On Thursday’s edition of the Sell Block, Cramer revisited each of the 12 stocks from his August 3 Mortgage Madness index – a conglomeration of companies he predicted would be faced with a “big crisis” as the fallout from the subprime mortgage became clear. The index started at 100 when Cramer created it last summer. Five months later, it’s been cut down to 47. Cramer thought it was time to go through, one by one, to determine if these stocks still belong in the Sell Block.
Countrywide : A Bank of America takeover, if it were to happen, would be “brilliant,” Cramer said. It would take Countrywide off the government’s hands and it’s a windfall for BoA (the stock was up on the news of the talks). A deal like this would be unlikely under normal circumstances for antitrust reasons since both companies have such huge mortgage businesses, but these are not normal circumstances.
Washington Mutual : One of the worst subprime lenders, Cramer is now recommending that WaMu not be sold. There’s too great a chance it could get bought out, he said.
Citigroup : Cramer thinks Citi is about to receive a big capital infusion and is no longer a sell. And if the Fed starts aggressively cutting, Citi should benefit more than most.
Bear Stearns : Like Citi, Bear would be a big beneficiary of a new and improved Fed. The new management gives Cramer hope too, although he still believes Merrill Lynch is better.
KB Home : Still flush with cash, KB Home should go up if and when confidence returns to the marketplace, Cramer said. Don’t rule out a takeover, either.
Centex : This homebuilder is “not as good as KBH” but is also a takeover target – although more likely at a lower price – according to Cramer.
Blackstone : The private equity giant is probably done going down, Cramer said. Its acquisition of GSO Capital shows, if nothing else, that is has a pulse. He wouldn’t buy it, but he wouldn’t sell it either.
Thornburg Mortgage : Easily one of the worst performing stocks since the inception of the Mortgage Madness index, Cramer is now willing to bless the preferred stock but not the common. TMA might be healthier than it looks, he said.
Beazer Homes : If the Fed had mobilized to cut rates last summer, Cramer thinks Beazer could have made it out alive. Now he believes the company will go under.
MGIC Investment : Cramer thinks this mortgage insurer could get bought but, again, probably at a lower price.
MBIA : The brand name might save it, but MBI still has a lot to disclose, as far as Cramer is concerned. He wouldn’t sell it but he wouldn’t buy it either.
Goldman Sachs : “The one to buy.” New price target: $300.
So why Cramer's change of the heart in many of these stocks? Back in 1990, the financials fell 50% peak-to-trough before the Fed got engaged. With the Mortgage Madness index now down the same amount and the Fed looking more likely to ride in, it seems to Cramer like history is repeating itself.
“The bottom is in,” he said.
Jim's charitable trust owns Citigroup and Goldman Sachs.
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