Thursday, 01/10/08
Posted 01/10/08,  11:33 pm

(Scroll down to see Jim's comments below)

 
 
Today's date:  Thursday, 01/10/08

  Dow Jones: 12,853   + 117
  NASDAQ:   2,488    + 13
  S&P 500:   1,420    + 11
 
 
 
 
 
First Segment
 
Opening Segment 1 Title: 'The Sell Block'

.  .  .  .  .

Featured Stock(s): Spotting the bottom in the financials:

Countrywide Financial Corp. (CFC)
Washington Mutual Inc.
(WM)
Citigroup (C*)
Bear Stearns Companies, Inc.
(BSC)
Centex Corporation
(CTX)
The Blackstone Group
(BX)
Thornburg Mortgage Inc.
(TMA)
Beazer Homes USA Inc.
(BZH)
MGIC Investment Corp.
(MTG)
MBIA Inc.
(MBI)
Goldman Sachs
(GS*)



See Opening Segment 2, below...

        

JJC:   I preach every night that I want you to stay in the game... Had you sold Monday, you would have, perhaps, left 30... 40... 50% on the table in a lot of situations...

The markets always fluid.  At the bottom, things can go right... so let's talk about what happened, and do it through a game plan that we put together August 3rd of last year...  [See that Game Plan - complete comments here.]

 

.  .  .  .  .

We created a 'Mortgage Madness Index' and we did it in order to be able to demonstrate that there could be a tremendous crisis coming... I thought that we could be in for a huge crisis...

And you know what?... Yesterday, this mortgage index, which we started at 100, August 3rd... hit 47... cut more than in half...

Now, in light of the news of the possible link up with Countrywide Financial (CFC) and Bank of America (BAC)...  In light of the fact that Ben Bernanke revealed that, perhaps, he does know something, by talking about - at last - substantive cuts, which is what we've been calling for endlessly on this show, as opposed to little quarter-point things...  We've got to go over the Mad Money mortgage index...

We have to find out whether some of these stocks should be taken out of the Sell Block... this is a special emergency Sell Block... and maybe even be bought...

.  .  .  .  .

Let's start with the biggest offender, Countrywide Financial (CFC)...

I think the Bank of America (BAC) tie-up with CFC is brilliant...  I think they'll be some way that the government will say, look, we're going to lower interest rates... BAC, you take this out of our hands... You take this, so that the trillion dollar servicing business goes to you... You get a gigantic amount of great business, and we'll figure out some way to recompense you for the bad loans that you have to take.  I think those deals happen.  They happened in 1990...  This kind of deal - which is a huge windfall for BAC, the stock was up today - would never have been allowed during a non-crisis situation, because these two companies, BAC and CFC, have way too much of the mortgage market.  The anti-trust department would have stopped this at one time... It can't now.  There's too much crisis.

So, CFC?... Hey, listen, that's going to be gone.  I hope you bought the Countrywide Financial Preferred - COUNTRYWIDE CAP V (CFC-PB) - that's the one I've been recommending... I think you'll get a lot of BAC stock... That was up at one point 117% today...  

.  .  .  .  .

Next, we want to focus on Washington Mutual Inc. (WM)...

WM, that's Kerry Killinger... He's on the Wall of Shame...  We've been recommending sell since August... It hit $11 yesterday.  I now feel that WM will have the same thing that happened with CFC...  I think those who bank at WM... one day, you'll wake up and you'll be banking at Wells Fargo (WFC), or HSBC (HBC)...

WM, no longer a sale, because it is too likely to be bought... It has too big a deposit base.

.  .  .  .  .

Citigroup (C*)?... When we talked about it at $45, obviously a sale...  Now, all the way down here, it's about to get a gigantic capital infusion from another country... Maybe it has to cut its dividend, maybe it doesn't...  But that's no longer a sale, okay?  Because, if the Fed cuts rates, C* is going to make a lot of money...

So, we don't want to sell C* anymore. 

.  .  .  .  .

Bear Stearns (BSC) was at $108.  That had already fallen some 70 points.  It's down to $77.  They've got new management.  If the Fed cuts rates aggressively, then it's more likely that BSC will find a buyer for itself...  You know I like Merrill Lynch (MER) more... Same situation, but better management... 

.  .  .  .  .

KB Home (KBH)...  This is one that was at $30.  It went to $17.  It reported a very bad number yesterday, in the sense that it was in violation of its revolver... its credit line... but it still has more than a billion dollars in cash...  I think KBH, if people feel like things are going to get better, which is what happens... confidence returns, because of the Fed cutting rates... KBH gets a bid... you don't want to sell that anymore.

.  .  .  .  .

Centex Corporation (CTX)... Also likely to be bought... Now, that stock I think gets a takeover bid at a lower price than it is right now...  That was a bit of a short squeeze today.  CTX is not as good as KBH... It doesn't have as much cash.

.  .  .  .  .

Now, let's switch directions here...

Blackstone (BX) is something we took... We made a very gutsy position here...  We decided we didn't want to be invited to fancy parties, and we're cared more about trying to keep you from losing money... so we did the unthinkable, and we recommended selling BX, and I haven't been invited to a party since...   It's a little depressing... but, at the same time, the stock went down gigantically to $17, so maybe it makes up for some of this...  And that one is done going down probably.  They announced an acquisition today... it showed me that they had a pulse.  I don't want to own it, but I don't want to sell it anymore. 

.  .  .  .  .

Now we're getting a little tricky... Thornburg Mortgage (TMA), down badly... This is the one that makes jumbo loans... Here's the problem with TMA... It too, like CFC, has a preferred (stock)... The preferred gives you a really good return and, if there is a takeover, you get made whole in whatever stock you get...  So, I don't want you to own the common.  I do want you to own the preferred... [Ed. note:  Just a caveat... We could not determine which preferred symbol to select for Jim's recommendation here.  You can start with this one, but we cannot sure it should be the right one, because it does not indicate a dividend and yield.]

.  .  .  .  .
 

Now we start getting into a little tricky stuff here...  Beazer Homes (BZH)...  I don't like this situation at all.  I really don't think that the Fed moved in time.  Had they moved when I thought they should have done, in August, this company would make it.  I don't want to bet with BZH.  It has too many bad loans...  It's too troubled. 
 

.  .  .  .  .
 

Now, MGIC Investment (MTG), which does personal mortgage insurance... I think that they'll probably have to get a bid... I don't think the bid will be as high as where the stock went out today... and MBIA (MBI), which Bill Ackman, who is a guy - who I think is very, very smart - has been fighting against...  This is a company that, if they disclosed everything they had, I think we would feel very negatively about them.  But it too has got a good enough brand name.  I don't want to sell it anymore, but I certainly don't want to buy it...   

.  .  .  .  .

So, we've got some that I want to buy, and some that I don't... Then, of course, there's Goldman Sachs (GS*), which I am telling you is going to $300, all right?... and will probably own the world when this is finished, because it is the only one that is buying back stock... that is doing great...  that has great earnings... so GS* is the one to buy.

.  .  .  .  .

Now, why is all this happening?...  Why am I changing my view?...

Why am I going from 'sell' to 'neutral' on some, and outright buys to another?... It's a very simple reason...

In 1990, which I have been comparing this period to, because that is the worst time of stress that I have seen in my trading career...  In 1990, the average financial roughly equivalent to what these are...  The average financial in 1990 fell 50% from peak to trough, before the Federal Reserve got engaged and came in to save the situation...

50% in 1990 was the bottom, okay?...

Well, how about history repeating itself?... We got a 50% decline from the top to the bottom, and the Fed got engaged... 

The bottom, friends, is in... 
 

.  .  .  .  .

The Bottom Line!:    History seems to be repeating itself... I think the financials have hit a bottom...



[See Jim's 2nd Opening Segment stock picks below... ]

 

 

 



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)

WM

14.16

na

Washington Mutual Inc. (WM)


C*

28.11

na

Citigroup (C*)

BSC

77.75

na

Bear Stearns Companies, Inc. (BSC)


MER

52.03

na

Merrill Lynch (MER)

KBH

17.86

na

KB Home (KBH)


CTX

20.71

na

Centex Corporation (CTX)

BX

19.84

na

The Blackstone Group (BX)


TMA

8.38

na

Thornburg Mortgage Inc. (TMA)

BZH

5.59

na

Beazer Homes USA Inc. (BZH)


MTG

17.83

na

MGIC Investment Corp. (MTG)

MBI

14.11

na

MBIA Inc. (MBI)


GS*

196.91

na

Goldman Sachs (GS*)

Price target:  $300.00

 


Netflix, Inc.


 
 
Second Segment
 
 
 
Final Segment 2 Title: 'Epiq Proportions'

.  .  .  .  .

Featured Stock(s): EPIQ Systems Inc. (EPIQ)

See EQIQ's website here.

Yahoo! Finance profile for EPIQ here.
Google News search for EPIQ news here.




JJC:   How about... here's something you have to think of with these guys... how about if the Fed turns out not to bail us out again?...

How about if they say, hold it, maybe things are better?...

After all, at the exact same time today that Fed chairman, Ben Bernanke, was talking about substantive cuts - what ignited the market - Thomas Hoenig, one of the two important Fed heads who's been fighting cuts tooth and nail, said that inflation pressures are building, and the economy might not be as bad as we think...

In the debating society that has become the Fed... well, how do we know that Hoenig doesn't trump Bernanke?...

Good grief... You know what we've got to do... We've got to at least put out an alternative for you... we've got to hedge our bets...

The story I'm about to give you is about if you don't trust the Fed...

And it's called...  EPIQ Systems Inc. (EPIQ).

It's a little guy.  What's EPIQ?...  It's a company that profits off of bankruptcy.

It operates in three key legal segments that all could be boosted by the Fed not doing the right thing... electronic discovery, settlements and claims, and - best of all, as our hedge - bankruptcy!

Come on... We know that bankruptcies are ramping here...   Even if the Fed cuts aggressively, you're still going to get a lot of companies that aren't going to make it...  and  corporate pain is EPIQ's gain...

When a company goes down, these guys get the call...  Put simply, EPIQ is America's corporate undertaker!

.  .  .  .  .



So why isn't it ramping?...  Why has it been stuck at $16?...

Well, because the company's not cheap.  It has 38% sales growth and, remember, anything that grows faster than 30%, we're all over...  But its multiple is huge...  a little like Salesforce.com (CRM) that we talked about yesterday although again, remember, I think CRM's business is really good.

EPIQ's business, currently, may be good, but we're betting that it's going to get better as things get worse... and the reason why EPIQ hasn't moved is because it's not been able to deliver earnings on that growth, unlike CRM.

It recently did a secondary (i.e., a follow-up offering of stock after its initial public offering - IPO) at the end of last year... it raised more capital to take advantage of the coming bankruptcy chaos...

It was priced around $16 and change.  You haven't missed anything yet...

If the Fed delivers on its promises today, then I've got to tell you, EPIQ is not the stock for you.  This stock would probably do nothing, even as bankruptcies will trickle in, because it won't be able to deliver on the high earnings forecast that I think are keeping this stock up here...

But, if the Fed goes the way of Hoenig... then the bottom line is...     
 

.  .  .  .  .


The Bottom Line!:    EPIQ Systems Inc. (EPIQ) could be your ultimate hedge against prosperity...

 




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)

EPIQ

16.42

na

EPIQ Systems Inc. (EPIQ)

 

       

 

   
 

Go to the LIGHTNING ROUND from tonight's show here >>

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


Netflix, Inc.


Symbol keys:

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his charitable trust portfolio.  You can see the complete portfolio
of stocks here >>

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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 >>
   
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