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tv   Mad Money  CNBC  October 8, 2012 11:00pm-12:00am EDT

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i'm jim cramer and welcome to my world. you need to get in the game. firms are going to go out of business, and he is nuts! they're nuts! they know nothing. i always like to say there is a bull market somewhere. "mad money." you can't afford to miss it. hey, i'm cramer, this is "mad money," welcome to cramerica can. my job is not just to entertain, but to educate and teach you. so call me at 1-800-743-cnbc. something has happened in this market, and you got to know the sea change to grasp what is going on. oh, we saw it big today, dow sliding 27 points, s&p giving up .35%. nasdaq declining 6.7%.
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we've seen it for many days, actually, dating back to the bad old ones at the beginning of june. that something is that the u.s. has become important again. ♪ not ascendant, but important. sure, there are plenty of days we can come in here and note that our s&p futures are down big because spain is having problem or china's economic growth has slowed. we can keep pondering what happens if the haves and the have not nations of europe can't come to an agreement to bail out spain. we can sweat the program of every single disappointing piece of chinese data. or we can recognize that the united states has begun to reassert itself as the dominant market on the globe, filled with many stocks that simply aren't impacted by world events and others that have enough domestic business to offset any global worries out there. today is the perfect example. we woke up to news that once
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again, some data point from china showed a further decline in that clearly faltering economy. then the book of negativity was tossed to europe where we saw still more dillydallying. will spain take the bailout or not? it's the european spinoff of deal or no deal. by the time we get to our market as represented by the s&p futures i saw this morning at 4:00 a.m., we were looking down substantially, aided by some world bank survey that downgraded global growth. i have to admit that when i heard the litany, my first reaction was all right, here we go again. get ready to batten down the hatches because of the chinese slow down and the european stalemate. i tweeted just that at 4:15. on jim cramer@twitter. i said here we go again, get ready. but the more i thought about it, the more i realized, are you kidding me? this again? these two headlines? are they even headlines? when they were first in the news, they were clearly
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disruptive forces, terrorizing ones even. they stayed that way for many, many months. but somehow the market has graduated from them as the media and the short sellers haven't. sure enough we opened down all ugly, but then we spent the rest of the day trading higher. it was a clear win for the bulls. here is why. last year at this time the european debt crisis was really coming to the fore. and here in this country we were caught flat-footed. we have had so many companies move aggressively into the europe recently that you knew we would have to be clubbed viciously by their crisis. we just weren't ready for it. plus at the time the europeans didn't have a clue of about how to deal with the problems. we know they were taken totally by surprise over there because those morons were still raising interest rates when it happened. meanwhile we knew china only as an engine of all global growth and the decline in their economy was shocking.
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all right. now let's move one year later. as hard as the spanish situation is, the europeans approached it in retrospect brilliantly. but with a highly criticized strategy, they chose to kick the can down the road. how many times did you hear the europeans were foolish enough to think that anything could be solved by kicking the can down the road? how many? a thousand times? it was always scorned, this strategy of kicking the can down the road. it's always scorned. the media really had it for them. all they're doing is kicking the can down the road. guess what? you know why our stock market could advance during the kick the can period? because the strategy bought time. it butt time to reconfigure and pullback. and pulled back radically. our industrials pull out of there pretty consistently. in fact made europe a much smaller part of the business.
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that's why ford and gm, they are still horrible. why? they didn't take advantage of the kicking down the road. yeah, kicking the can bought so much time that i don't expect many american companies to use europe as an excuse when they begin their reporting tomorrow. i just -- i think they'll just ignore it. plus the ones that did a lot of business in europe like pvh, they have built stronger organizations. remember, those countries have done quite well. and more often than not, those companies are showing double-digit gains. i say three cheers for can kicking. who knows what would happen if anything good actually came out of europe? how about china. same thing. we had so many people making inroads into china, but now that china has slowed, how many have been hurt? i found myself talking about it on "squawk on the street" today, when i hear china's weak, i bring out the nonmagnificent seven, freeport mcmorn, peabody
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coal. that's right. those are the only ones trading directly on china these days. seven companies. it's crazy how little impact it has anymore. but that, again, is a combination of two little things. one, that most u.s. companies don't have much of a toehold in china to begin with is sobering, isn't it? and two, that we aren't an industrial company anymore. we can talk a big game and worry about china, but we always bounce back. and we bounce back quite quickly because it means so little to the vast majority of our companies. we have taken it back in style. if we leave out this newfound international relevance, kick the can strategy. okay. let's do a random thing. hey, get back in here. you belong in here. just look at the s&p 500's biggest gainers today, try to cross reference them with europe
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or china. try to do it. first netflix, up, morgan stanley. finds out it's not going to destroy them and then courtesy of brazilian spending u.s. consumer. carmax, up 2.67, 9%. the domestic auto market is up boomtime. ford and gm are hostage overseas. but carmax deliciously all american. when cliff's national resources, iron ore play. up the $2.20. 5%. huh? any bad news this china is only on hopes of rate cuts. clf moves up higher on an upgrade this morning. in the bad old days that would be down 5%, not up 5%. fourth, marathon pete, marathon petroleum. a refiner. you know we love the refiners. it was up $3.05. up 5%. this is an american oil glut story. they buy it cheap at the wellhead and sell it inexpensively at the pump. eli lilly. this stock has been advancing
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for some time on this discovery. no matter, it can still pack a punch, $2.55 to a new high of $2.75. you could have bought that up only 60 cents when we broke the story of the drug's success? it was midday in the suggestion. do you think it matters now? i mean get read, six pets smart. nothing to do with europe and china. seventh, autonation, 3% gain. total derivative of carmax, a standout. eighth, u.s. steel, jumping 2.5%. despite weakness in earnings. abercrombie and fitch, despite a downgrade to sell this morning. chipotle. all u.s. companies, all rallying despite spain and china. let's face some facts here. these gains are the result of a fantastic kick the can strategy. i know it's been derided. but kicking the can allows us here in the u.s. to focus on the u.s. a year ago, maybe even six months ago, maybe three months ago even these stocks would have
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been caught in the maelstrom i saw this morning at 4:00 a.m. not anymore. here is the bottom line. the chinese slowdown is impacting a handful of u.s.-based companies. the europeans have given us the most bountiful strategy possible. it's brilliant. it's called kick the can. i say china, keep up the bad work, and europe, keep kicking. and one day we'll be able to asterisk you entirely. >> john in california. >> caller: hey, jim, boo-yah from california. >> oh, man, i lived at tenth and p. unfortunately it was not an apartment, it was a street corner. but they never rousted me. >> caller: we love the way you sleep in cars out here. >> thank you, man. it's a little nasty. for a date, it's really home-free. your place or mine? >> caller: i've got raytheon, and i've had it for a while. i just want to know with what is coming up in the future with these wars winding down, raytheon the way to go? >> i don't know. you have the president of the united states talking about fancy private jets not doing that well. you had romney wanting to spend more on the defense.
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if you think president obama is going to be reelected, you don't want to be in raytheon, frankly. you're going to have to do some little selling. let's go to kierein in florida. kierein? >> caller: boo-yah, jim cramer here in sunny florida. >> like that. what is up? >> caller: listen, i see that united health care purchased 90% of the brazilian health care companies down there. where do you see the stock go from here? and what do you think if romney's elected president? >> it's not as good. it's not as good if romney is elected president. because what happened is the health companies and the drug corporations went all in under obama. i know it sounds silly, but they did win. unh goes higher with president obama is re-elected. that brazilian thing showed their growth is no longer limited by the united states. i like that. if you love playing kick the can as a kid, as i did, you should have adored as an investor in an
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u.s.-based company as u.s. europe kicked the can down the road. as china falters, our stock goes higher. "mad money" will be right back. >> coming up, ipo stud or dud? it's the largest tech offering since facebook soured on the street. but does this cloud play offer enough potential profit to bring investors back to the table? find out when you get to know this ipo. and later, up, up and away? ecommerce king amazon has already soared almost 50% this year. and google is up over 15%. but could these two market leaders continue to climb? or will they fall back down to earth? don't miss cramer's take. plus, healthy dividend? medical properties trust owns care facilities nationwide, as affordable care makes political headlines. could this name give your portfolio a booster shot? healthy week here at
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nbcuniversal kicks off as cramer sit downs with the a ceo just ahead, all coming up on "mad money." >> don't miss a second of "mad money." foll @jim cramer on twitter. send jim an e-mail at, or give jim a call at 1-800-743-cnbc. miss something? head to [ male announcer ] the 2013 smart comes with 8 airbags, a crash management system and the world's only tridion safety cell which can withstand over three and a half tons. small in size. big on safety.
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you got a real steamer on our hands, red hot ipo coming later this week. the biggest tech ipo since facebook. but unlike facebook, i want you in on this one, maybe even to stay for a while because it has all the makings of a deal. it's going to give you a big pop on the first day of trading, and then trade even higher. i'm talking about workday, which is expected to price on thursday night and will trade under the symbol wday. i've been hearing about this deal all year, i'm not kidding, from the beginning of the year. it is spoken about as if it is the next yeah, crm.
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stock you may think does nothing now, but was hot as a pistol for multiple years after coming public. what is workday? why am i so confident it will be a success for investors? i like workday because it has a lot in common with other high-tech ipos that have made people a lot of money in 2012. specifically it's a software is a service company, the same business as competitor provides people with sales and service, workday is focused on what is known as enterprise resource management. basically, instead of buying software and installing it on their own hardware the old-fashioned way, businesses go to cloud-based software for account management, finance management, payroll, procurement and employee expense management. i know, sounds incredibly boring back office stuff, right? what is exciting now is that workday's customers save a tremendous amount of money.
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by storing the software on the cloud, they no longer need to buy expensive tech hardware like servers to store it themselves. i know this business, people. it does safe companies money. that's why the plays have been so successful at a time when businesses are trying to cut costs and not add workers. workday isn't some teeny little niche, either. the global marketplace is worth $39 billion in 2011. that's a total adjustable market. it's only getting bigger. workday should be able to gobble up a larger and larger piece of the market. workday is in a red hot space. second ingredient? company is growing like a weed. right now workday has 340 customers, including some very large companies, aig, kimberly-clark, georgetown university. even though the company is losing money, last year revenues increased by 98%. while workday losses are getting
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larger over the time, a tough one to swallow for you, this company is spending more and more money in r&d. they're investing money to fuel growth down the road. the important thing is that workday's r&d cost as a percentage of revenues are going down to 37% for the first since months. down 50% from the previous year 2000. plus, in the latest quarter, workday's revenues were actually up more than 100%. 100%. they're accelerating. i don't have any like this. third, this is a company with excellent bloodlines. workday was founded by david duffield. i remember these guys. they ran people soft before oracle bought the company in 2005. it could be a takeover candidate some day. and fourth, workday looks a lot like a couple of the other recent ipos that fared very well on their first day of trading, and they continue to farewell. this company reminds me of guidewire, another cloud-based play that services insurance companies. i didn't think that thing was
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going to stay this hot. it shot up 32% on its first day, okay. hey, a lot of them failed after that. but it then rallied 145% since it became public at the beginning of the year. how about the palo alto network is another one? cybersecurity ipo that i told you to get a piece of. it spiked 34% on the first day and is now giving you a 48% gain since the ipo. by the way, if you still own palo alto, maybe ring the register, put it toward workday. how do you play workday? after what happened with guidewire and palo alto, we're going to be a little bit more giving, a little less price sensitive. this is coming public later in the week. the stock is expected a price between $21 and $24 a share. i think it's going to price higher than that because the story is so hot. at the mid point workday would be trading at 18% earnings? no sales. we got to use sales instead of earnings here because workday isn't profitable yet. it doesn't have any earnings. i know this market wants companies that have this kind of growth.
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18 times sales is incredibly expensive, but in the abstract only. the premium is justified versus the other players in the game because workday sales are growing at 100% clip. as i said at the top, this is the one they keep telling me they want a piece of. let's put the valuation in perspective. trades as nine times sales. it's so much more expensive. but the revenues are only growing at 33%. palo alto 40% growth rate. given those valuations, paying 18 times sales to get in on workday ipo not only makes sense, it's too darn cheap versus those players, even though i know it's expensive versus google or apple. i would bless paying much more than that for this growth rate given where we are in this economic cycle. but alas, i got to have some -- i can't have you pay any price. paying 36 times sales just doesn't make sense to me. i got to take a pass there. but in other words, this is a classic ipo trade. the gaiman plan is very simple. call your broker, ask to get in
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on the workday deal. probably have a hard time getting in on it. some of the discount brokers are not going to let you in on at it all. they probably don't get any stock. you can buy in the after market with a limit of $27.50. that's 20 times sales. otherwise the stock is going to be too hot and it will be too expensive for you and for me. if you can't get in the ipo or buy it at $27.50 or less, we blew it, okay? we're taking a pass. get in under $27.50, i think you could rack up big gains in a short period of time as i believe this stock could keep climbing, perhaps until it hits the mid-30s. i don't want you paying in the 30s. we'll have a real bad day, the downside will be horrific. you'll say jeez, jim, this is like all the rest of them. guidewire and palo alto networks, they had the makings of a red hot ipo. i saw it, particularly in palo alto. i didn't think it would be good in guidewire. this one is like them. just remember that those initial public offerings were trades too. not investments, unless you can
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get them at the right price. for workday, that price is $27.50 and not a penny more. otherwise, look, you got to take a pass. we're only blessing what otherwise obe a colossal overpay because we know that the big boys are going to get some on the deal, but not nearly as much as they want, and then they'll be forced to buy the rest of their position in the after market. here is the bottom line. we want to own some workday so that we'll be able to sell it to growth funds desperately needing additional stock to have enough to make up a meaningful position in their funds. as with all these hot deals, though we do need to maintain some discipline. 20 times sales? i know, it doesn't sound that disciplined. but you know what? it's going to be okay here. but no buys above $27.50. if it exceeds that level, we'll have to let others make what might end up being the hard money. after the break, i'll try to save you some money. coming up, up, up and away? ecommerce king amazon has already soared almost 50% this year. and google is up over 15%.
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but could these two market leaders continue to climb? or will they fall back down to earth? don't miss cramer's take.
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>> buy, buy, buy! >> until the end of the year. which stocks exactly? what we see time after time is that the growth-oriented fund managers will keep buying their best performing momentum stocks, practically nonstop for the next three months. and these guys will pay any price because they can justify stratospheric value united nations by doing what you call outyear. how much they can make down the road, 2015, 2016, maybe even 2017. i have always hated playing this game. in my mind, it's totally nonrigorous. but every year it happens. every year there is money made by anticipating these moves. at my hedge fund i would hold my nose and buy the stocks that i figured were about to become anointed at the beginning of the fourth quarter, this week. that's why all week i'm going to highlight the ten hottest momentum names that i believe will be anointed by wall street as winners in the fourth quarter of 2012. first up, i think there is no question that and google belong on this list.
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amazon is up 50% for the year. google is only up 17%. but the real reason these stocks will be anointed is their genuine high growth names in an environment where because of the slowdown worldwide there are very few real growth stocks out there. sure, many stocks rat 252-week highs. but google and amazon are barn burners. they're so obvious that they're not going to be ignored. every fund that already owns them will be double do you think between now and the end of the year if history is your guide. plus, you got a nice google reversal today, which gives you a chance to do some buying. the charters are going to be calling it the son of apple. they're going to say this reversal today is now the beginning of the big decline, like it was with apple. hey, can we just decide that apple and google are different companies? why don't we start with this amazon. we know that this company is oriented in online retail powerhouse, the widest selection of products, lowest prices, fastest, cheapest delivery. amazon is a beloved company that has cultivated fabulous relationships with its customers, and most important,
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it's still taking market share all over the world. it's like a bulldozer, frankly, putting bricks and mortar retailers out of business on every continent on earth save antarctica. i'm not ruling out that god forsake enplace either. it's selling its own hardware like the kindle in order to dominate online publishing and has become a true yoon line marketplace where people can go to sell and buy things on the internet. it's no wonder some analysts believe amazon's revenues can increase tenfold over the long-term. that's the kind of growth trajectory that gets people salivating at these growth funds. amazon offers to handle the back office of so in companies that need an online strategy. it is the dominant servicer of all internet retail commerce. al even though amazon is around 13.5% internationally commerce, i think they sill have tremendous capacity to take share. why? it's the wrong metric. when you look at total sales online and offsign, amazon
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accounts for less than 1% in the u.s. and overseas. i happen to believe that number is going much higher as it's so much more convenient to buy things from amazon, especially when you're doing that kind of comparison shopping with bricks and mortar shops. it's fabulous management led by jeff bezos. about 5 billion in cash versus 2.6 billion in long-term liabilities. the latest quarter 29% rise in revenues. the company's gross margin, on what it makes on every dollar of sales came in much better than expected thanks to a big increase in third party selling on amazon's network. jeez, after all that building, all those warehouse. we don't usually worry about margins with amazon because the company has been using the money to make substantial investments to grow the business. the fact that they managed to beat wall street's estimate anyway is impressive. that's why the stock hasn't stopped climbing. okay. amazon is fabulous. how the heck can managers justify paying off for the stock through the end of the year when it's all trading 110 times next year's earnings? it does seem absurd, right?
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well, wait a second. the growth-oriented managers who own the stock are looking at what is known as the out-years, as i said earlier, at how much amazon can earn two, three, four years down the road. right now the consensus for amazon to earn in 2015 is $7.39. based on that number, the stock is only trading at 35 times 2015 earnings. and i think that estimate is going to prove to be low. that seems a lot less expensive when amazon is growing at 38.68% long-term. you got to look at the out-years because that's how the hedge funds are valuing them. that's why it doesn't seem absurd to these guys. how about the other big tech stock anointed for fourth quarter, google. you know my feelings on google. sultans of search. more than 66% of queries in the u.s. 75% of search advertising budgets. it's amazing. plus, the paid search business is still growing at more than a 20% annual clip worldwide. we're seeing a big migration away from desktop oriented and
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towards mobile, and google owns mobile. here in america more than half of the isn't that right phones runs on going al's system unlike other companies caught flat food by the move to mobile, google saw it coming. they have been giving away the android operating system for years so they'll be ready for this move. their ad mob business, captured 51.% of the market. they're still the number one player, and i know they are very good. bought motorola, gave them a ton of patents and the costs have worked their way through. oh, on top of everything else, google has a social strategy with google plus. they have a consumer-oriented cloud ecosystem. and they own youtube for good measure. see all those new tv shows popping up on youtube? advertising $600 billion global market. less than penn% of that is online. i think that percentage gets much bigger going forward, which means a lot more money for google. and that's just in the core business. don't forget, google is truly a global company. 54% of the sales from outside
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the u.s., dollar getting weaker versus euro is going to help them. the international side of the business growing rapidly. google's balance sheet $43 billion in cash, no debt. i'm also a believer in management. now i remember when co-founder larry paige took over as ceo in april of 20 leonardo. oh, there were a ton of doubters. but the guy has done a great job, streamlining the company by reorganizing around individual product areas and focusing on relentless innovation does not get enough credit for the job he has done. each though google is a $758 stock, it's only trading at 15 times next year's earning estimates. when you look at the out-years, google gets insanely cheap. the analysts think it can earn 67, 11 times 2015 numbers. that's a real low valuation for a taken with a 15.3% growth rate. i've seen this process play out year after year after year after year. believe me when i still teleyou growth oriented managers are going to keep buying these two momentum stocks right until the end of the year. the way to play it?
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deep 10 money call options on amazon and going. . try to go out thee months, maybe four. that's the strategy i advocate on "getting back to even." i have google as the example if you want to know how to do it. why this way? the funny thing about momentum. if it does reverse itself, if something disappointing does happen, these sure things become the riskiest stocks out there. deepen the money calls out until january, say, allow you to capture the run to year end. but if something goes awry, you will be stopped out at a level that will be far level than where a blown-up momentum stock mile might ultimately fall. let's go to charlie in new york, please. charlie? >> caller: hey, jim, i want to ask you about netflix. it's an aggressive part of my portfolio. i bought it at $55. i know that the earnings are coming due in three weeks or so. and it's been flying lately. >> well, look there is a lot of people who have to say that netflix just got too beaten up. if you see any uptick in subscriber growth, you're going to see a $100 stock. i subscribe to that theory, but i would only do this stock in calls.
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i would not do it in common. something tells me this could be like green mountain if they screw it up, okay. and green mountain being the poster boy of you don't want to have happen. let's go to gary in florida, please. gary? >> caller: boo-yah, jim, from the sunshine state. >> good to have you on the show. >> caller: hey, me and my father, we follow the market closely, and we never miss your show. >> thank you, thank you. >> caller: our concern is a company called lifelock, lock. you would think with the growing concern of identity theft and cybercrime that this would be a safe investment. but the ipo so far has been a disappointment. have i two questions. one, what happened to the stock, and should we buy more, holder, or sell. >> i think the position is the technology stock. it's really a consumer play. the consumer, as people look at this company is -- it will not be spending as much on this company as they might in some other security. i'll tell you, i met with adt today. that company has a much better security. if you want to miss a little apples to oranges in the
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security sector, i prefer adt. i'm not saying i like the momentum hunting strategy. i know it is painful for you. but if you can't beat the big boys, you got to join 'em. amazon and google. all weekly have two a day that are the anointed ones. don't move. [ male announcer ] the 2013 smart comes with 8 airbags, a crash management system and the world's only tridion safety cell which can withstand over three and a half tons. small in size. big on safety.  and i was told to call i wamy next of kin.nce at 33 years old, i was having a heart attack. now i'm on a bayer aspirin regimen. [ male announcer ] be sure to talk to your doctor before you begin an aspirin regimen. i didn't know this could happen so young.
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it is time! it is time for the "lightning round." cramer's -- >> buy, buy, buy. >> sell, sell, sell! >> may the sound -- [ buzzer ] >> -- and then the "lightning round" is over. are you ready, skee-daddy? start with derrek in new jersey. >> caller: ba-ba-boo-yah. i download your podcast and listen to you every day in the morning. i'm a fan. >> thank you. >> caller: my stock i wanted to ask you about is equinox, eqx. >> that's a cloud employ. >> buy, buy, buy slams. >> an anointed stock. i don't expect it to come in between now and then. edward in new york. edward? >> hi, jim.
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cliff's natural resources. >> no we had the trade today. if it goes up again tomorrow, a little follow up. i want you the start ringing the register. because you know what? the findings still aren't there even though we had an upgrade today. let's go to phil in wyoming. phil? >> caller: boo-yah, jim. this is fim from wyoming. >> nice. >> caller: i'd like to know what your thoughts are on eog. >> i think oe go -- >> buy, buy, buy. >> remember that. >> had the best eagle ford and the best bakken. who can beat that? let's go to steve in wisconsin. steve? >> caller: hey, jim, boo-yah too you from kenosha, wisconsin. >> sweet! what's up? >> caller: hey, i'm interested in hospira, hospira, the generic -- >> we like hospira. >> buy, buy, buy! >> thinking about that kind of company. let's go to david in michigan. david? >> caller: hey, jim, i'm a big fan. how you doing? >> all right. how about you? >> caller: good, good. i was just curious where you see
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going from here. taking a big hit. >> i regard it as one of the worst investments i've ever made. i do prefer the gld if you want to own gold. i have to tell you i felt that the company on friday, i think they're a little aggressive, frankly. i think they're a little aggressive there are things that can go wrong. if gold really plummets, those gold miners will stop drilling. they will stop getting gold. and what will happen is the company's earning treatment will dry up. be careful. let's go to bo in kentucky. bo? >> caller: hey, jim, thanks for taking the call. love your show. computer sciences. >> this is a company i don't recommend stocks on a take overbasis. i don't like the fundamentals at sce. let's go to greg in new hampshire. greg? >> caller: jim, big boo-yah. >> hey, greg. >> caller: how do you like
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questcor? >> you can't. now they added this dividend and that's terrific, but they were not as -- let's say they really made you feel great about the situation before they should have. how about that? let's go to sam in missouri. sam? >>. >> caller: jim, thank you for taking my all. osur. >> everyone is selling it off now because the drug is selling and no one is selling. all the anticipation is going. i like the stock at 10. i think it's cheap. let's go to robin in california. robin? >> caller: hello, jim. diagoe. >> if that come downs, that's the danny walker family and they're doing quite well. >> caller: hey, jim cramer, i wanted to wish you a big boo-yah. >> thank you, same. >> caller: i want to know how do you feel about esrx? >> express scripts, that merger -- >> buy, buy, buy!
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>> that stock doesn't come in. when it does come in, i need you to pull the trigger. esrx is the real deal. can i go to marilyn, please, in pennsylvania. go ahead, marilyn. >> caller: boo-yah to you, jim cramer. >> nice. >> caller: i'm in -- i'm in my 80s, and my certificates of deposit paying 5% are maturing. >> right, the rolling over. >> caller: what do you think of johnson & johnson? >> i think that is ideal. what of the great balance sheets in the world. >> buy, buy, buy! >> and that, ladies and gentlemen, is the conclusion of the "lightning round"! >> the "lightning round" is sponsored by td ameritrade. cook what you love, and save your money. joe doesn't know it yet, but he'll work his way up from busser to waiter to chef before opening a restaurant specializing in fish and game from the great northwest. he'll start investing early, he'll find some good people to help guide him,
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that's the cold truth! [ male announcer ] alka-seltzer plus. ♪ oh what a relief it is! [ male announcer ] try new alka-seltzer plus severe allergy to treat allergy symptoms plus sinus congestion and pain. tonight i want to introduce you to one of the highest yielding companies left in this market, medical properties trust. even trading at a 52-week high today yield 7.3%. mpw is a real estate investment trust that owns hospital properties all over america,
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which then rents to health care providers that actually operate the hospitals. the company has a bit of a tough history. came public in 2005, reduced the dividend at the end of 2008 as so many other real estate investment trusts had to. it's breaking above its ipo prices. it seems like they have really gotten everything in order and the future is looking brighter than the past. latest quarter very solid. made a host of acquisitions that are additive to earnings. so it's no wonder the stock is marching higher in recent months. it closed at $11, up 12% for the year. let's talk to the chairman and ceo of medical properties trust, find out more about his high-yelleding company and where it is headed. welcome to "mad money." how you, sir? >> i'm doing well. >> good to see you. >> it looks like things are really coming together for you guys. you held your capital back until it was the right time to do it. you seem like you're fully invested. what is the next thing for you? >> jim, we actually raised additional capital during the time period. you talked about us cutting our
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dividend. unlike the other reits that were out there, we never suffered from a cash flow issue. >> okay. >> our portfolio typically performed exceptionally well. we went from an coverage lease ratio of three and a half times to almost 5 1/2 times right now. so where are we right now? we raised about a billion dollars in capital over the last two years. we have put almost all of that capital to work. we've got about $400 million remaining under our revolver. we've got about $200 million that we expect to do for the remainder of this year. prospects for 2013 look outstanding. so where we are is that we expect to continue the growth where we are for this particular year, which is about $800 million in acquisitions. >> now, it seems like your business, far from what people initially thought, does not wave with the political winds. it hasn't mattered about obama care. the debate seemingly doesn't matter if romney wins or if obama wins. >> that's logical when you think about it. you look at the history of this country. we've had a lot of presidents. a lot of presidents throughout the medicare sector.
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it really doesn't matter who the president is going to be. hospitals are going to be there. hospitals are the top of the pyramid for the delivery system in this country. so we're going to have hospitals whether it's romney or whether it's obama. 10 we're in a very good position throughout the election and beyond. >> are you the only publicly traded guys really in this sector? >> we are. we're the only ones that focus exclusively on hospital. >> and are there a lot of hospitals left that would want to do a deal with you? do they understand your model and that this could be beneficial for them and for you? >> there are a lot of hospitals there is about a half a trillion dollars of available hospital property out there. >> half a trillion? >> half a trillion. >> so every day you're trolling for new properties? >> we are. the pipeline is huge. we think 2013 will be another big growth year for you. >> you did a deal in september. this is your most recent release, for st. vincent health. explain what happens. you buy that hospital. then what are the next steps?
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how does that become a creator for your shareholders? >> that particular hospital we have st. vincents come up and actually managing that hospital for us. let me give you an example of a bigger acquisition we did earlier in the year. a $400 million acquisition of a company called ernest health. and that particular company -- acquisition, we did $300 million worth of real estate, $100 million from the operating company standpoint. from that particular company, when you look at us being able to acquire all of their real estate, give them the capital to then put that back to work where they can get operating margins in the high teens and in the 20s, they're much better off not having their investment tied up in real estate. >> now your getting -- you're able to borrow money at 5%, 6%, which is pretty amazing. but if you did an equity deal, and i know you said in august you're not going to do it, would you be able to borrow at say 4% and really be able to clean up? in other words, make it so that the shareholders would benefit immediately from an equity deal? >> absolutely. if you look today, if we did 100% equity deal, the way the stock price is today, we're
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buying properties at a ten-plus cap rate. >> that's much higher than all the other reits i've been talking to. >> exactly. our spread is huge. that's going in. >> that's higher than any other reits. >> we wouldn't do right now. can you begin to raise that distribution to the point where we're thinking you know what? it could be%. the stock goes to 14. >> absolutely. we talk about that earlier. with a we want our payout ratio to be is in the 75 to 80% range. we're almost there. when we get to that point, the board has said we'll look at raising dividend. >> you're the highest one to follow. it sounds like you're also one of the safest. thank you so much. i've been trying to get you on the show the whole time. i don't have any 7 percenters anymore that i have trust in. check it out. 73% yield, improving balance sheet. it looks good to me. "mad money" is back after the break. thank you. [ male announcer ] the 2013 smart comes with 8 airbags,
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we make a huge deal out of this employment number, don't we? i can understand that. it's a decent gauge of the u.s. economy. but when it comes to numbers that should matter to the stock market, it's hard to beat the earnings report we get tomorrow night from alcoa. i know at times i've cursed at the prospect of a stumbling alcoa kicking off earnings season with a miserable first quarter. the number of times this company seems to have missed estimates is boundless. it makes people cringe. because it is the lone standout
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of the new season and not much else happens tuesday, kit be worth a day's worth of chatter. how unfair that this stumble bum set the tablo. now you may not like how alcoa does, but if it does pa bad, it is no longer alcoa's fault. they are well run. the issue isn't alcoa itself and the execution or lack thereof. the issue is that alcoa sells into pretty much every market that matters. it's a far better tell for things, for example, that are now totally politicized labor report. consider what markets alcoa plays in. first, alcoa is the dominant raw materials supplier to the airspace industry that employees millions of people globally. an astounding one million screws go into each boeing 787 or airbus 380. all planes use aluminum. i don't know how you're going to get a better read on this industry. let's not forget that alcoa's aluminum is the skin of choice for navy and air force jets. we'll probably have to hear fiscal cliff chatter as well.
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second, aluminum is a huge raw material for cars and trucks because it's so lightweight and saves energy. well can get reports from gm, but alcoa is a much better read on things. third, you need alcoa building materials to skin buildings. commercial construction that has lagged so badly. this is the worst division for alcoa. lately we hear of a turn. let alcoa tell us if it's for real. first, a tremendous amount switching from gas turbines there is no way to judge this because of disparate turbine makers. but they all use alcoa aluminum. fifth, alcoa makes drill pipe, the kind we use for deep floors of oil. only game in town. we'll get a nice insides on on that too. finally, has become an important part of the technology food chain, the skin of the ipod. plus bottles and wraps.
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unfortunately, they also make i think gots and alumna. it's pure commodity and keeps alcoa down. it's there that the shortfalls keep coming. some of that is because the chinese keep producing so much aluminum and part because hedge funds banging down the stuff. the chinese cut back their own use of their own dirty smelter, polluting smelters, and use alcoa's cleaner imports, that glut would be alleviated and you would see alcoa flying. no matter. alcoa will give us a huge important statement about where the world is heading. don't dismiss it. consider the it the equivalent of a worldwide labor report without any chance of the alleged shenanigans we heard way too much about on friday. stay with cramer. hmm, it says here that cheerios helps lower cholesterol
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