A return by the banks could be in store for next week, Jim Cramer told viewers of his “Mad Money” TV show Friday, which could set off a marketwide rally. Cramer explained that everything for the financial stocks will come down to two factors: housing and unemployment. He said earnings reports from Toll Brothers (TOL) and Hovnanian Enterprises (HOV) next week, along with the jobs report due out on Friday, could change everything. Cramer thinks if the homebuilders show some decent results it could bode well for mortgage-backed securities. That would lead investors towards buying banking stocks like Citigroup (C), Wells Fargo (WFC), Merrill Lynch (MER) and Lehman Brothers (LEH). Cramer feels that a bottom in the housing market could provide for a bottom in the banking sector. Combine that with a decent jobs number and Cramer thinks the market could take off. However, if the homebuilders report weak numbers and we get a bad jobs report, Cramer thinks that would hurt finainal stocks. American International Group (AIG), Washington Mutual (WM), Wachovia (WB) and Bank of America (BAC) could drop to new lows. Overall, Cramer said he feels positive about what will happen. He advised investors to wait until June 6 before making a move.
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Cramer said investors should never turn an investment into a trade. He explained that a trade is a short-term buy where an investor is looking to catch a quick move and turn a fast profit. An investment is where you buy a stock and hold it for a long time, usually 18 months. Cramer pointed out that he let an investment turn into a trade with Apple Computer (AAPL) when he bought the stock at $26 back in 2004 and sold it for a quick five points. Following his sell, Apple soared $200 and he missed the entire run. Cramer said investors should avoid doing what he did with Apple. Instead, trust your thesis, and stay with the stock for the long term, when your homework checks out.
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Stocks that trade under $10 can sometimes be too attractive. We think we can buy more, thus increasing our returns. In addition, there’s the idea that a stock that cheap has less downside risk, which minimizes losses. But these ideas are dead wrong, Cramer said. Cramer explained that stocks drop $10 for bad reasons. He said he once overlooked Charter Communications (CHTR) massive debt when the stock was trading at $4. He bought the stock and it proceeded to drop 50% to $2. Cramer advised investors to use the “multiply by 10″ test for stocks under $10. If Charter were at $40 and it had the same issues it does at $4 would you still want to own it? Most likely not. Cramer suggested that investors use this rule before buying any stock under $10.
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Cramer talked how when he use to do his radio show he really liked this stock Citirx Systems (CTXS) because of the company’s product “Go to My PC.”. The product allowed Cramer to see who was on the telephone as callers called into his show. He loved the product so much he did some homework on the company and bought the stock. However, Cramer’s mistake was that the product was already on the market for three years, so he bought into the stock as the product cycle was peaking. Cramer said once a product peaks the stock will go down unless the company brings more new products to the market. “Being late to the game can cost you money,” Cramer said
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Cramer talked about how to get around paying taxes on dividends. He said one way to do it is to buy high-yielding stocks for your 401K or IRA. Cramer explained by holding these stocks in a 401k or IRA, you can avoid paying taxes and your earnings will stay tax free. Some stocks he likes for this strategy are real estate investment trust like HCP (HCP) or royalty trust like Permian Basin (PBT). Cramer mentioned that the royalty trust can pay out as high as 15%.
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Word On The Street
WORD ON THE STREET VIDEO HERE
Drug Trade
The traders spoke with Kris Jenner, lead portfolio manger of T. Rowe Price Health Sciences Fund about his take on the ASCO conference for the drug sector. Jenner said ImClone (IMCL) could present some positive data for Erbitux’s affects for lung cancer. He said the drug could be huge for for IMCL in the long-term and recommended buying the stock. Jenner said he likes Merck (MRK) for the next 12 to 24 months and he holds a large position of the stock in his fund. Najarian said he likes Amylin (AMLN) for its diabetes drug Byetta. Jenner said he also likes Amylin.
Harbinger Capital
According to Barron’s, Harbinger Capital has acquired a 15.3% stake in Cleveland Cliffs (CLF). Najarian said watch Exxon Mobil (XOM). Insiders are selling stock at XOM. He said insiders are buying shares in SandRidge (SD).
Home Depot Trade
Home Depot (HD) is set to hold an analyst day next week. What is the trade? Macke thinks the company will say positive things and he is bullish on the shares. He said from a valuation perspective the stock could be a buy at current levels. Adami pointed out that the stimulus checks will show up in the company’s current quarter. He also said that one of the board members just bought $91 million in HD stock this week. He said buy the stock. Najarian said the stock looks cheap. Finerman mentioned she likes Home Depot’s management.
Leisure Trade
Americans are spending less money on leisure activities due to high gasoline prices. Goldman Sachs Group is putting on a conference nest week for the lodging, gaming, restaurant and leisure sectors. What is the trade? Najarian said the leisure sector is full of losers at their lows. He pointed out that Morgan Stanley downgraded Marriott (MAR) today with the stock near its lows and he thinks they’re right. He said the best stock in the space is Boyd Gaming (BYD) and rumors are floating that Carl Icahn might take a stake in the gaming company.
Quicker Than The Ticker
Adami told investors to buy AMR (AMR) for a trade. He nailed the call and the stock took off. Najarian recommended shares of American Superconductor (AMSC). The pick was a winner and AMSC surged 16% higher from his call. Recently, Macke advised viewers to buy Activision (ATVI). He hit this call out of the park and ATVI jumped 22% from his recommendation. On March 13th Finerman said buy Valero (VLO) June $45 call options. She was right on the money and shares of VLO shot up 5% and the calls soared 78% in three weeks.
POPS&DROPS
POPS-Hexcel (HXL) popped 13% after the plastics company won a contract from Airbus for around $5 billion. Adami said take profits. Amazon (AMZN) traded up 4% after the company cut the price of the Kindle reading tablet. Macke said don’t short AMZN. Starbucks (SBUX) popped 6%. Finerman disclosed her hedge fund is long SBUX. MasterCard (MA) jumped 12% after the credit card issuer said revenues could grow as much as 30% through 2011. Adami said take profits the valuation is getting stretched. Moody’s (MCO) climbed 9%. Macke said he isn’t impressed and he thinks the company will be gone in 5 years. Nasdaq (NDAQ) moved up 5% after Lehman Brothers upgraded the stock. Najarian said the stock is cheap.
DROPS- First Solar (FSLR) dropped 7% then popped 7% this week. Najarian said a California solar project is going to benefit the company. Sigma (SIGM) plunged 22% after the company said second-quarter revenues will be below expectations. Finerman said she doesn’t like the stock.
Netflix CEO Interview
Netflix (NFLX) CEO Reed Hasting joined the traders to discuss his company’s prospects. Hasting explained that his company is getting into instant free streaming movies that can be played on their customers PC’s. The company also launched a new product that allows subscribers to watch video streaming on their TV’s at DVD quality. WATCH THE INTERVIEW HERE
Trader Radar
Shares of J. Crew (JCG) were among the most actively traded stocks on the NYSE Friday.
Fast Fire
Macke said buy Kohl’s (KSS) into the earnings report, but he misfired and the stock dropped 10%. He said he still likes KSS at current levels with a stop. Najarian recommended shares of DryShips (DRYS). He was dead wrong and the stock fell 11% since his call. He said the stock is volatile and he still likes the sector. Recently, Finerman advised investors to buy Golar LNG (GLNG) a stock she has a long position in for her hedge fund. Shares of GLNG plunged 12% from her call. She said she still likes the stock and her fund has a large position in the name. Adami recommended Quicksilver (ZQK) because of the large short-interest in the stock. The shorts were right and the stock fell 12% from his call. Adami admitted it was a bad idea to buy ZQK.
Final Trade
Macke picked Costco (COST) on a pull back. Adami recommended Nucor (NUE). Najarian selected Synthesis Energy Systems (SYMX). Finerman said Maguire Properties (MPG) looks attractive.
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“I’m out to change the way people look at stocks,” Jim Cramer told fans of his “Mad Money” TV show Thursday. Cramer was out promoting his new mantra that the usual high-tech companies are old news, and that new-tech manufacturers are the real gems in the market because they are solving the world’s most crucial problems. He said he’s adding Illinois Tool Works (ITW) to his list of new-tech manufacturers. The company makes food packaging equipment that helps process and store food more efficiently, in turn reducing waste and feeding the world. Cramer also likes the company’s specialty power segment and growing international revenues. He said the company has great earnings visibility and growth the usual technology company’s dream about. Cramer explained that the stock is down 12% because of a bidding war with Manitowoc (MTW) over Enodis. He said this is a perfect time to pick up shares of ITW because the stock will be driven lower due to the bidding war. Once the bidding is over he thinks the stock will march higher.
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Cramer welcomed Michael Sutherlin, president and CEO of Joy Global (JOYG), to discuss his company’s positive earnings call that took place Thursday. Sutherlin said Joy Global is seeing unprecedented demand for its mining equipment that serves the coal, copper, iron ore and oil sands markets. He pointed out that coal demand is very strong for power generation in emerging markets and in Europe. Sutherlin explained that emerging market like Russia, Indonesia, Turkey, Dubai and Brazil have extreme appetites for commodities as they build out their infrastructures. “The reality is that we do not have enough energy supply in any form, coal, natural gas, or oil to satisfy the growing demand for energy around the world,” he said. Sutherlin mentioned that some of the run in commodities could be due to hedge funds or speculators, but most of the price increase is due to supply and demand. “It’s all a matter of supply not able to catch up with the continued growth and demand,” he said. He gave an example with Iron ore, which doesn’t trade on the commodities markets. The price of iron ore has has risen faster than most commodities that trade in the open market. Cramer said JOYG is undervalued and investors should “pull the trigger” now.
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Cramer revisited some of his favorite developing-world wireless stocks, which are down a collective 12% since he recommended the names back on February 25. The list includes Mobile Telesystems (MBT) and Vimpel Communications (VIP) in Russia, Millicom International (MICC) in Africa, Asia and Central America, Telkom Indonesia (TLK) and Turkcell (TKC) for Turkey and the Ukraine. Cramer said in regards to Turkcell, a new competitor hurt the company, and a unfavorable ruling from the government hit the stock hard. With Telkom Indonesia, Cramer explained he failed to consider that the company’s wireline business was declining and subsequently dragged the entire company down. Turkcell and Telkom Indonesia have both lost 31% since his original recommendation. Cramer advised investors to sell both TKC and TLK immediately. As far as the remaining names – MBT, VIP, MICC – investors should sell these into any strength. “Wireless is not a basic need,” he pointed out, saying that in countries with increasing wealth, people prefer to spend on food and shelter, not cell phones.
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Bullish
Transocean (RIG), National Oilwell Varco (NOV), Hudson City Bancorp (HCBK) and UMB Financial (UMBF).
Bearish
Harley Davidson (HOG), Hologic (HOLX) and Verasun Energy (VSE).
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