Wednesday, 07/02/08
Posted 07/06/08,  08:21 am ET

(Scroll down to see Jim's comments below)

 
 
Today's date:  Wednesday, 07/02/08

  Dow Jones: 11,215  - 166
  NASDAQ:   2,251    - 53
  S&P 500:   1,261    - 23
 
 
 
 
 
First Segment
 
Opening Segment 1 Title: 'Child's Play'

.  .  .  .  .

Featured Stock(s):

Pediatrix Medical Group, Inc. (PDX)

See PDX's official website here.

See the Yahoo! Finance profile for PDX here.


See Opening Segment 2, below...

 
After this segment, you can see Jim's Lightning Round picks here...

.  .  .  .  .

JJC:   Another completely and utterly, totally nightmarish day... Another day that shook people's confidences... made them feel like the market can't rally to save its life, but it really can... We know it... Because they even took apart the best stocks in the market, the oil and gas stocks or anything animal vegetable or, of course, mineral...

The market reacted to an extremely negative Merrill Lynch call on General Motors (GM)... sell sell sell... which said basically what we said the other night... that the bond bullies are in charge there, not the equity holders... I reiterate, you cannot own that stock...

Investors shuddered today over a call you have shuddered about two days... This selloff is vicious, it's ugly and it's all about worries of a global slowdown that should hit steel, coal, oil, gas... And I've got to be very honest... this selloff is not done.

When we get these moments, what do we do?...

We hunker down, we look for special situations without economic sensitivity, or minimal economic sensitivity... We raise some cash by letting go of some of our huge winners in oil and gas, in copper in coal... Yes, I know, intraday they reversed, you're going to say to yourself, wait a second, I missed the top, I'm waiting... No, sell some tomorrow... Why?... Because we're going to ready ourselves for lower prices so we can start all over again.

We get more conservative here... we ring the register... We be sure that we have side lines capital... We counsel against greed... hogs get slaughtered... If you're up huge in some stocks, you do not have the gains yet, you don't have the gains until you take something off of the table... Do not fear the tax man... The market is coming in... Now this does include some of the more volatile energy names that we have made lots of money in... I sense that we can buy them lower later.  If you can take that pain, fine... I like the Novocain.

In short, if we're going to buy anything, we need to be sure it doesn't have any economic exposure right now and if it has any economic exposure, you can pretty much be sure it's going to be crushed... We're not in the falling knives business... Never confuse yourself with a butcher block...

So tonight, we've got to pull-in-our-horns names, and we look at some conservative stocks that make great sense to cycle into after you've taken some of the gains. If you haven't taken any of the gains, it won't matter... and you'll look at me and you'll say, why didn't you tell me to sell some of these stocks that I'm up so much on... Why didn't he tell me?... And the answer is, I did...

I don't care if you miss the exact top that we had in some of these stocks, particularly the top that was between 9:30am and 10:30am... I want you to bring in some of the winnings and pick at the non-economically sensitive names for a change, or accept the fact that you're going to lose some money for a week, okay?... Because when we have these reversals, they're not over in a day.

This is exactly why all week I've been focusing on the proposed Medicare bill... Because it looks like it could be chock full of money for companies in a non-economic sense... Fresenius Medical (FMS), Allscripts Healthcare Solutions Inc. (MDRX)...  In a roundabout way, ResMed Inc. (RMD)...

And these healthcare stocks have started to behave well, because they don't need the rest of the world to do well... They don't care about that ECB, the European interest rate hike, they don't care about whether the consumers not spending... They don't need any of that to excel.

But there's another reason I like to look at stocks that feed at the federal trough. And that's because I don't think the big money guys, who are panicking right now out of fertilizer, out of railroads, and out of minerals and out of steels... I don't think they're paying any attention to what is going on in Washington. Any company that's likely to get more money because of legislation and congress is a company whose stock I think you can get an edge on, because I really believe that, on Wall Street, they only read the business sections, okay, maybe the sports pages... but then they throw out the rest of the paper... The Street usually doesn't factor in the importance of Washington until it finally hits the company's earnings... And as far as I'm concerned, that's way too late in this game... Which is why I'm telling you who's benefitting from the feds now, so you can get in ahead of the big money guys who consistently underestimate these stocks... something, by the way, that I talk about in the classic, Jim Cramer's Real Money: Sane Investing In An Insane World...  how's that for shameless promotion on a bad day?...

Anyway, my next pick that could benefit from the proposed Medicare bill is a company that frankly, doesn't make any money at all from Medicare... But nevertheless, Medicare reimbursement rates... what Medicare pays for services... is hugely important to this next company...

And the company is Pediatrix Medical Group, Inc. (PDX), and it manages the largest group of neonatal, newborn specialists in the country...

The company acquires independent practices, takes over all their management, contracting back office functions... They're the number one service provider to neonatologists in the country... That's a $2-3 billion market, that, by the way, does not get hit because coal prices went down... does not get hit because we are seeing a situation where Europe is slowing...

This company manages 22% of the 1078 neonatal intensive care units, they're called NICU's...

The stock is about 3 points above its 52-week low, we like that right?... It's the ones that are really coming down right now are the ones that are 3 points away from their 52-week high... I think this one is so low because the Street doesn't understand its business or what the Medicare bill could mean to this company.

So how exactly does Medicare, which is for the elderly and disabled, matter to a company that's treating newborn babies?...

And the answer is Medicare is the catalyst here for an otherwise great story...

The amount of pay increases that Congress gives to doctors for Medicare historically sets the benchmark pricing for PDX's physician contracts...  It doesn't matter that PDX gets no money from the feds... Because the amount it can charge for its Medicaid and commercial medicine services will be partially influenced by the proposed Medicare bill, and it could lead to a 1.1% pay increase for doctors in 2009... There's been little to no pay increases for years here...

Typically Medicaid... which is the one we're worried about here... pays roughly 55-56% of what Medicare does... And commercial payers pay 2 to 3 times what Medicare does, which is why I think the possible increase in pay in the Medicare bill matters to PDX.

Now Wall Street doesn't understand this at all, okay?... And I am telling you that you now have the edge... That's the kicker... How about, that's the short term catalyst... that even in this horrible market works...

Let me give you the real story, though, about why we would recommend this stock away from Medicare, and not just the fact that the economy is just so, so bad right now...

It's a long-term secular growth trend... seemingly immune to the miserable economy... The growing number of babies that need to go to neonatal intensive care units, because they're sick, or born prematurely or way too little... Any number of different problems... PDX thinks that close to 12% of all births in 2006 required admittance to a neonatal intensive care unit... And that number is only projected to go higher, thanks to increasing interventions in pregnancies like induced labor and c-sections, older mothers giving birth, increased use of fertility drugs... the increased number of diabetic expecting numbers...  wave of diabetes, remember?...

Now, the Street has hammered this stock, I mean they just really crushed it... It's gone from $70 in May to $48 and change right now...   We like that!  It's already had its selloff. PDX missed its quarterly earnings by 2 cents... lowered its 2nd quarter guidance by 5-10%. That's been a big part of the stock's fall. But I think another reason is the Street thinks there will be fewer births, thanks to the recession... All right... actually, the birth rates could fluctuate over time... But what the Street is missing is that the number of babies needing to go to neonatal intensive care units has been growing, and it seems to continue to increase every year, regardless of the economy... and that's what moves PDX.

The company also is expanding into services for anesthesiologists... a $15-20 billion market. This is something that's held back its earnings, but I think should be better for the numbers in the second half of the year... not in the stock...

I think the earnings miss has taken the fluff out of the stock... but the long-term and short-term have actually brightened since the disappointing quarter...

How much is it worth?...

Worst-case scenario, I think it grows earnings at 13% for 2008. The Street's expecting 8%. I think, given that, the stock deserves a 17x price-to-earnings multiple. That should send PDX up to $62. That's 28% higher than today's closing price.

Remember, we don't need the rest of the world... Remember, we don't need the Fed... Remember, we don't need the ECB... Remember, we don't need oil to go up or down...
 

.  .  .  .  .

The Bottom Line!:      I just don't think the Street understands Medicare. It's time to focus on something like this. Take some of your winners off the table. Again, you may not have caught the top today... you were busy working... I don't care. I want you to ring the register. I am trying to be really clear on that... On the stocks that are still up really huge... not from yesterday... but from where you bought them. Ring the register... and I think you look at a Pediatrix Medical Group, Inc. (PDX). I think it's a buy off the Medicare bill, and the increasing number of babies who need intensive care, after they're born. I'm, again, trying to get it through... that, even if you missed the top, and you're up huge on oil and gas, minerals, whatever... I would ring the register here, and look at a stock like PDX... until the smoke clears.

.  .  .  .  .

 

   
 

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)


PDX

49.22

49.60

Pediatrix Medical Group, Inc. (PDX)



GM

10.12

10.62

General Motors (GM)



FMS

56.92

56.14

Fresenius Medical (FMS)



MDRX

13.27

13.48

Allscripts Healthcare Solutions Inc. (MDRX)



     

 

 



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



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Second Segment
 
Opening Segment 2 Title: 'Under The Radar'

.  .  .  .  .

Featured Stock(s): Spectra Energy Corp. (SE)

See SE's official website here.

See the Yahoo! Finance profile for SE here.

 
After this segment, you can see Jim's Lightning Round picks here...

.  .  .  .  .

JJC:    We're coming back to my favorite theme for 2008... Cramer's year of natural gas... which I believe is the cleanest, best short-term alternative to coal... those stocks were killed today... and oil.. wow...

Now, you know I've been focusing on the big natural gas companies, like Apache Corp. (APA), Anadarko Petroleum (APC), Chesapeake (CHK)... good news there yesterday... and Ultra Petroleum (UPL), to name a few... Along with the wildcatters... the companies that are drilling for natural gas all over the country where none of them have drilled before.

Now, understand... I still think that the natural gas price, the commodity, has a way to go... but these stocks started one of their periodic pullbacks today, and they tend to be vicious affairs. The griddle got too hot and, when that happens, they go down. They open up, go down... It's not a one-day affair.

For those who can't take the pain of the possibility of a multi-day selloff in natural gas... you should be up huge in these since we've been pounding them for a year now... and I want you to sell some of these. I often use the example of going to the dentist when I was at my old hedge fund... You are, and I am telling you... If you own these natural gas stocks... the big ones... the ones that are volatile... you're about to get drilled. If you need the Novocain, that means sell some tomorrow, even though you didn't catch the top, okay...

If you can take a root canal in stride... if you're a marathon man, knowing it is not safe, but still wanting long-term gains, then you can sit tight... But I want to emphasize that these stocks got very heated today at the opening, and I've seen this pattern before... They reverse and, when they do that, I expect more short-term trouble ahead...

So, ask yourself... Can you take the pain? Ask yourself... if you own one of these, can you handle a quick 5-10% decline?... Because that's what we've seen when these declines occur. If you can, fine. I do want to have said that I've warned you...

If you can't, I have one that won't be as volatile... It won't be as volatile as the Anadarko Petroleum (APC) and the Apache Corp. (APA)... but can still win, as more natural gas is found.

Tonight, I want to step back from the companies that find and produce natural gas, and go for something a little bit more under the radar screen... a stock that was down today, along with the rest of the group, but is not as volatile... and that stock is Spectra Energy Corp. (SE)...

Okay, this is an unknown play...

It was a spinoff from Duke Energy (DUK)... It's an orphan, a red-headed stepchild... Nobody cares about it, but we care... because it is the year of natural gas, and SE is the company that gets natural gas where it needs to go... 

See, SE is a natural gas transmission play... it ships gas. It's not finding gas... it's not burning gas... it ships gas. It has 18,000 miles of natural gas transmission pipelines from the south central U.S. to the northeast, as well as British Columbia.

SE is one of the few companies that get the natural gas where it needs to go, after other companies get it out of the ground. What I am telling you... the ones that are getting it out of the ground have begun what I believe could be a 3-5 day selloff, all right?... So, this is a way to reposition and lower your, what's known as "beta"... Be a little safer...

These wildcatters that I've been recommending... They don't have the infrastructure to bring the natural gas from the Marcellus Shale or the Haynesville, or the Barnett or the Fayetteville Shale to your house. They need SE for that. The more gas, the better this one smells...

First, SE gathers up natural gas from the fields, processes it, gets it ready to move to consumers. It's got 58,500 miles of gathering and processing pipe. 50% ownership with DCP Midstream Partners LP (DPM), the largest independent midstream company. Midstream is all about transmission... Then the gas goes through those transmission pipes I mentioned. Finally, it goes through SE's 35,000 miles of distribution pipes to get to its ultimate destination. You can imagine how much money it would cost to re-create this network.

Now SE doesn't make money on the price of natural gas. It makes money on the volume of natural gas throughput... and, since this is the year of natural gas, with companies drilling everywhere and increasing production activity, that should be more money for SE. Whenever you hear about any of these wildcatters striking it big in shale plays... you can say, you know what?... I don't want to risk it and be in one of those. I just want to be in an ancillary play and make a little money... That's SE... because they can't just sit on their natural gas, and they don't have the resources to build their own pipelines, so they've got to put it through SE's network.

With more natural gas production coming from the Rockies, Texas, northern Louisiana and Appalachia, SE has a huge potential opportunity to make more money.

The company has projects worth $3 billion in the pipe, half of which are expected to come online by the end of 2008, to expand the throughput of almost all of SE's pipelines. More earnings increases... more earnings increases coming...

Now, only this week, a judge in Georgia struck down Dynegy Inc. (DYN) and LS's attempt to build a coal power plant. Coal is so out of favor in this country, because of CO2 emissions, that I predict a vast majority of new plants will be natural gas... and you'll need to be on SE's grid if you're in the Northeast and using natural gas to generate electricity. It's the only game in town.

I also think SE's a big play on natural gas liquids, because of its 50% ownership in DCP Midstream (DPM)... because the price DPM gets on the natural gas liquids it produces is highly-levered to oil prices. Oil is still going up. Every $1 increase in the price of oil (per barrel) should add 2 cents a share to SE's earnings... another way to win.

This company is also very shareholder-friendly. Remember, this is a much more conservative company than the wildcatters. This has a $600 million buyback. That's represents about 3.3% of the market cap. A big dividend... it's going to continue to increase... It's about a dollar a year... That's a 3.5% yield... Remember, all the natural gas companies I've been recommending don't have that yield protection. I think the dividend's going to increase ever year here. I believe that management's committed to that strategy.

You can sleep at night with what I expect to be consistent single-digit growth, and those dividend boosts... I repeat... This is not volatile like winning stocks like Chesapeake (CHK) or Anadarko (APC) or Apache (APA)... It is calm... It is safe...

The stock is trading at a discount to similar pipeline companies. It doesn't have any (analyst coverage) sponsorship. If it traded closer to the average price, it be at $32.84... a 17% gain. Hey, if it takes a while, they're paying you to wait with a juicy dividend... plus it's down today, with all the other stocks.

Remember, the other stocks... I've been trying to really make this point... the other stocks have begun a descent for a little bit... and, if you have big winnings, don't be afraid to pay the tax man... take something off. If you need to put something to work... Spectra (SE)...

.  .  .  .  .

The Bottom Line!:      Wherever there's an important shale, Spectra Energy Corp. (SE) will be there... wherever there's a big natural gas line, SE will be there...   SE is a company that should be making money off our increased use of natural gas.  2008 is the year of natural gas...  The big natural gas stocks are taking a breather.  If you can't take the pain, sell some tomorrow, and put it into SE.  We will come back to the year of natural gas.  Don't worry about it.  We're not leaving the theme... but we sure don't want to leave the profits. 

.  .  .  .  .

 

   
 

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)


SE

28.02

28.00

Spectra Energy Corp. (SE)

 

 

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

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

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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