Cramer found himself speechless – yes, a rarity – when two callers asked about companies this week that he didn’t know. But did some research and came back on Friday with the right call.
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The first was Hatteras Financial is a mortgage real estate investment trust that invests in mortgage-backed securities, and the company’s near 17% dividend yield is “a major red flag,” Cramer said. Wall Street doubts that Hatteras will be able to pay the dividend at its current level.
Regardless, here’s the bottom line on this stock: If you think the Federal Reserve will raise interest rates within the next two years – “it’s pretty much a given,” Cramer said – then Hatteras “will get pummeled.” The company’s mortgage-backed securities may be government guaranteed, but most of them don’t re-price for at least three years. That makes HTS too risky and, as a result, a sell.
Diodes , the second stock that stumped Cramer, is a buy. This low-cost semiconductor manufacturer has a history of outperforming the industry. The company upped its sales estimate for the quarter in early September thanks to strong demand for its chips, which go into LCD TVs, panels, set-top boxes, mobile phones and netbooks. While Cramer likes ON Semi more than Diodes, he still thinks the latter is a worthwhile stock to own.
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