.
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