Have the Banks Bottomed?
A stock that reports bad news but still goes higher is telling investors that it has bottomed and is ready to go much higher, Cramer said Friday on Mad Money.
Just look at UBS . The “greatest wealth aggregator in existence,” according to Cramer, said Oct. 1 that it was writing down $3.4 billion on account of the overvaluation of its subprime mortgage-backed bonds. Still, the stock rallied.
Why? Because everyone on the Street knew UBS had to take a hit – “all the financials do,” Cramer said. The problem was that traders didn’t know how much of a hit until UBS made its announcement. Bad news is better than no news, so when UBS came clean, the stock priced in the new information and was ready to rally. It's also possibly the only financial that's been consistently realistic about subprime. While others are still hoping the mortgage business comes back, UBS doesn't expect it to do anything but hurt.
UBS has a few other things going for it. Cramer's a big fan of new CEO Marcel Rohner, and he loves the fact that Rohner immediately axed everyone who played a part in the $3.4 billion loss. “You don’t see Citigroup doing that,” Cramer said.
Also, according to a Wall Street Journal article from the same day UBS announced the write-down, UBS is the top-earning investment bank in the entire Asia-Pacific region.
“UBS is the investment bank for China and India,” Cramer said, and the bottom line is that he thinks it’s the best investment bank to buy next week.
Jim's charitable trust owns Citigroup.
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