Buy For the Housing Bottom - Cramer's Mad Money (9/23/08)

by: SA Editor Joan Wickham September 23, 2008    

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Joan Wickham

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Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Tuesday, September 23.

Five Lies

"The Paulson plan is awful, it stinks and it's nasty... but it's also far better than anything else," Jim Cramer told viewers. Cramer strongly defended the plan, which he said, needs to pass to avoid another Great Depression. Cramer said the bailout plan proposed by Treasury Secretary Henry Paulson focuses on one thing and one thing only, curtailing mortgage foreclosures. But he said Congress just doesn't get it. The plan aims to stop the now 10,000 foreclosures a day that happen in this country, he said. Without the plan, he warned, the banking and financials stocks will continue to collapse.
Cramer dispelled what he called the top five "lies" about the Paulson plan:

  1. Critics argue the plan doesn't address the real problem of people losing their homes. Cramer said people are losing their homes because of declining values and foreclosures. Taking out the bad loans, he said, will stop the foreclosures.

  2. Critics complain the plan costs too much. Cramer said the plan will not cost a lot of money and could even make money. "Paulson will make money for us," he argued.

  3. Critics say executives of the failing firms will make too much money from the bailout. Cramer argued that there are ways to deal with this issue, such as creating an executive compensation board, or requiring executives to waive their salaries in order to take advantage of the plan.

  4. The government's pricing of failed loans will force banks to take huge write-downs. Calling this argument ridiculous, Cramer said that the responsible banks have already written down the value of their loans, and the irresponsible ones could easily be given forbearance.

  5. Critics argue that there's no need to rush towards a solution to the crisis. Cramer responded, saying "Rome is burning," and citing Washington Mutual's (WM) last debt writedown that occurred Monday night. "We need this deal if only to save Washington Mutual," he said.

Right On Track - CSX Corp. (CSX), Union Pacific (UNP)

Michael Ward, president, chairman and CEO of CSX Corp., which Cramer recommended on Aug. 21 at $61.96 per share, came on the show. CSX recently reported a solid quarter, raising guidance from between $3.40 and $3.60 per share to between $3.65 and $3.75 per share. Ward said CSX is still growing, with demand for coal, fertilizer, ethanol and metals still strong. He said while auto and housing related shipments such as lumber, paper, rocks and gravel are sluggish, the rail industry is still taking market share from trucking as concerns over congestion and high fuel prices continue. Ward said the modest moves in the dollar have had little impact on the company's export businesses because 85% to 90% of the company's business is domestic. He said CSX continues to innovate and focus on productivity and cost savings. Regarding CSX's recent battle with hedge funds, Ward said he continues to welcome the new board members and is doing his best to educate them and bring them into the company. Cramer said rails are still the place to be, as he gave the nod to both CSX and competitor Union Pacific.

Early-Cycle Play - Masco (MAS)

Cramer reiterated his prediction that the housing market will hit bottom is just 281 days. He said the way to play the coming bottom is invest in companies in the early phase of the cycle. In particular, he cited Masco, which makes kitchen cabinets and owns the Behr paint brand. Cramer called Masco a best of breed play for the coming bottom in housing. With 37% of the company's earnings from new homes, 40% from remodeling, and the remaining 20% coming from outside the country, Cramer called Masco the best early-cycle play out there. At just $17.43 a share, the stock has already priced in the lower housing starts, leaving only upside potential, he said. Moreover he said the company boasts a 4.9% dividend yield which pays investors to wait for the housing turn to come into fruition. Masco recently boosted its dividend for the 50th straight year in a row. Cramer said he also likes the company's huge cash flow, which comes in at three times earnings. The company also has 33 million shares left in its stock repurchase program and trades at just 22.8 times its growth rate. After being battered by downgrades and the recent market action, Cramer said Masco is exactly the kind of company investors should be looking for.

Mad Mail - Barrick Gold (ABX), Agnico-Eagle Mines (AEM)

Cramer told a viewer that gold is a better metal play than silver or other metals, since gold is more in demand around the world. He reiterated support for Barrick Gold and Agnico-Eagle Mines.

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This article has 2 comments:

  •  
    Sep 24 08:59 AM
    "avoid" a Great Depression ........ if we only knew if Cramer is being his 50% right or his 50% wrong....... on this guess!!
    Reply | Link to Comment
  •  
    Sep 24 11:31 AM
    Good point User26737, but is Cramer even 50% right?
    Reply | Link to Comment
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