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tv   Mad Money  CNBC  May 24, 2012 11:00pm-12:00am EDT

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from olay. 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's nuts! they're nuts. they know nothing! >> i always like to say there's a bull market somewhere, and i promise -- >> "mad money." you can't afford to miss it. >> hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends. i'm just trying to save you a little money. my job is not just to entertain but to teach and coach you. call me at 1-800-743-cnbc. well, you know how i usually feel about friends. but today it's a different story. i am honored and humbled because i happen to have a few friends
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with me here. you see, it's fleet week in new york, and the city has become host to thousands of fabulous men and women who serve as u.s. sailors, marines, and coast guardsmen, and we have an amazing group of them in the studio today to watch the show. [ cheers and applause ] i just could not be more proud that these fantastic people who serve and fight for us are here in the show. today on our set. and you will be hearing from them later. everything seems rigged or at least a total insider's game these days, where anybody gets away with anything. and the only people who lose are the hapless men and women who happen to be shareholders. that's how i feel. one still more outrageous day where the averages got hit for most of the session before rallying in the afternoon. mysteriously, dow closing up 34 points.
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s&p gaining .14% and the nasdaq losing .38%. look, especially on these seesaw days where we rally on rumors that most of us don't even get to hear and are often not even true but are self-serving to try to drive the market in a certain hedge fund's direction. i can't blame anyone for feeling helpless, adrift, unprotected and alone when it comes to owning stocks. first we're totally hostage to europe with the futures traders keying off every statement and every rumor from the continent. what little guy can keep up with that information flow? how do we find out what's really going on? how can they not be shaken out by the wild swings that the futures give us every single morning? second, hey, let's just call it facebook. despite what you might hear about how it was business as usual, that the big clients got the call to be very careful about buying facebook stock because the business might be
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slowing, this was in fact highly unusual. of course the outrage was exacerbated as morgan stanley let rich insiders sell more stock than they would otherwise, after they too got the call that things weren't so hot at facebook. of course the smaller buyers, they didn't get any call at all. somehow on wall street that's considered fair, which makes a mockery of the word "fair." then there's the executives who tell you everything's fine when it really isn't. we know that jpmorgan's jamie dimon described what may turn out to be a $5 billion trading fiasco as a tempest in a teapot. how about a simple i don't know, we're going to look into it. wouldn't that have been a lot better than the "wall street journal" pointed out -- "wall street journal's" doing more work to help than the guy who runs it. false reassurance a nightmare. these blows to our confidence which seem like it's just endless in our face, they come on the heels of the flash crash and of course the actual botching of the opening of facebook where i'm still getting
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tweets right now @jimcramer on twitter from people just now learning they paid anywhere from $38 to $42 for stock that has gone down, down, down, and they have hideous losses that they didn't even know about until today. maybe they can take heart that facebook's up for a second straight day. my advice, don't overstay your welcome. whenever i'm interviewed or asked about the market these days, it almost always starts with the same thing. jim, how can they get away with this? it's usually coupled with "i know i would never be able to get away with it. how the heck can they?" meaning they would lose their job, they would be prosecuted by the government. how do they get away with it? i want to take a moment explaining why the outrage rarely leads to change and never leads to prosecutions. after all, you the people really don't have any advocates where it matters, washington. the president's not all that focused on the woes of shareholders, in part because the administration doesn't regard protecting shareholders' rights as being all that relevant to fixing our country's problems.
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they act as if stockholding is the province only of the rich and the rich can take care of themselves. i only which it were just for the rich. then i wouldn't be so worried. second, congress itself has always been reluctant to take action in favor of shareholders because the shareholders don't have much of a lobby at all, at least not that i can tell. but the entities that do not represent your interests, they've got tremendous power. think about how these big banks have been able to beat back and water down regulation time after time after time. there's jpmorgan on the one hand saying it should have every right to trade for itself, on the other hand putting on a monstrous trade that proves they don't have the controls needed to make proprietary trading safe. depositors' money at risk. in the world the rest of us live in the ceo of jpmorgan should have said -- not that he did a stupid thing, which is what he was saying, but that his bank, let's just say he's lost all standing to fight against regulation and should accede to it because of what his bank did. he of course -- well, i think you would believe this. he should give back his bonus, right? he should accept none for the year.
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he's rich enough. but instead you know what happened? he just got a big raise. justice wall street style. however, the real blame here, it lies with the regulators who either can't seem to bring cases or never hit these ne'er-do-wells where it hurts, in their own personal pocketbook. every time they go after these firms for their transgressions they seem to focus not only on the individual actors who did it but on the whole company. that means when the firms battle the government they're doing it with the shareholders' money. we have the really absurd situation where if the government, say, were to go after jpmorgan for this horrible trade, it wouldn't focus on the people responsible, it would go after the whole firm. which allows jpmorgan to spend money that should have gone to the shareholders on its orders. and even worse, if the firm is found to have committed wrongdoing, the fines are paid by the shareholders, too. so there really isn't much incentive to combat these outrages. no matter what the shareholders pay. not the executives who committed the transgressions. oh, sure, periodically the s.e.c. refers the most egregious behavior to the justice department.
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particularly insider trading cases. there, by the way, i will tell you, no one should be aggrieved. the u.s. attorney's office in new york, the justice department has been amazing in its prosecution of insider trading. you'd have to be nuts to trade off non-public information after what preet bharara, u.s. attorney for the new york district has done. he's taken on the biggest, richest insiders and he has crushed it. he's our guy. which brings you to what really has to happen if you want these outrages to stop. first congress needs to wake up and create laws that give prosecutors more latitude to go after those who rig the market against you with criminal sanctions. that way if someone does something we think should be illegal, like giving rich clients the skinny on an ipo while leaving you out in the cold, the u.s. attorneys would have the discretion to prosecute the case. or if someone commits egregious actions that wipe out a firm, actions that they hid from view like the people who ran a.i.g.'s office in europe, the ones who ran lehman brothers into the ground, they too can be prosecuted criminally. as opposed to the status quo where just today the s.e.c.
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ended its three-year fraud probe into lehman without recommending any enforcement action. thanks, s.e.c. you almost bankrupt the western world and you get off scot-free. i'm surprised they didn't give ex-lehman ceo dick fuld the congressional medal of investing. if the s.e.c. wants to stop this nonsense they've got to go after the individuals, not the firms, fine them or make them give back their bonuses and perhaps refer them to the justice department for criminal prosecution. you don't want institutions to be prosecuted criminally because that can wipe out a whole company and a huge amount of jobs just because of a couple of rotten apples. but do you want those bad apples to pay and suffer. we know insider trading has been cut back. talk to as many people as i do in the industry and you know how fearful they've become, and that's what jail time does. there's almost never a comeback from jail in this country except of course for the brilliant martha stewart. if executives would have to forfeit their bonuses back to the shareholders or have them clawed back while at the same time being sanctioned for life, really take away their
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livelihood, believe me, there would be far less chicanery than there is now. here's the bottom line. we don't get justice because there's no real impetus from congress and no real interest from the s.e.c. to nail the culprits and get them out of the game. instead you, the hapless shareholders, pay for the defense and pay for the fines. and stand aghast as people get away with things that would get any ordinary person fired or land them in jail. in short, the outrages will indeed continue because the government lets them continue. and frankly, i don't expect any change as long as no one in washington speaks up or stands up for you, the courageous but outgunned individual investor. first question, sir. >> i'm jay drigo from chicago, illinois. and i want to start the show off right with a navy football boo-yah. >> very strong boo-yah. very strong boo-yah. [ applause ] >> we're pro navy here. army, eh. navy, yes. >> i watch your show.
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i've read your book. >> thank you. >> it's helped me out a lot. and you know, my question's about alcoa. i've had this stock a while, and you know, i know it hit a low recently. just wondering what your recommendation is. >> absolutely right, hit a three-year low. claus kleinfeld the ceo is doing everything he can. i was talking about the tragedy of alcoa in that they've done everything right but it's not enough. as long as europe is weak, alcoa's weak. they trade off of europe. i think you should hold on to it. $8, i would not sell it. thank you. thank you for your kind words. next question. >> hi, jim. i've been a long-time watcher. in fact about a year ago my wife and i were able to come to the family show, and we found out a few days beforehand that she was pregnant, and now we've got a three-month-old wonderful baby boy. >> congratulations. [ applause ] fabulous. good luck. that is great news. that is great news. >> it's a blast to be here about a year later. and i have just a huge thank you boo-yah for making investing seem just so easy. >> well, once you have the
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rudimentary skills, it is not as hard as for people who are just playing the market like it's monopoly, because it sure isn't. go ahead. >> my question is about xpo logistics, ticker symbol xpo. the ceo, bradley jacobs, about a year ago he invested $150 million into the company. they've had a split since -- or reverse split since then and it operates trucking and logistics in the united states and canada. so i'm hoping it offers some shelter from europe. i really like the transportation industry. so i just wanted to know what you thought of xpo. >> i wish i could tell you it offers shelter. here's the problem. even the best in that industry, which is a company called expediters out of washington, is struggling. so your company is going to struggle more than expediters. and that's why i think a $300 million company, so i regard it as a spec, but be very careful. i think you can go lower. all right. what do we do? what do you do when washington and the s.e.c. aren't nailing the culprits? you defend your portfolio yourself until the government
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steps in. just like the marines and sailors and coast guards who are guarding us. guard your portfolio with stocks that work. "mad money" will be right back. [ applause ] coming up, style guide. jim's browsing the aisles to find a retailer on the mend. could this turnaround story be the perfect fit? skip the traffic and the check-out. cramer's bringing this deal right to your door. and later, playing defense. as the ships roll in for fleet week, cramer's turning to a different kind of domestic security. could a trip to the grocery help get you out of the pickle caused by european panic? all coming up on "mad money." >> we all know there's nothing more important than family. >> on june 15th we're celebrating our fifth annual edition of "mad money -- it's a family affair." >> once a year only, check it out. >> want to join cramer in studio
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for the special event? >> we're having a brotherly dispute. >> the doctor's in the house. >> head to madmoney.cnbc.com to sign up for free tickets. >> the family that invests together stays together. ♪
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♪ [ applause ] how do you turn around an ailing retailer? how do you resuscitate a chain that's dying a slow death? you certainly know how not to. you come in with guns blazing, saying you're going to change the stores overnight, which is what ceo ron johnson did when he took over jcpenney last year after running apple's retail stores. we now know after jcpenney's
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sickening decline from 43 when johnson took over to less than 27 now, that you don't use his playbook. including getting rid of coupons, mainstay of jcpenney's business, something beloved by customers, while also adjusting the estimates up? yeah, he raised his own estimates. not down. in a remarkable bit of hubris we know you don't choose to take it to your competitors right out of the chute, disparaging them and their strategies, when if you fail they will devour you. as was the case with penney, where same-store sales plummeted 19% as customers flocked to target, macy's, and walmart. hey, maybe that's a reason why walmart hit a 52-week high again. hey, maybe they're going to lose those customers permanently. most importantly, because this is a stock show, not a fashion show, you do not overpromise and then underdeliver, which was made all the worse by penney's elimination of its dividend to
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save a tattered balance sheet. something most shareholders weren't even worried about but are now deeply focused on. so what should johnson have done differently? earlier this week i talked about how alex smith turned around pier one imports where he tinkered with offerings, cleaned up the stores, and had renewed focus on seasonal items. even though smith took pier one's stock up from pennies to over $16, some would say that's not a fair comparison versus penney because penney's largely apparel, much tougher business. so how about comparing jcpenney to the once disgraced and embarrassing chico's f.a.s.? in january of 2009 with the stock hovering around $3, chico's, which you might know as white house black market in addition to its flagship brand, brought in a guy named david dyer, former president and ceo of tommy hilfiger, a very successful brand that was subsequently sold to pvh. dwyer served as president and
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ceo of lands end, a phenomenal power play before it got swallowed into the oblivion that is sears. in other words, chico's selected a retired executive with a terrific track record in apparel. not a young executive from a computer company. unlike johnson, who retains a residence on the west coast even though penney is headquartered in plano, texas. dwyer went hands-on immediately. he made no promises, simply laying out that wall street's estimates weren't too low like johnson but too high, and that chico's expenses were going to go the wrong way before they went down. this was classic upod, underpromise and overdeliver. and dyer had his mission cut out. he had a mission cut out for him. given that the company's revenues had been down 10% and its same-store sales were off 18%. that's a heartening number because that's how much jcpenney's sales are down since johnson took over. maybe there's hope for penney after all. rather than take to the airwaves, promising all new merchandise while simultaneously eliminating coupons and
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markdowns, something that alienates pretty much every shopper out there, dyer quietly repositioned his various divisions. chico's was known as a specialty boutique for women in their 30s. those were the company's roots before it decided to switch gears by offering merchandise that was too young and sexy for its clientele. dyer went back to the original model, increased accessories, too, quietly, and brought the old customers back. and white house black market, a more upscale store that also lost its way, he repositioned the brand subtly as a designer alternative, going back to kind of roguish, raffish roots. it had been a hot retailer. dyer went edgy, raised prices and it worked. before dyer came in chico expanded everywhere with different size stores including bigger, less boutiquey ones. dyer spent more on infrastructure to make sure the merchandise arrived in a timely fashion. he also stopped opening the bigger stores to get back to chico's old boutique identity.
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most important of all, dyer decided to stop trying to please wall street, which wanted endless willy-nilly growth and that's something chico's and most retailers can't handle. he went for profitability instead of expanding crazily. he won back the consumer. and then later once it got real profitable he won back wall street. the result, a tremendous revival of sales with revenues rising 21% year over year, same-store sales up 9.6% on top of a 7.7% increase from last year's first quarter. chico's is now growing its square footage by 8% annually and is on firm footing to expand methodically and profitably. dyer's work proves that jcpenney has a fighting chance. the remarkable comeback of the once left for dead chico's shows that turns in apparel stores can happen although it takes several years, not several months. chico's makes it clear that the best way to execute a turn is by reducing expectations, cutting expenses, closing bad stores, and quietly altering and changing the merchandise mix so as not to alienate the current
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customers while bringing back the old ones and organically growing the new ones. you do the turn low-key, under the radar. you show relentless obsession with cutting costs and improving systems. and only when you're ready to go public with results that handily beat the underpromising forecast, do you make that splash. in other words, the opposite of ron johnson's speak loudly approach at jcpenney. here's the bottom line. the proof is in the pudding. dyer's taken chico's from $3 to $15 in just three years' time. and he set the stage for multiple years of growth going forward. best of all, unlike jcpenney, i think this stock's going higher. after the break i'll try to make you even more money. [ applause ] >> coming up, playing defense. as the ships roll in for fleet week, cramer's turning to a different kind of domestic security. could a trip to the grocery help get you out of the pickle caused by european panic? and later, resist the urge?
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market pullbacks can offer steep discounts, but buyer beware. some clearance items are best left on the shelf. tonight, jim exposes stocks to avoid at all costs when he sends them to the sell block. all coming up on "mad money." al) most life insurance companies look at you and just see a policy.
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[ applause ] in this environment you absolutely need to play defense. you've got to play some d. that means loading up on stocks that are protected from the troubles in europe because they don't do any business there, and big dividends, which gives you yield support. that's the perfect defensive combination for this moment, where europe is in charge and we have no idea what will happen. yeah, we're up today because europe does something good. tomorrow they don't do anything good, we're down again. who has that combination of defense and dividend? how about cramer fave b & g foods? the small, boring little packaged food company that's behind brands like ortega and las palmas brand mexican food. cream of wheat. talk about boring. vermont-made syrup. b & m beans. b & g pickles.
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oh, yes. polaner. good. b & g gives you a terrific 4.8% yield. domestic play that has zero exposure to europe. as a food company it's a big beneficiary from the massive decline in commodity prices. this is plastic. that's come down big. that makes this the ideal stock for this fraught period. b & g's not a super fast grower but it's a fabulous example of how slow and steady can win the race in this difficult environment. did you know the stock was one of the best performers last year? b & g foods, this real boring pickle company, was up 83% in 2011 despite skyrocketing input costs. now that 2012 is starting to look more like 2011 with the market totally in thrall to what happens in europe and the european leaders seeming to be as feckless as ever it's looking more and more like b & g will have still another great year. what's the secret sauce that makes this stock work? look, it's not the ortega salsa. it's not the emeril lagasse brand of marinara. although b & g does have a bam
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factor. but the bam comes from the company's business model more than any individual product. b & g is a house of brands. in fact, i think of it as kind of an orphanage of unloved brands that have been discarded by much larger companies. b & g finds these declining brands that usually aren't getting the support they need because the companies they're part of are very huge and then it buys them for less than they're worth and then nurtures them back to health. for example, at the end of november b & g finished acquiring culver specialty brands from unilever for $325 million smackers in cash. it contains six brands. mrs. dash seasoning. who hasn't bought mrs. dash? okay? my closet's filled with this stuff. molly mcbutter. sugar twin. a lot of people like that. artificial sweetener. baker's joy. i mean, baker's joy is one of those things, it's in your closet, you don't even know it's in your -- you don't even know that you own the stuff. but you own it. static guard spray. what else is there besides static guard? clean guard gloves. these were unloved and unimportant brands. at the $89 billion international soft goods giant that is unilever.
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but five of the six culver brands are either number one or number two in their categories. and they have a strong presence at the fast-growing dollar stores and the drugstores as well as the incredibly popular discount clubs, all areas where b & g has a market cap of just over a billion dollars. think about that. it's trying to expand its presence, gets into those, the market cap's going to go up. plus it's great that b & g has started to diversify away from just food. pick more aisle space in dollar stores, supermarkets and big-time drugstores. sure, unilever's trash, b & g's treasure. thanks to deals like i mentioned, b & g's been able to grow slowly and steadily for years, and that's a terrific model. last year b & g grew sales by just 6%. yawner. but the company's adjusted diluted earnings per share increased more than 21%. that's stellar. we love it when slightly stronger sales can translate into much higher earnings. now thanks to the commodity collapse we've been experiencing b & g's costs are falling. they could be down big year over year.
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b & g might be small but it's incredibly well run, with better margins than much larger food companies like hershey's or general mills or heinz even though i like all three of those. and while they're bigger competitors that put through pretty sizable price increases over the last year, price hikes that often scare away the consumer, b & g has only had to raise prices by 1.5% in 2011. tiny. they expect to raise them by 2% more this year. small. there's no sticker shock when you check out b & g products in the supermarket. b & g is making more effort to follow the consumers. people are buying more food from the discount clubs. so b & g is buying brands that have more of a presence like that culver brand i mentioned or they're designing brands specifically for the venues. the company came out with a line of cream of wheat designed for dollar stores. brilliant. healthy enough to make another acquisition of a neglected brand that b & g can bring back to life. the latest quarter which b & g reported was solid. one cent earning beat off a 34-cent basis with revenues that
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rose 19.7% year over year. although a tiny bit lighter than expected. also helps their bottom line at b & g. the stock is not cheap. 15 times next year's earnings. 12% growth rate. but you have to remember that it's worth paying up for safety. b & g is a consistent growth, safe, 4.8% yield. the seven-year treasury hit an all-time low today. this gives you three times, four times after taxes. and they more than covered their earnings with that last quarter. best of all, this stock gives you domestic security. their only international business is in canada. the bottom line, in this environment your portfolio needs to play defense, and that means owning stocks like b & g foods with its bountiful yield and total lack of european exposure. in this market, boring is beautiful. and that makes b & g among the best-looking stocks in the show. let's take a question. sir. >> hi, jim.
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i was actually on board harry s. truman when you came out in twit, and i really appreciate the chance to get to see where you get to work. >> thank you very much. we were honored on on that fabulous aircraft carrier, and your hospitality was just fantastic. >> actually, my beautiful wife and i were wondering what is the return to market for burger king mean for competitors like mcdonald's and wendy's. >> we're doing a special show about that. we're going to call it the burger wars. we did coffee wars, we did donut wars recently. right now it looks like burger king is overvalued versus mcdonald's, undervalued versus wendy's. i think mcdonald's -- by the way, if you can get that at $90, $91, 3% yield, that is one worth putting away. that's my favorite stock in the group. i hit the aisles for another european-resistant stock. bgs knows the dill. its slow and steady winner could fill your portfolio hunger for profits. look, don't go anywhere. it is fleet week. we're honoring our marines, sailors, and coast guards. we've got a real special lightning round coming up. stay with cramer! [ applause ]
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coming up, fleet week drops anchor at "mad money." soldiers and sailors from the marines, navy, and coast guard will conduct an all-out assault on cramer in the "lightning round." stick around for this thunderous onslaught of boo-yahs and hoo-rahs. all coming up on "mad money." for 30 some years at many i't different park service units across the united states. the only time i've ever had a break is when i was on maternity leave. i have retired from doing this one thing that i loved. now, i'm going to be able to have the time to explore something different. it's like another chapter.
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♪ dave, i've downloaded a virus. yeah. ♪ dave, where are we on the new laptop? it's so slow! i'm calling dave. [ telephone rings ] [ male announcer ] in a small business, technology is all you. that's why you've got us. at the staples pc savings event, for a limited time get up to $200 off select computers.
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staples. that was easy.
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i'm sergeant first-class kerry gilmore here in kandahar, afghanistan with the 223rd engineer battalion. i'd like to send a shout out to my parents harry and janice gilmer in portage, indiana, my beautiful wife melinda in little rock, mississippi. all right. we've got a very special "lightning round" tonight. i'm honored to welcome the fine men and women from the u.s. navy marines and coast guard here as part of this year's fleet week in new york. these are the people that represent us and protect us all over the world, and i am proud to welcome them tonight. and now it is time for the "lightning round" on cramer's "mad money."
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that's where you play until you hear this sound, and then the "lightning round" is over. are you ready, skee-daddy? sir, how can i help you? >> hi, jim. will from california here giving you a navy football beating army for ten years in a row boo-yah. >> i'm liking that start. what's up? >> i own some stock in corning. ticker name glw. i've owned it for the last year, and all of a sudden it's gone down. i want to get your thoughts on that. >> i think that's a challenged company. why? because tv sales are weak and because the company's up against some very good commodity makers in korea. i'm going to say -- >> don't buy. don't buy. don't buy. >> nothing i can do. don't like that stock. >> and over here, please. >> hey, jim, i'm jim mcmenamy from brooklyn, new york. thank you. i'd like to get your thoughts on visa. seems like it went public at the wrong time -- >> visa's terrific, and every time the stock pulls down we are underneath it saying buy, buy, buy. it's a financial and has very little financial risk. fantastic management.
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i like the stock very much. >> sir. >> i'm kyle from atlanta. i want to give you one more navy football boo-yah. >> oh, yeah. >> and then let me ask you about, i heard about facebook on the nyse. what have you heard? what are your thoughts? >> facebook i think it s an overvalued stock. the stock trades in the $30, $35 range. i don't know if it goes on the new york stock exchange. i don't like new york stock exchange because business is soft. facebook's okay, don't like it. new york stock exchange, stay away. yes, sir. >> my name's nick from california. just want to get your thoughts on kodiak oil and gas. >> oh, geez. let me just say i think oil's going to $85 in this country. $100 in brent in london. that makes kodiak a spec. that said, it is a very inexpensive stock. >> buy buy buy. >> if oil bounces it will bounce, too. yes, sir. >> anthony valley from camp lejeune. i had a quick question about tvigs, an etn that trades based off the s&p 500 index. i'm seeing a lot of volatility
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in the last eight, nine days. and it seems like a good buy. i just want your sentiment and your thoughts. >> i don't like to trade that stuff. i don't like to trade it because it's emotional and i have no edge. and when it's emotional and i have no edge i don't take a position. yes, sir. >> hi, jim. i'm just wondering, how do you think companies like gamestop will fare if game producers privatize video games? >> i think gamestop's in a very difficult position. it reminds me of borders. >> sell, sell, sell! >> don't want to touch it. don't care whether microsoft -- just don't want to touch it. yes, sir. >> how are you doing, jim? my name is semyon binder, new york. while my wife was employed with citigroup we acquired a large number of shares of citibank. i know citibank took a terrible beating. do you see any upside, long-term upside for the stock? >> long-term upside, yes, because i genuinely believe that the world's economy will come back.
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the problem is it doesn't have dividend protection and it's very hard to understand what they do. after what happened with jpmorgan, i am not going to recommend any international bank play. let's take one more. yes, sir. >> hi, jim. nathan from georgia. i was wondering what you think about electronic arts. >> i think electronic arts is cheap. but you know what? it's been cheap for some time. they have great brands. i think the company's worth more broken up. certainly worth more to an acquirer. that's what microsoft should buy. i think that would be terrific for them. and, that ladies and gentlemen, is the conclusion of the "lightning round"! >> hi, i'm lieutenant colonel john peterson, originally from setauka, new york, serving here in kabul with u.s. forces afghanistan. i'd like to say hello to my beautiful wife jennifer and my two spectacular daughters charlotte and elizabeth. on december 21st polar shifts will reverse the earth's gravitational pull and hurtle us all into space.
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i like to go bargain hunting as much as the next guy. in fact, i'm a real cheapskate. so i probably like it even more than the next guy. but when you go looking for cheap stocks, you've got to be
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careful about what you buy. in a market like this one that's recently been hammered, the s&p down, 7% off its highs for the year, there are tons of stocks that have come down dramatically in price. some of these stocks represent terrific pieces of merchandise that have simply been put on sale, like pvh, the apparel company we heard from last night. it had been put through the meat grinder because it gets a decent chunk of its sales from europe. in last week's game plan i told you to use deep in the money calls, cut off your down side. the strategy would have paid off big-time given pvh's $5 or 6.5% rally today in the wake of an excellent quarter. ♪ hallelujah >> but not every piece of merchandise has been marked down and is a pvh in waiting. there are other stocks that have sold off for very different reasons. because they deserve to go lower. these stocks are dangerous. they lure you in with apparently low valuations that seem cheap and then lose you boatloads of cash because they aren't really cheap.
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they're what we call value traps. that have a long way to fall before they can hit the bottom. you have to resist the temptation to buy something just because it's already had a gigantic pullback. that's why for tonight's sell block -- >> sell sell sell! >> -- i'm going to give you a list of potential value traps that you need to stay away from so you can avoid being dragged to your financial doom by these stock sirens. and i got a second list of companies that have stumbled which you have to avoid for at least a quarter while we see if they can get their acts together. what allegedly cheap stocks should you avoid at all costs? first there's best buy. >> the house of pain. which is now trading at five times next year's earnings. 5% growth rate. the stock's come down 13% in the last month. an analyst at socgen upgraded it in april for its cash flows, giant buyback. then jpmorgan recently said they see potential in the second half of the year. me? i say forget about it. best buy is a broken business model.
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it's become best browse. a place where people go to check out electronics in person before they make the purchases on amazon, tax-free. and that's not going to change anytime soon. yet despite the fact that best buy's future is in serious jeopardy, there are only two analysts who say it's a sell. 21 have a hold. three have a buy. the incorrectly bullish analysts want to focus on best buy's cash flows but with retail the key metric to follow is same-store sales. and in the latest quarter best buy's same-store sales declined by 5.3% and that is a hideous number. much worse than expected. now, management here has talked about how they will be saved aggressively moving into mobile but we know the super low margin cell phone business isn't a panacea. radio shack has been saying that exact same thing for years and their stock has been obliterated despite having a much higher yield than best buy. in my view it's not best buy, it's worst buy. and i think you should use any
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strength, not to buy it but to sell it. how about first solar? i've been telling to you stay away from this one ever since it was trading at $138 back in september 2010. now it's at 14 and change. know what? still don't want you to buy it. the entire solar power space is in horrible shape since it depends on government subsidies and governments around the world are tightening their belts, especially in europe, which have been a big booster of solar. last week the department of commerce imposed anti-dumping tariffs, 31%, on chinese-made solar cells, and cantor fitzgerald came out with a note saying it was positive for first solar. that's not a reason to own the stock. sure, first solar looks like it's selling for just 3.5 times next year's earnings. but the company's now losing money. its most recent quarter was a hideous miss, and i believe the earnings estimates could still be chopped lower, which makes the seemingly cheap multiple pretty much meaningless. first solar's still a sell. the next time some analyst has a comeback it's just a couple of quarters away. then there's the whole second
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tier of false bargains. companies that have stumbled so badly you that absolutely cannot own them for at least one quarter. these stocks are in the penalty box. and you need to wait to see if the problems are going to be resolved or if they're longer-term troubles that won't go away. and that is often the case. who's in the penalty box? how about this one? mako surgical. the fast-growing maker of surgical robots that reported a surprising miss earlier this month and practically got cut in half. piper jaffray says it's a buy. i say wait to see the quarter because mako may stumble again. unfortunately, deckers has to spend some time in the penalty box, at least another quarter, to see if uggs can come back. deckers is now ugh, not uggs. same goes for jcpenney, which is in the penalty box until new ceo ron johnson shows he understands how to execute a real turnaround. another wait until see quarter, fossil. the accessories stock that got slammed for its europe-induced slowdown last quarter. everyone seems to want to upgrade and be in that one.
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no, no, no. bottom line, not every stock that looks cheap is actually a bargain. if that stock belongs to a broken company like best buy or first solar, i want you to stay the heck away no matter what. and if it belongs to a company that stumbled like mako surgical or jcpenney or deckers or fossil you need to wait a full quarter to show the company's back on track before you can ever consider owning it. "mad money's" back after the break. we all know there's nothing more important than family. >> on june 15th we're celebrating our fifth annual edition of "mad money -- it's a family affair." >> once a year only, check it out. >> want to join cramer in studio for the special event? >> we're having a bit of a brotherly dispute. >> the doctor's in the house. >> head to madmoney.cnbc.com to sign up for free tickets. >> the family that invests together stays together. [ male announcer ] when a major hospital
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wanted to provide better employee benefits while balancing the company's bottom line, their very first word was... [ to the tune of "lullaby and good night" ] ♪ af-lac ♪ aflac [ male announcer ] find out more at... [ duck ] aflac! [ male announcer ] ...forbusiness.com. [ yawning sound ]
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we've got a special treat tonight. my colleague david faber's also with me at "squawk on the
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street," has got a show tonight that is must-see tv. it's called "j. crew and the man who dressed america." it airs tonight at 10:00 p.m. and 1:00 a.m. on cnbc, and i'm incredibly excited about this because it is about a guy who is one of my heroes. it's about mickey drexler. david, welcome to "mad money." >> thanks, jim, so much for having me. of course you know drexler well. >> yes, i do. i'm thrilled to know him. and that's what i want to start with. why do we know drexler? we don't know any other fashion guy. why is this guy famous? why does he matter? >> you know, he is famous. certainly in a smaller world. and perhaps after tonight in a bigger world. but he matters because i think in many ways he is the greatest merchant of his generation. you talk about j. crew. he took it from really what was a very sleepy kind of a catalog company to what is a powerhouse now. and of course the gap. that's the one he's best known for. joined it when it had $400 million in revenues, took it to $14 billion. and really in many ways is the guy who said you can wear jeans and you can wear a blazer and you're going it look good and
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that kind of became a uniform in america. >> remarkable. one of the things i know about mickey is whenever i see him he always asks me when was i last at j. crew and what did i buy and most importantly did i like it? the guy's a customer guy. >> the customer's always right. and he's constantly asking questions and looking for feedback. in fact, we got a bit of the show tonight. you can take a look. >> in most organizations people don't have a vehicle or a channel to tell you what has to be better, which is why i spend time doing that. there also is a tone to everyone in the company to listen to the customer. >> drexler believes that emphasis on personalized attention helps the company stay competitive. it's also why in an effort to lure male shoppers he's created stand-alone men's stores. >> you think most guys want to shop in their own environment, and to walk through a woman's department always is just not a men's thing. there's a market out there, and you've got to read the market. >> not a lot of people have reached the stature of mickey drexler.
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but he's also famous for being fired. does he talk about it? >> you know, we do. we do talk about it. i was very happy with how open was about -- you know, you don't usually get the inner world of a ceo. and mickey was willing to share a bit. willing to share about his childhood in the bronx, growing up an only child. willing to share about why he owns seven homes and willing to share about what it was like to be fired. by the way, steve jobs is the one who gave him the news because steve jobs was a board member of gap. mr. drexler's been on the apple board for over ten years. >> one of the few people that jobs actually took countenance of, right? >> in many ways drexler considers jobs to have been one of the great merchants of all time and i think it was mutual. >> you go all the way. here we have an italian shirt. you went to italy with mickey, too. right? >> we did. listen, it's $135. it's not cheap. and what drexler would tell you if he were here right now, but feel this. the quality -- nobody does more shopping than you. >> i do like to shop.
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>> we went to the mill where they make the fabric for this. now, it's not made in italy. but the fabric comes from italy. and they moved their price points up but they say hey, you can't get this kind of quality at this price level. we'll see if it's a strategy that works. >> i can't wait to see it. you know i can't. i know mickey's going to call me at 11:00 and say what did you think, jim? it's at 10:00 tonight and 1:00 a.m. on cnbc. david faber with "j. crew and the man who dressed america." you've got to watch it. stay with cramer. stay with cnbc. stay with faber. thank you, david.
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