MAD MONEY: MOMENTUM AND VALUE PICKS

Posted: August 24th, 2007 | Author: Stock Pitcher | Filed under: Mad Money | No Comments »

During his stock picking period, Jim Cramer feels that there are two approaches to play the recovery. They are the value method and the momentum method. The value method tells investors to look at the new-low list for stocks that are down 20% from their 52-week highs and that pay at least 3% in dividends. This provides a way to find good companies that are thrown out and forgotten because that dividend proves worth. When the Federal Reserve cuts rates, the dividend paying stocks will rise.

As a “value method play,” Cramer likes Aircastle (AYR), a company that owns and leases jets. Aircastle, off from its 52-week high in June, was “knocked down by sellers concerned with the credit crunch,” he said. The company’s “entire portfolio is leased out,” he said, and it is shifting to buying and leasing freighters, which give better returns than passenger planes. Recently there was insider buying by the COO and supports the idea that the stock is cheap. Another recommendation is Genesis Lease (GLS), which he first recommended last May. The stock is down 15% since then, but it has an 8.2% yield and $1.2 billion in capital. Not too shabby.

As for a momentum play, investors should look at the new-high list which included EMC (EMC) is a play on the VMware (VMW) IPO. However EMC, which he owns for his charitable trust is up less than 3% since then. So there is room to grow. The company owns 87% of VMware’s equity, a stake now valued at $6 billion more than in July. VMware stock, offered at $29 on Aug. 13, hit $70 Thursday. That’s a huge rise in equity and Cramer compared the EMC and VMware relationship to that of Cypress Semiconductor (CY) and its spinoff SunPower (SPWR). Cypress is up 52% since the spinoff; suggesting that it can happen to EMC as well which he said could rise to $23. Cramer believes that EMC, which trades at 11 times next year’s earnings, is cheap. Furthermore, its data storage business is also doing well. But Cramer said to wait a little while to get in on EMC, basically buy on weakness.

$80-$120 Picks

Because the chemical industry has few companies left, Cramer said that Air Product & Chemicals (APD) has pricing power on its side. Energizer Holdings (ENR) has made smart moves but is still too high, he said. Of all the energy companies, XTO Energy (XTO), which he owns for his charitable trust, is the best pick.

MAIL BAG

In his “Mad Mail” segment, Cramer responded to his first message, saying that Omniture (OMTR) could go to $30. Additionally, as one of his four horsemen of tech, Apple (AAPL) is “going to be terrific.”

Cramer said that the Countrywide Financial (CFC) “play is over” and that the Bank of America (BAC) play has begun.
And finally, Cramer liked Crocs (CROX), believing that the company is “on a mission.” He told viewers to listen to the Crocs conference call to know why he is excited.

Lightning Round Summary

Cramer was bullish on Apple (AAPL), Amazon.com (AMZN), Google (GOOG), Domino’s Pizza (DPZ), DryShips (DRYS), Eagle Bulk Shipping (EGLE), Costco Wholesale (COST), GameStop (GME), Citizens Communications (CZN), Blue Coat Systems (BCSI), Symantec (SYMC) and VF Corp. (VFC).

Cramer was bearish on MetroPCS Communications (PCS), RadioShack (RSH) and Circuit City Stores (CC).

LIGHTNING ROUND HIGHLIGHTS

Research In Motion (RIMM): “A lot of times people get in ahead of the split. That’s what happened with Research in Motion. … I always say, ‘Be cool. Be cool. Don’t do that.’ … Let’s deal with the fundamentals rather than deal with the split. Research In Motion is one of my four horsemen,” along with Google (GOOG), Amazon (AMZN) and Apple (AAPL). “RIM is ahead of itself. … On Stockpickr, a lot of people are saying, ‘Is this the RIM pullback I should buy?’ No. We’re going to wait for RIM to pull back more. It’s too expensive! … Then we’ll pull the trigger.”

Domino’s Pizza (DPZ): David Brandon is a “fabulous CEO,” Cramer said. “That man creates value. … Domino’s pays the special dividend, and Dean Foods (DF) pay the special dividend, and both of them are being hurt by dairy costs. … Brandon will manage it. … I’d like to pull the trigger on Domino’s on this pullback.”

I like Eagle (EGLE) more because it’s got a really big dividend. I don’t know. You can buy that on an earnings basis, but I prefer the shippers that pay the big dividends.”

RadioShack to make it better than it was, but it’s stalled now, and because RadioShack’s stalled, I do not want to buy this pullback. … Best Buy (BBY) is the only one that I would even come near wanting to buy, but there’s no reason to own that. We only like Costco Wholesale (COST) on this show. We like GameStop (GME). … We do not like retail on ‘Mad Money.’”

Citizens Communications (CZN): “I think it will [do well] . … All these companies eventually get bought. This is a small, rural wireline company. Wireline business has actually gotten stronger around the country. … I like it.”

Blue Coat Systems (BCSI): “That company has unbelievable blowout earnings. … It’s a security play, and all the security plays are hot. I even like Symantec (SYMC) now. You are spot-on with Blue Coat — even though it’s on the high list — as a momentum play.

VF Corp. (VFC): “The stock has pulled back … way too far. … Retail has fallen so out of favor. They own some retail … some great brands. … If you’re going to have to own retail that is not Costco and not GameStop,” Cramer said, VF Corp. is next on the list.

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