Friday, 03/07/08
Posted 03/09/08,  10:31 pm ET

(Scroll down to see Jim's comments below)

 
 
Today's date:  Friday, 03/07/08

  Dow Jones: 11,893   - 146
  NASDAQ:   2,212      - 8
  S&P 500:   1,293     - 10
 
 
 
 
 
First Segment
 
 
Final Segment 1 Title: 'Building Block'

.  .  .  .  .

Featured Stock(s): Blockbuster Inc. (BBI)

See BBI's official website here.

See the Yahoo! Finance profile for BBI here.



See Closing Segment 2, below...
 
After this segment, you can see Jim's Sudden:Death picks here...

        

JJC:    For Speculative Friday, we've got a stock that could make you a lot of money...

I'm talking about the potential for, yes, an 80% gain...  but I'm also going to tell you it's very dangerous...

This is a real stock for skydivers, bungee jumpers, and other risk addicts... and the stock is
Blockbuster Inc. (BBI).

.  .  .  .  .

I want you to treat this little $2 number as a lottery ticket, but with better odds...

I've got real credibility, when it comes to BBI...   I've made you money in it, and I've stopped you from losing money in it...

I had total confidence in their terrific former CEO, John Antioco... So, I got behind his stock on November 6th of 2006...   BBI was at $4.42...  Then it moved up.  I put it in the Sell Block on January 25th of 2007 at $6.57, a 48% gain.

And then we gave up on the stock entirely, and told you to absolutely leave every single share... March 22nd of 2007, when Antioco left.  The stock was at $6.91.

So, I got you up 56%.   I talked to you about how bad I did in Annaly (NLY*), so let me give you a little bone there about what I did in BBI...

In a business where you're only as good as your last trade - and mine is Annaly (NLY*) - it doesn't make me a genius, but it does make me a bit of a seer, when it comes to BBI...

.  .  .  .  .

Since then, the stock has fallen apart...  But, after spending a year in the wilderness, thanks to its high debt load, poor management, and tough competition from Netflix (NFLX), not to mention video on demand, now movie rentals on iTunes... there's reason to think that BBI has finally turned the corner, and not because of the Citigroup upgrade today which, frankly, didn't move the stock at all...  It was still down...

.  .  .  .  .

BBI reported earnings yesterday, and it gave us 26 cents of earnings per share.  The Street was only looking for 18 cents...

The stock actually went down after the report and, when I saw that, I thought... opportunity.

And I was all worried all day... I said, aw... Citi recommending it... watch this stock move up without me, and I'm going to have to say, oops, we missed it... because I expected the stock to go higher...

The market was so bad yesterday and today though... you've got a chance... you've got a chance to be able to buy this for less than you would have paid before the better-than-expected quarter.  It rarely happens...

.  .  .  .  .

Now, before I sing the praises of BBI's great quarter and its turnaround, I want you to know the risk...

Remember my new rule in
Stay Mad For Life, my rule is...  amateurs focus on how much money they can make in a stock...  pros focus on how much they can lose...   Be a pro.  The big worry about BBI is that it might not be able to meet the terms of its loan covenants.  These are special terms that are tacked onto the loans that, in the case of BBI, require the company to make at least a certain amount of earnings before interest, taxes, depreciation and amortization... also known as EBITDA.

.  .  .  .  .

If BBI doesn't cross that threshold in 2008... they need $250 million in EBITDA... then BBI is default on the loans, just as if it hadn't make it's payments... and the creditors get to tear the company - and your stock - to pieces.

It's a real worry.  Even though management says
BBI should deliver $290 to $310 million in the EBITDA for 2008, a $50 million margin is a little close for comfort...

But what else did you expect?  It's a speculative stock...
 

.  .  .  .  .

One last word, though, before you confuse this with Annaly (NLY*)...

BBI is paying down debt, not borrowing more of it...  It had a great pay-down this quarter.  If BBI weren't reducing its debt, then there's no way I would endorse it, even as a speculative play...

This stock does not violate the Annaly rule.   Remember, Annaly was borrowing, or "levering up", to use a fancy word...  BBI is de-leveraging... another piece of Wall Street jibberish for paying down debt...

.  .  .  .  .

Enough about risk.  How about some reward?...

You want to know how BBI beat yesterday, and how they can do it again?...

The potential turnaround here hinges on a new management team, by James Keys, who just might be the next Antioco...   Keyes came from 7-Eleven, where he toiled for 21 years, spending the last five as CEO...

Now he's focused on cutting costs, getting rid of unprofitable customers by raising prices, and generating more retail sales... he's selling more movies.

His turnaround strategy is to make Blockbuster more than just a movie rental place.  He wants Blockbuster to be where people go to buy, not rent, movies... shows, games, you name it...

BBI is also benefiting from the disintegration of its biggest brick and mortar competitor, The Movie Gallery, which filed for bankruptcy in October, when it also said it would close 500 stores...

Here's a great chance for BBI to come in and take share...

Plus, according to BBI's new CEO, our crumbling economy is also a positive...  because it makes people less likely to shell out $11 bucks for a new movie ticket, and more likely to resign themselves to renting a new movie from Blockbuster, for a lot less...

.  .  .  .  .

In a world where people are no longer buying expensive stores like Saks Inc. (SKS) and, instead, are lining up to shop at Wal-Mart (WMT), which I call the world's biggest soup kitchen, without the ambiance... the CEO's reasoning seems to make sense...

Of course, when everyone has video-on-demand at home, BBI's probably not a great buy, but that's a long way away... 

.  .  .  .  .

You've heard the good and the bad.  Now it's time to weigh them...

What's the risk/reward?...

Turnaround works?...  And I think BBI deserves to trade at a 20% discount to Netflix (NFLX), on an enterprise value... meaning it would get a 6x multiple on enterprise value to
EBITDA...  In other words, I think it goes to $5.

If it doesn't, I think that BBI could trade 3.5x enterprise value over EBITDA... a 53% discount... In other words, $1.72.

With BBI trading at $2.72, this is an up $2.30 stock, or a down a dollar stock, right?...  

Another way to put it...  you could lose 37%, or gain 84%...  and that's my kind of risk/reward.

.  .  .  .  .

And, with Carl Icahn a big shareholder here and, remember, he's made us a lot of money in the past, Motorola (MOT) excepted...  I'm much more confident he can hold management's feet to the fire, and make sure the right things get done.

.  .  .  .  .

The Bottom Line!:      Here's the bottom line, guys... If you're a speculator, do some work over the weekend.  Take a look at the Citigroup (C) report too, if you disagree with me...  I think it's time to come back to Blockbuster Inc. (BBI).

.  .  .  .  .

 

   
 

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)


BBI

2.72

2.90

Blockbuster Inc. (BBI)

         

 

 

 



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Second Segment
 
 
Final Segment 2 Title: 'Mad Mail'...

.  .  .  .  .

Featured Stock(s): See comments below...
 
After this segment, you can see Jim's Sudden:Death picks here...

.  .  .  .  .

 

   
 

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)


na

na

na

Mad Mail

General question about gold valuation... and the predicted price of gold...

Q:  
 I have a question about gold.  You mentioned on an earlier show that you think gold can go to $1600.  Unlike stocks, there's no P/E ratio and no earnings to predict a target price.  What metrics do you use to value the price of gold?  I'd like to hear what the President of Cramerica has to say on this subject.

JJC:
     I rely on guys like Peter Marrone from Yamana Gold Inc. (AUY*), which I own for my charitable trust...  and the excellent Agnico-Eagle Mines Ltd. (AEM) people, and I also rely on supply and demand, and rely on the relationship between gold and the dollar, and between gold and oil...  and it's never let me down, and it produces $1600 (an ounce)... 

 

       
 

 

[ end of final segment ]

   
 

Go to the SUDDEN:DEATH SEGMENT from tonight's show here >>

See current quotes on Yahoo! Finance from tonight's show stocks here >>


Netflix, Inc.


Symbol keys:

A Charitable Trust stock. - An asterisk next to a stock symbol indicates that Jim mentioned it is a stock that he manages within
his charitable trust portfolio.  You can see the complete portfolio
of stocks here >>

Thumbs up - indicates he would buy the stock or, at the very least, not sell the stock.  We do our best to interpret Jim's opinion on stocks, as we think it is indicated by his comments during the show.  Please read his comments to decide for yourself.

Thumbs down - indicates he has said not to buy or to sell the stock, based on his comments  We do our best to interpret Jim's opinion on stocks, as we think it is indicated by his comments during the show.  Please read his comments to decide for yourself.

Back up the truck - indicated by Jim, when he says the stock is so good, that he would do a 'mon-back' on the stock... In other words, this is the sound someone would say to a truck driver, "Come on back... " as he is "backing up the truck" to load up on his cargo.  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.

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.
  See more "Cramerisms" & other financial phrases here >>
   
Helpful Websites:
  See the stocks currently known to be in Jim Cramer's
Charitable Trust at:

jim-cramer-charitable-trust-stocks.com

 
See the stocks currently known to be in Warren Buffett's portfolio
of stocks at:

warren-buffett-portfolio.com

 
  Stock Homework 101:   This is an excellent upcoming site that provides resources and links to help you do that homework that Jim Cramer recommends after hearing his suggestions...

StockHomework101.com

This site is coming soon.   Thank you.

 
  FastMoneyRecap:   This site will be a quick summary of recommendations made by the great Fast Money TV show crew, that will offer you a unique service, to compare their picks to Jim Cramer's past comments about those stocks.

Fast Money Recap - Trades for next day...

Compare these picks to Jim's comments for the same stocks.

 

 

   
   
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