Cramer’s helping you
find what’s working
in this tough
environment - listen
up...
Jim:
This kind of
environment…
roughest ever…
separates the weak
from the chaff… the
men from the boys…
and the companies
that know how to
execute and take
share… particularly
in a downturn from
the ones that told…
Knight Capital
Group Inc. (NITE) is the
former kind of
company… get this it
is up 16.2% year to
date… how many do
you have like that
in your portfolio…
vs. the S&P 500
which is down 7.5%…
Knight a securities
company that
executes trade has a
terrific CEO… it is
sitting on a boat
load of cash… just
under $5 a share…
27% of the stocks
share price… and its
latest quarter was
huge… much better
than people thought…
the company earned
.57 cents a share…
the street was only
looking for .38
cents… Knight is
taking advantage of
the financial
malaise… to use a
Jimmy Carter word,
may he rest in
peace… to take
market share… the
combination of the
credit crunch has
caused many of the
brokerage firms that
Knight competes with
to pull back the
size and scope of
their operations…
they either don’t
have the money
anymore or they have
gone out of
business… that
allowed Knight to be
number one in terms
of market share… New
York Stock Exchange,
Amex, NASDAQ, and
Bulletin Board
stocks in the fourth
quarter… that is
unbelievable… I mean
I never thought this
would happen.
The companies share
of NYSE Amex stocks
increased from under
4% to 2006 to 11% in
2008... reaching
15.2% last October….
for
Nasdaq listed
stocks Knight’s
market share has
increased from 11.5%
last January to
16.5% in October…
you have no idea how
hard it is to get
that kind of share…
and on Knight’s
conference call
management said that
about 1% to 2% of
the market is still
up for grabs… Knight
has also been going
thru a major
turnaround… the
company has made a
lot of progress
reducing its
transactions costs
which was as high as
40% of its net
trading revenues and
commissions… this is
how you actually
gauge one of
these…it is now down
to a low 20% range…
its electronic
brokerage division
has grown from 39%
of trading revenues
in 2007.… to 53% in
the most recent
quarter… margins
surging from 35% to
50%… I know, again,
unless you are in
business…
particularly the
stock business… you
have no idea how
unbelievable this
kind of turn is….
and Knight has
finally decided to
sell some of its bad
apple assets…
management
businesses… Deep
Haven Capital
Management, I never
liked this
combination of hedge
fund within this
company… that lost
33% in 2008... now
that Knight has
pulled the plug with
some of this
business… I think it
makes the entire
company a much less
risky prospect… and
certainly much
easier to
understand… the
question now is
whether Knight can
continue its
momentum… and the
man to ask is
Knight’s Capital
Group terrific CEO,
the guy who
masterminded the
companies
turnaround, Tommy
Joyce, a class man
of mine at the
People’s Republic of
Cambridge
University...
See all
of
tonight's
stocks
mentioned
on
Yahoo!
Finance,
here...
Thursday,
February 12, 2009
(Cont'd from
above)...
Start of Interview
with
Daniel Starks, CEO
St. Jude Medical...
Jim:
Mr. Joyce
welcome to
Mad Money...
How have you
been?
T.J.:
Great,
good to see
you.
Jim:
Alright, one
of the
things that
I have been
reluctant to
ever
recommend on
this show
because they
are so
dicey, is
turnarounds.
How many
turnarounds
in your life
have you
ever seen
successful?
T.J.:
It is
rare.
Jim:
So how
did you do
this one?
T.J.:
Well,
when I got
there the
place had a
certain
reputation,
I think you
may recall.
In any
event, one
of the
things that
we had to do
was get at
the culture.
The culture
as you
recall was
one of
cowboys,
what about
me kind of
mentality.
And as you
know, I
spent 15
years at
Merrill
Lynch, and
the focus at
Merrill
Lynch, the
genuine
focus there
was client
books. It
was very
logical to
me to
transport
that view,
that way of
approaching
the business
into Knight.
Jim:
That is
contrary to
everything…
I used to
open up to
you that I
would have
50,000 Deere
to sell… I
would tell
it to you…
that is a
thing that
you would
never do to
most people…
because you
have to
trust them…
that is the
last thing I
would have
ever done to
Knight
before you
got there.
T.J.:
Well,
there was a
cowboy. The
cowboy was a
little bit
about, I am
in pull up
the rope. So
we had to
get rid of
that. So we
did a couple
of things,
first of all
we showed a
couple of
cowboys the
door. And
secondly we
got bully
pulpit in
the office,
and said you
know what we
are going at
the client
focused
approach, we
are going to
talk to our
clients and
see what
they want
and we are
going to get
at them.
Secondly, as
you recall
in the
summer of
2001 the
markets went
to penny
trading,
decimalization.
Well, I got
there in the
summer of
2002,
decimalization
put the
manual way
of doing
things out
of business.
So we had to
embrace
technology,
we had to
embrace
electronic
trading, and
as we did
that
progressively
the results
got better.
So we fixed
the culture
and we
adopted
technology
in a very
aggressive
way, and the
results
speak for
themselves.
Jim:
Two
hundred
million
shares of
serious
satellite
traded
today, what
you have had
a hand in
any of that?
T.J.:
We
probably did
a fair
amount of
it. Well,
remember we
have two
ways of
doing
business, I
mean two
client
constituencies.
One is the
retail
broker
client. Now
it is not
you as a
retail
investor,
but it is
the online
broker
dealers,
they are our
clients so
they send
your order
to us. And
of course
because of
the large
pool of
liquidity
that we have
developed,
using that
network and
servicing
that
network, the
institutional
investor
loves to
trade with
us. Because
we get real
order flow,
that the
institutional
trader loves
to trade
against. So
I am
guessing on
a day like
today, we
were
extremely
active.
Jim:
In the
old days…
Madoff used
to have… the
brokerage
firm… used
to have a
lot of
market
share. When
I saw how
much share
you have
taken, I
thought some
of it might
be Madoff,
but in the
end it
really
wasn’t a
factor was
it?
T.J.:
Now
don’t forget
the real
problems
over there
started the
middle of
December, so
we only have
two weeks of
their market
share in our
numbers. And
even more so
by the time
it started
to unravel
over there,
they only
had like 5%
market
share. So
their
dominance in
the listed
space had
faded. So we
had been
picking up
market share
from there
already, and
of course
when the
unfortunate
events
occurred on
December
11th,
whenever it
was, we
certainly
got a lot of
their
overflow,
and I think
we have kept
it. But
reflected in
those
numbers you
mentioned
earlier,
there was
only two
weeks of
Madoff flow.
Jim:
Now, I
know when
you Merrill
to Knight… I
said that
you are
leaving from
mother
Merrill, the
greatest
firm on the
street, to a
firm that
people had
been “fly by
night”. What
do you think
about what
happened at
Merrill?
T.J.:
Well,
it is
awfully
disturbing.
When I was
there
Merrill was
the best
firm on the
street, it
was the best
place to
work on Wall
Street, at
the best
time to be
on Wall
Street. So
it was
upsetting
before, it
was like
catching
lightening
in a bottle.
The culture
was
wonderful,
the people
were
wonderful,
the market
positioning
was
wonderful,
it is just
terribly sad
to see how
it all
ended.
Jim:
Yeah, a
lot of our
buddies are
out.
T.J.:
They
are out, and
the people
that are
there, some
of them are
still
looking over
their
shoulders.
It is just a
very sad
thing.
Jim:
Okay,
Deep Haven…
I told you I
thought that
the hedge
fund model
was wrong
with you…
where are
you in terms
of disposing
that? How
much
exposure do
you have
still?
T.J.:
Well,
we are in
the process
of selling
it. We are
working with
a great firm
in
Wisconsin,
called Star
Investments,
they are a
terrific
firm, we are
working with
them
closely. We
are in the
process, we
hope to get
some of the
things
finalized by
the end of
the first
quarter.
Jim:
What
are you
going to do
with all
that cash?
You can’t
take more
share with
it, what are
you going to
do?
T.J.:
Well,
if you
noticed, we
bought a ton
of stock all
the way
through
Labor Day.
Then it got
a little
dicey in the
autumn as we
all know,
and the view
was cash was
king. So we
pulled in
our horns a
little to
make sure
that we had
cash. To be
opportunistic
if
opportunities
came up, to
react to
situations
that we saw,
whether it
was
acquisitions,
or hiring
teams of
people,
whatever. So
we
definitely
pulled in
the stock
buy back, as
we accessed
the
environment,
so I think
we are
prepared to
do a lot of
things if
they come
our way. And
we know,
fundamentally,
not a piggy
back.
Jim:
Right,
because I
know people
are going to
ask… because
everyone is
so
suspicious
these days…
they don’t
care that I
have known
you a long
time… big
insider
selling by
some of the
people,
including
you… so,
why?
T.J.:
If
you
witnessed
the events
of 2008, saw
a lot of our
friends,
some former
colleagues,
get really
hurt
financially
by putting
too many
eggs in one
basket. So I
think it is
an eliminate
of prudence
by some of
the other
executives,
of
diversifying
someway.
Now, for me
I just
signed a
four year
contract. I
am all in. I
own a
million and
half, a
million and
three
quarters
shares, I am
all in. I am
there. It
was just a
little bit
of prudence,
diversifying
the home
game.
Jim:
Well,
TJ,
everybody
calls him TJ
in the
business…
Tommy Joyce,
Knight
Capital
chairman and
CEO. Best of
luck to you.
