Mad Mail: Is BP Too Debt Heavy?
Web Editor, "Mad Money"
Cramer: You recommended Permian Basin Royalty Trust yesterday - looking at their SEC report, the engineer they cite says that they had 7.2 million barrels of proven oil reserves in the ground at the beginning of 2008. They produced 1.9 million barrels in 2007. At that rate they will run out in 3.8 years. Why are they a good buy? --Mike
Cramer says: “They find oil. And they keep replenishing oil. And that’s why it’s so good. And I think you’ll see new numbers, which will show that they’ve got a lot of oil…the stock was up a buck. People went out of their minds up today because we recommended [PBT]. It’s a good idea, but all the other oils stocks were down. I told people to pay around $8. You have to listen to me.”
Jim: Would you please explain to me how SPDR Gold Shares trades. Does it merely track the price of gold or does it actually buy and sell the metal? If the latter, where do they store the gold they purchase? How do we know whether or not they are fully funded with the metal? Is it possible the tail could wag the dog? In other words, could the price of gold be manipulated by aggressive buying and selling of GLD? --Tom
Cramer says: “Yes…60% of the demand for gold is jewelry. And the rest of it has been this GLD, which keeps buying the gold. So it’s become very self-fulfilling and worrisome to me, which is one of the reasons why I said let gold pull back before we buy more. Because the GLD is driving all the purchases.”
Jim: I know you love BP for its dividend, but I was wondering about its debt. It looks like its has $8 of (debt-cash) per share, but they only earn $6 per share (and that is almost certainly going to come down, right?); of its $6 of earnings, half of that gets paid out in the dividend. Isn't BP going to be forced to slash its dividend at some point to pay its debt? --Bob
Cramer says: “I own this for…my charitable trust…we’re constantly monitoring this. They were committed to the dividend, but we know other companies were committed to the dividend that recently cut them. I am very concerned, but I believe that oil is going higher. And the last time they spoke oil was in the $30s. Now it’s in the $40s. I think BP’s safe. But we know we are in an era where the word safe should rarely be used. So we’re going to monitor, monitor, monitor.”
Jim: I have to disagree that Warren Buffett is selling America. True, he decreased his J&J shares from 61,000,000+ shares down to 28,611,591 shares. He kept over 28.5 million shares! How many companies have more? Those shares today are down from where they were during the 4th quarter and currently yield about 3.6%. What is he doing with this cash? He is loaning it to companies that need cash and are unable to get it from America's banks. --Mike
Cramer says: “I am saying, basically, that he wrote an op-ed in The New York Times saying he was buying America. And [when] I think of America I think of J&J, and yet that’s what he was selling. And I found it inconsistent. If he’s buying special American perferreds that you can’t get, I do not think that’s buying American.”
Cramer's charitable trust owns BP and Johnson & Johnson.
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