to go and honor our friend meredith vieira. >> we'll tell you about that tomorrow. jimmy fallon will stop by. >> plus our guys tell all panel is back. and young the giant. 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 is a bull market somewhere. "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 some money. my job is not just to entertain you, but i'm trying to educate and teach. so call me at 1-800-743-cnbc. the individual investor has seen the enemy, and it isn't herself. it's endless financial engineering and the arrogance associated with it. time and again that's the real issue behind the woes we get so frequently. and while the averages were
perfectly copacetic today, dow surging 135 points, s&p gaining 1.6%, nasdaq rocking an amazing 2.46% -- >> hallelujah! >> i think that after the latest debacle that is the facebook ipo -- [ booing ] -- it's worth talking about why you keep getting hurt -- [ crying ] -- and why nobody seems to care. generally speaking, look. i'm a huge believer in innovation. i love it with companies like apple that has changed our lives so markedly with great devices. google revolutionized search. amazon changed shopping forever health care breakthroughs. all right. let's go back to the darn cotton gin. so many technological positives have led to the saving of countless lives and the betterment of mankind. yeah, innovation is great, but with one big exception. financial innovation. >> sell, sell, sell! [ crying ] >> the house of pain.
>> in fact, i argue that financial innovation and financial engineering are the banes of your financial existence. they have done more damage to your nest eggs as well as to the capital markets than anything else i've ever seen in my entire life. boy, it keeps get more innovative all the time. with that indictment in mind, let's address at facebook. the product is incredible. it represents the sum total of you. just like the old-fashioned hardcopy facebook which you were given when you were enrolled at harvard, a snippet of you with your picture, mark zuckerberg has created a virtual you that everyone you know can interact with. hey, i'm on the call of genius. but how about the facebook ipo? it was a disaster, just a total fiasco. i told you it was going to be bad, where tens of thousands of trades got lost and tens of millions of dollars were incinerated. why? because of the false sense of security that hardware and software gave to the humans who run the nasdaq. that smug confidence, the champagne, toasting, listing,
boasting now seems like a cruel joke on all those people who tried to buy facebook or didn't even know if they did or not. morgan stanley may have misjudged the demand for the deal. that's just a case of getting pricing wrong. that does happen a lot. not happy about it. but it's a frequent occurrence. the goal is to get a deal that is priced right for buyers and sellers, people. that's what you try to do. please both. and it can be done. the sellers ring the register to raise money, but not at such an exorbitant price it leaves nothing for the buyers. they might have actually done it right. i don't know. people are just fuming about the ipo process which is why it went down another $4.20 today. if it were priced in the 35 to 38 range, we could have had plenty of buyers and it would have worked out fine, if it weren't for the machines. the nasdaq trusted its computers to match up trades and it was simply overwhelmed. we can call it a glitch. call it anything we want. but the simple fact is financial innovation was allowed to
override common sense and the deal was blown by financial innovation. it's a black eye on the nasdaq. it's a bad one. and it will serve once again to drive individual investors from the markets because the individual investor is already at her wit's end about the market's failure to work right. nasdaq did you a tremendous disservice. financial innovation and financial engineering are also at the heart of the jpmorgan blowup that has now cost investors $24 billion. it makes jamie dimon look like a fool. the discovery of the trading loss was a mistake so egregious that the bank had to hold its buyback because of capital issues. how many people said they're in there buying it all back. no, they're not. what is the root cause of this trading blunder of epic proportions? financial engineering. jpmorgan's investment office put on a position that no one really understood, including the clowns who designed it, and certainly not the ceo who presided over it. it was what is called a synthetic, meaning something that was designed to mimic actual securities. it didn't work. layered onto that was another synthetic, designed to hedge
what was going wrong with the first piece of business. plus the firm's own private client research, the best there is, by the way, was urging investors to do the exact opposite of what these jokers were doing. you just couldn't tell, though, until it blew up. before financial engineering became in vogue, the company would have just bought and sold the actual securities that were understandable on the trading desk to put them on, and perhaps the ceo would have understood them pretty easily too. this is not the case. financial engineers never admit that they're doing anything wrong, never. they're innovators, for heaven's sake. but the lessons of this jpmorgan fiasco are threefold. one, it's too hard for even the best and brightest to understand, like what nearly brought down the financial system in 2008 and 2009. two, it required taking a monstrous amount of risk with the depositors and shareholders money. insanity. if you're a treasurer from another company would you ever higher these arrogant amateurs to hedge your position? i sure wouldn't. let's also tell the truth. if you want to argue to
washington that you have every right to be an idiot, at least be an idiot about loaning money, not about taking unknown and unfathomable financial risks with innovations that don't work. jamie dimon, take yourself out of the equation in washington. you be in the penalty box. maybe a ten-minute major. maybe a ten-year major. the investing public is no stranger to the hazards of financial engineering. the flash crash came from a belief that the machines can be tamed and can't overwhelm humans that they feed off. the government blessed all this etf financial engineering that impacts stocks so severely without much thought. they were buffaloed. most of these etfs when used in conjunction with massive amounts of debt can swamp anything that humans can do. the government already made its decision. it's not going to admit it was wrong. financial engineers are backed up by powerful lobbyists who are able to really cajole anyone, including themselves. the stock markets never recover from financial innovation that was the flash crash. you can point to any amount of
financial engineering, the root cause of much of the horrors we've seen in recent years. synthetic devices destroyed the housing market. in fact, the 1987 crash was caused by financial engineering too. a product that was known as portfolio insurance, which is supposed to save fund managers from huge losses, but ended up losing managers tons of money while it caused the very declines it was supposed to insure against. that '87 crash wouldn't have occurred. the housing debacle, sure, it was bad, and freddie and fannie played a role, but you couldn't unwind it because of these dead instruments that these engineers created. sadly, the individual investor isn't important enough or powerful enough to stop this nonsense. the investor is at the mercy of a government that doesn't understand and big banks that don't care. the government won't stop it because it's pro financial innovation because that's regarded as progressive. the banks?
these products carry a lot of hidden fees and make too much money when pushed on clients that no way congress and the s.e.c. can stop them. that's not the way our country works. they're here to stay, even as their own peddlers don't know how they really work. so here is the bottom line. we have a world war i situation on our hands where the innovation of machine guns confounded the generals. they kept thinking that wave after wave of soldiers could eventually stop them, right? of course the opposite happened and millions of people were mowed down by that dastardly innovation. now we have the same. the financial machine guns cut your net worth down just as devastatingly. the british and french couldn't stop the germans without beating them at war. after the facebook botching, i can't blame a soul for saying he is done being cannon fodder for financial engineering. because alas, that's exactly what you are. john in illinois, please. john? >> caller: boo-yah, jim. >> boo-yah, john. >> caller: hey, i want to let you know that your eagles placekicker, alex henry, is a hero around here.
i'm in nebraska, actually. >> well, we need another hero. >> caller: yeah. >> kind of the opposite of tina. >> caller: he is going to win some games for you down the road. >> we need that too. 8-8 don't cut it in this game. what's going on? >> i'm looking to open a small position on diamond foods, dmnd. they've got a new ceo, and they will restate past earnings in june. what do you think? >> i like to see those restated earnings. accounting irregularities mean to me you have to see a couple quarters before we really know what is going on. i really still don't realize what happened. we don't really know what went on at diamond foods. i'll tell you something, until i see a report that tells me what it's really worth, i'm not going to go down that food chain. it's too dangerous. financial engineering, it's like the machine gun in world war i. it can't be stopped, and it's aimed right at you. "mad money" will be right back. >> coming up, glass half full?
an invasion of european headlines has been sending our markets into a tailspin. so cramer is laying out a plan for defense. tonight, a company that could keep your portfolio protected from international pressures. and later, extreme makeover. jcpenney stumbled with its turnaround plans. but cramer is checking out another retailer that scored a perfect ten. could a recent pullback be your chance to get this one on clearance? stick around, shoppers. this one's just ahead. plus, refueled? after reaching decade lows just a month ago, natural gas has skyrocketed back up over 30%. but can those profits evaporate into thin air? cramer's drilling for answers with the ceo of atlas energy, all coming up on "mad money." miss out on some "mad money"? get your "mad money" text alert today.
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i know, easy to forget after a beautiful day, but we had hideous declines, hideous ones. so you absolutely, positively need to play it safe ultimately until the europeans do something, anything to resolve this crisis. yeah, it was decent action today, for once. but we reverted for a moment where this market is completely hostage to europe. you know we never like it when the european knuckleheads are in the driver's seat. but we're most grateful for a day like today when they aren't, even because it happened because the hope something good might happen over there, and nothing more than that. oh, yeah, and the chinese saying we're pro-growth. we can hope all we want the europeans will get it together, but hope should not be part of the equation. we are at the mercy of a european house divided against itself, and therefore it cannot stand. so you have to fall back on stocks that are immunized against the troubles of greece or spain or italy while they're not doing well, because everyone is so excited. we need stocks that won't be destroyed by the inevitable lack
of a serious solution, stocks that can't be harmed by the potential breakup of the eurozone, which every day looks more and more like the danger zone. in short, you need stocks that give you what i've been calling domestic security, ones that provide for a common stock defense and promote your general welfare, to get all preamble about it. on a bad day, we know europe can crush our entire market. yeah, we had a good day today. here is what happens on a typical day. people get scared. they sell or short s&p 500 futures. that in turn knocks down every single stock in the s&p regardless of whether or not it deserves to go lower. even the stocks of companies with no international exposure whatsoever, and therefore that's the opportunity. after that initial sell-off, some stocks spring back a lot harder and faster than others. and they tend to be the ones with pure domestic exposure, the ones that didn't do well today. but we got a set up for tomorrow or wednesday or thursday.
we can't worry about what happened today when the inevitable european toxin then returns, and it most certainly will. i need you to be ready, because that sell-off is your chance to buy great american companies with no real exposure to europe at a big discount. so what should be on your domestic security shopping list? well, what is the first thing on your actual supermarket shopping list? milk! sure, milk. so how about a company like dean foods, df for all you home gamers, the largest purveyor of milk in the country, and one that gets 97% of its sales from right in the glorious usa. dairy products don't exactly travel well like jpmorgan strategies, ha ha. and dean foods is all about dairy, which makes this stock about as domestically secure as it gets. what do spanish bond yields have to do with the price of dean's milk in peoria? nada.
what's the relationship between the greek bank runs and the local butter? maybe greek yogurt. this isn't greek yogurt, this is cottage cheese. that's my one point. my one problem with dean foods stock because it's been so great during this period is it's held up too well, at $14 and change after a gigantic upside surprise, the darn thing is barely a half point off its high. that's too high. stock has rallied 28% year to date. i'm setting you up for when the stock falls tomorrow if we have a good day again in the cyclicals. this stock has performed so well that it would be a mistake to buy dean foods here. you have to wait for this market to ding it, and you'll get a big pullback, and this is the one i want you to focus on. when dean foods hits 13 or less, then and only then would i start buying. if it doesn't hit 13, i disavow knowledge of the story, because i need you to have a good basis. why am i highlighting the stock today? when the pullback comes, it
might not last that long. it will be swift, and it may not even be all day. you got to prepare ahead of the bounce and you're ready to pounce. even though the price isn't right here, i still think dean foods is a terrific business. what is so exciting about milk? dean has transformed itself from an udder disaster of a company into the cream of the crop. udder disaster, u-d-d. a year and a half ago this company was struggling, hideous sky-high input costs, a cash-strapped consumer who was trading down, now in much better shape. dean's a direct dairy business where they make and distribute various dairy products accounts for 54% of the products and within the segment 78% comes from milk. dean is a major player in the milk game, 38% of the u.s. and it's a huge beneficiary of the lower costs that are going on right now.
the actual price dean pays is down pretty significantly and expected to go lower, possibly declining 20% year-over-year for the remainder of 2012. when the cost of milk comes down, that goes straight to dean's bottom line as dairy inputs account for nearly two-thirds of the company's costs in the dairy direct business. i don't see a lot of price cutting at the supermarket. plus, dean foods is a healthy eating kicker. the company's white wave all pro division, that's all pro, not alpo, represents 31% of profits and makes a sale of variety dairy and dairy-related products that are organic or better for you than milk with higher profit margins. you might have seen horizon. this is what i buy. i also buy this stuff, because have i the lactose intolerance thing going on. dean also makes soy milk. they're the company behind silk, for you soy fans. how about this? they make almond milk. they make coconut milk. yeah, we love this healthy eating theme on "mad money" as people are willing to pay up for products that they perceive as being better for them.
i want you to consider these guys the hain celestial of milk. and hain is one of the best stories out there. dean is cleaning up its debt load. there is a still a lot of room for improvement. just consider the latest quarter which dean reported a few weeks ago on may 9th. it delivered a massive earnings beat while its revenues came in higher than expected, rising 5.4% year-over-year thanks to higher volumes and higher prices. dean's operating margins increased by 120 basis points. their white wave business saw 12.4% sales growth. that's huge for a food company, especially in a boring space like milk. on top of all that, dean gave phenomenally bullish guidance for the next year and the ceo was interviewed by carl quintanilla. oh, man, i wanted to buy it. but the stock popped 11% that day. got to wait for it to come in. one last thing. if you know dean were to spin off this white wave all pro-business, it would be a fabulous breakup story. deutsche bank estimated the sum
of dean's parts could be worth $19 a share, 33% increase where it's trading right now. that's just the icing on the cake. where is that special -- oh, yeah, doesn't this sound lo-cal? all natural cinnamon sugar butter? i still say you have to wait for a pullback to 13. i'm price sensitive. these kind of stocks, the domestic securities stocks are going to be on sale for a couple days as people get all bullish again. the bottom line, in this environment you need stocks with domestic security, meaning stocks of companies like dean foods that do the vast majority of their business here in the good old usa. plus, dean benefits from the plummeting price of milk. this is exactly the kind of stock to keep on your shopping list for the next european-inspired pullback that rolls back all the great prices we saw today that could be any day now as the one consistent theme of this period is the ability of europe to destroy the stock market with only the domestic security stocks out there to save you.
after the break, i'll try to make you even more money. coming up, extreme makeover. jcpenney stumbled with its turnaround plans. but cramer is checking out another retailer that scored a perfect 10. could a recent pullback be your chance to get this one on clearance? stick around, shoppers. this one is just ahead. and later, facebook falls. the much hyped social stock took a nosedive today. but has it come down to a level where you should like it? cramer's comments are just ahead. all coming up on "mad money." ♪ so every year my family throws this great reunion in austin. but this year, i can only afford one trip and i've always wanted to learn how to surf. austin's great -- just not for surfing. so i checked out hotwire. and by booking with them, i saved enough to swing both trips. see, hotwire checks the competition's rates every day
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when it comes to running a business, fewer things are more difficult than successfully pulling off a turnaround in retail. it's like the 12 labors of hercules all rolled into one. got to clean up the augean stables of inventory and capture the interest of the three-headed hell hound known as the consumer. it ain't easy. so i got some sympathy for ron johnson, the freshly minted ceo of jcpenney, who seems to have blown it big-time after his first full quarter on the job. not enough sympathy to excuse his mistakes, though.
johnson took over effective november 1st, generating a tremendous amount of excitement and came out with very ambitious long-term targets, creating more hoopla and causing the stock to spike up to $43 where he promptly sold a boatload of his holdings. johnson has an incredible, impeccable resume. he was in charge of creating the apple stores and before that at target, so he came in with a ton of credibility. but like the golden goose, or whatever this is, he squandered it. jcpenney reported a truly horrific quarter before the close that caused the stock to lose 21% of its value the next day. this is a disaster of cyclops like proportions. jcpenney saw same store sales decline by 18%. margins were squeezed. dividend was discontinued. maybe it is too soon to tell, but it looks like the consumer is not embracing johnson's new pricing strategy that is integral to the turn he is trying to execute. rather than marking it up huge and marking it down again with
sales and promotions, johnson decided on an everyday low pricing plan where they cut prices but eliminate the promotions that shoppers love. judging by the 10% decline in traffic for the quarter, consumers aren't exactly thrilled with the new quarter or the advertising. they miss the coupons. worst of all on the conference call, johnson seemed to be living in a dream world. he was living the dream. he thought he was zuck! he was talking about everything being on track in the quarter, a blip on the road to success. there was no humility, only hubris. after listening to the call, i had some guys suggest the guy might be out of his mind. when johnson suggested saturday they'd be 30% through, between like the preakness and the fifth race of the preakness, i couldn't believe my ears. where the heck did these numbers come from? how do you measure something as subjective as a turn in exact percentage terms? this is not how to turn around a big department store chain with 1100 locations. that said, i'm not trying to be
a hater here. hi, hater. i want johnson to succeed at breathing new life into jcpenney. but it's clear the guy needs all the help he can get. so because i am a good samaritan of some note, i've got some constructive advice for ron johnson and the rest of jcpenney. if you want to pull off something as difficult as a retail turnaround, you need to learn from those who have already done it. right now i think johnson and jcpenney could learn -- stand to learn a lot, if i can stand, to learn a lot from pier 1 imports, the largest retailer of decorative home furnishings and gifts in north america. and it's one of the greatest comeback stories of our era and one that i bet johnson probably looks down upon, pier 1. don't feel that way. it might seem like jcpenney is in pretty dire straits right now, but the current troubles are nothing compared to the abyss that pier 1 managed to come back from. three years ago pier 1 was practically on the verge of bankruptcy. stock trading just 10 cents a share. you could buy like 50 of these with that.
you know what i mean? anyway, under the leadership of ceo alex smith, pier 1 turned around everything. stock is now at $16 and change. giving shareholders an incredible are you ready skee-daddy 15,930% gain from the bottom. so how did smith pull it off? unlike ron johnson at jcpenney, he didn't do it by making big, bold pronouncements about the distant future and then delivering sub-par results. that's a recipe for failure. he didn't do it by making sweeping top-down strategic changes like johnson's new pricing strategy. no. smith turned pier 1 around by focusing on brass tacks like offensive line and defensive line, and only then did he turn to all the exciting whizbang stuff. and what exactly did he do? first, smith realized if pier 1 was going to survive, it needed better looking stores and better merchandise. he tripled the number of buyers and planners in the organization so that pier 1 could stock products that were more appealing to consumers. the company ended up dramatically revamping its product assortment.
this is where i go before every holiday to make the stuff i do on the table. that's what i like to do. in short, smith gave customers the merchandise they wanted to buy. at the same time, smith changed the way pier 1 stores were laid out, much more open and pyramid-shaped fixtures that increased the visibility of the merchandise, make it much more approachable. these places are fun to shop at now. once the retail turned around, he brought back pier 1's website. now they have a thriving ecommerce business. he closed underperforming stores, put a stop to opening new ones. pier 1 at 1160 locations when he took over. he cut that back to 1046 as of last year. he dramatically reduced employees to 3500 in 2009, replacing them with cheaper part-time workers. as a result, pier 1 sales per-square-foot increased dramatically, rising to $184 this year. for the last two years this company posted same store sale increases in the high single or low double-digits. last year pier 1's operating income was up 49%.
and in april, the company initiated a 16 cent per share annual dividend. this company was selling for 10 cents. now it has a dividend more than that. it took some time, but now pier 1 is now one of the most successful retailers out there. this company has been underpromising and overdelivering for years, the exact opposite what jcpenney did going into the last quarter. when pier 1 came out with very ambitious long-term targets last month, people actually believed them. this is a business where actions speak a heck of a lot louder than words. with the stock three points off its high, i think there is still a lot of upside here. pier 1 remains a terrific buy ahead of the breakout internet initiatives. if ron johnson ever wants to hear me say the same thing about jcpenney, he should take a page from the pier 1 turnaround handbook. focus on what is in front of you. realize that merchandising is everything. give your customers the products they actually want. and most of all, understand that nobody is going to believe your plans for the future unless you can execute in the present. memo to ron johnson of jcpenney, turning around a big retailer is extremely difficult, but it's been done before. stop trying to reinvent the
wheel. start learning from other companies with successful comebacks like pier 1 imports. trust me, your shareholders will thank you. i want to go to kevin in new jersey, please. kevin? >> caller: boo-yah, jim. >> boo-yah, kevin. >> caller: i'm a long-time fan. i want to thank you for your great advice. i bought deckers in the 70s. when it got to the 52-week high, i sold half my positions. i bought it back at 80. i know they missed their earnings call. do you think the stock is done or should i stay in? >> i always have to have a reason to own something. that last quarter was so dismal, i cannot come up with a reason. there has to be some sort of catalyst, and i don't see one. so the answer is i am not going to tell you that i think deckers is worth holding. and if it bounces to 60, i am going to tell you it is indeed, yes, worth selling. how about bruce in washington, please. bruce? >> caller: hey, jim. this is bruce from soggy gig
harbor, washington. >> man, sweet! what's up? >> caller: well, about a month ago you had the ceo of clorox on your show. and it sounded positive. you were positive. >> yeah. >> caller: they recently missed their earnings for the quarter. i was wondering -- and they said it was because of the cost of raw materials. >> right. >> caller: the ceo did. are you still positive on the stock? >> extremely positive. one of the reasons why you can always tell what a really good stock is, if you take a look at clorox, it literally is $1.70 from where it was, and the market has gotten killed. i was not happy at the quarter either. i'm not going to excuse mr. knauss. that was not a good quarter. the raw costs are coming down. in the next six months he should be a beneficiary of a lot of the commodity collapse we see going on right now. so memo to ron johnson. look, at jcpenney, a retail turnaround, listen to me. it's not easily done, but we know it can be done.
i want you to pull up, mr. johnson, a papasan chair and take some pointers from the great people including alex smith at pier 1. stay with cramer. coming up, refuel? after reaching decade lows just a month ago, natural gas has skyrocketed back up over 30%. but can those profits evaporate into thin air? cramer is drilling for answers with the ceo of atlas energy. and later, facebook falls. the much-hyped social stock took a nosedive today. but has it come down the a level where you should like it? cramer's comments are just ahead. all coming up on "mad money." we all know there is 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?
>> we're having a brotherly dispute. >> head to madmoney.cnbc.com to sign up for free tickets. >> the family that invests together, stays together. ♪ oh. let's go. from the crack, off the backboard. [ laughs ] dad! [ laughs ] whoo! oh! you're up! oh! oh! so close! now where were we? ok, this one's good for two. score! [ male announcer ] share what you love with who you love. kellogg's frosted flakes. they're gr-r-eat! then lead a double life! with new blast flipstick from covergirl. creamy color on one end, shimmery color on the other. so you can flip your look from demure, to daring. new blast flipstick from covergirl. from demure, to daring. sfx: sounds of marching band and crowd cheering sfx: sounds of marching band and crowd cheering so, i'm walking down the street,
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>> and then the "lightning round" is over. are you ready, skee-daddy? let's go to mark in arizona. mark? >> caller: hi, jim. thanks for taking my call. this is mark from tucson, arizona. >> good to have you. >> caller: thanks for all the help you have given us through the years. >> thank you. >> caller: what is your take on total? >> i think the yield is safe at 6 and change. i need growth to own a stock. how about jack in florida. jack? >> caller: hello? >> you're up, jack. come on, sunshine. >> caller: okay. >> hit me. >> caller: yes. >> what is your stock? >> caller: my stock is opk health incorporated. >> that's phil frost. i'm a believer -- >> buy, buy, buy! >> i would pick some up. let's go to nate in wisconsin. nate? >> caller: boo-yah to you. >> what's going on? what's happening? >> caller: hey, i got a stock, it's fallen off a cliff after a phenomenal quarter and even today.
sturm ruger, symbol is rgr. >> i got to tell you, it's smith & wesson taking them to the cleaner. it had a production glitch, a lot of orders. i think you're right to pick some up here. let's go to john in florida. john? >> caller: all right, jim. i'm thinking about purchasing polycon. >> why, why? no! stay away. >> sell, sell, sell! sell, sell, sell! >> i can't imagine a worse set of circumstances. let's go to joe in new york. joe? >> caller: hi, jim. how are you? you're my counselor and guidance. >> sure. >> caller: on your suggestion, about two months ago i bought national-oilwell, nov, and the stock is down. do i sell? >> no. it's the best company in the industry. oil is not going to go down that much more. i was thinking oil could go to 90. it seems to have bounced there. national-oilwell is almost a monopoly in terms of making oil rigs. do not sell it.
chris in maryland? >> caller: annie's? >> oh, man. we liked it in the low 30s and it immediately jumped. it's back to 34, 35. i'm going to say don't buy because i like hain which is cheaper, hain celestial. and that, ladies and gentlemen, is the conclusion of the "lightning round"! >> the "lightning round" is sponsored by td ameritrade. [ jim koch ] what do fresh flowers, bourbon barrels, chocolate, chilies and something called kosmic mother funk all have in common? sam adams! last year we brewed more than one new beer every week. some we'd been experimenting with for years, others...we just found a cool ingredient. many we brewed just once to see how they would taste. why? -- because at sam adams we love beer. ♪
year ago. so how the heck is atlas energy, atls, a master limited partnership heavily tied to gas, up 43% year to date? just a couple of points off its high. so many of them are near the lows. have we discovered the one oil and gas company that can not only survive but actually thrive in this environment of lower gas prices? maybe. a bountiful 2.3% yield. atlas pipeline partners provides natural gas gathering and processing services in the southwest, midcontinent and appalachian basin regions. and atlas resource partners, the product of natural gas in utica, and barnett shales. it gets the majority from management partnerships. they aren't being hurt by the low price of natural gas because the resource subsidiary is well hedged for the next 12 months. it is using it to buy up acreage on the cheap from many cash-strapped competitors.
more than double the company's proven reserves. atlas seems to have the financial wherewithal to make even more of these purchases that could end up being quite valuable down the road when the u.s. will have export terminals for shipping natural gas, where prices are much higher. this is an intriguing story, that gives you yield and a well hedged base of natural gas assets. do not take it from me. let's talk to edward cohen, find out more about his company which is worth 71% year-over-year and see where he thinks it is headed. nice to see you. thank you. if you can, because i know a lot of people are going to say wait a second, is this atlas pipeline? walk us through the structure so they know what the different characteristics of the entities are so they're more comfortable with which one they might want to be in. >> well, i can complicate things more because you know we sold atlas energy. >> right. >> actually atlas america to
chevron. >> we talked about that positively, and it happened. >> and people are surprised to see that we're still around. the news of our demise has been much exaggerated. >> okay. >> we are back, and we are strong. atlas energy is the parent company. it's got two subsidiaries, atlas pipeline and the new company, atlas resources. >> okay. so let's say you're someone looking for a kind of a fixed income equivalent. you might want the pipeline company? >> yeah. either one of the two subsidiaries, that's where you should go. >> now the chevron money, you're putting it to work. but some of it was distributed. i'm trying to figure out where the chevron money went. it's all gone. >> the chevron money all went to our shareholders. >> you gave that to everybody? >> yeah. and what we are trying to do, i think i told you this the last time we were on, we are trying to rebuild our company to the same point it was and the old shareholders got in on the billions of dollars and the new shareholders will have something just as good. and we're almost there with new purchases. our reserves are almost as high as they were before. our pipeline company is almost as strong -- in fact, it's a little bit stronger than it was before.
so we're happy. >> okay. you sold at what looks to be a very good time to chevron. chevron is very happy with the assets. how are you able to start all over again, with what? how are you doing it? >> well, we kept the pipeline company. so we had some resources. and then we discovered a great secret. buy low, sell high. so we kept our financial resources intact. >> right. >> as prices were going down, down, down, as you probably saw two months ago, we jumped into the fray. we made three acquisitions already. prices have gone up a little bit. >> right. >> so we're stronger. >> but we see a lot of these companies, including chesapeake, they obviously are desperate to make sales. you have to be the only company out there that is acquiring right now. what are the other guys thinking? or did everyone screw up in this business? pretty much so, right? >> well, we do have some competition, the private equity firms. >> right. they have capital.
>> they're our competition. but, you know, large firms with many billions of dollars find it harder to make acquisitions down at that $200 million level. >> right. now talk about your hedging strategy, because, you know, a lot of people might say listen, no matter what they say, natural gas is never going up in our lifetime. mark papa of eog told us listen, we think it's headed back under $2. what would happen if that happened a year from now? >> the head strip is contango, going up. when we make an acquisition, we hedge to be sure 100% for one year. >> right. >> but almost as much for the second year. a little bit less for the third year. so we walk away with a profit. we don't want to be selfish. five years from now, if prices are high, we really will score. if prices are low, we probably already got our money back. >> that's incredible. now of these three, barnett, the pennsylvania assets that you have, and the mississippian, and utica.
these are all very big and you bought them very low. >> for things like the mississippi limestone, we are doing a joint venture. we are going to be drilling. we have world class capacity to drill. when it comes to the barnett, we buy existing production. >> okay, okay. >> so that's the difference. they're both good. >> we know from sandridge, which we've had on, that that mississippian is much bigger, not talked about enough in this country. >> well, let's keep it to ourselves. but no, it should be great. it's the reason why i really believe this country is going to become a big exporter of oil as well as natural gas. >> my last question is where do you think in terms of north american self-sufficiency out five years? >> i think five years from now north america will not only be sufficient, self-sufficient, but we'll be exporting both natural gas in the form of liquefied natural gas and petroleum. it's a new ball game. >> you're the most bullish we've had on, but you've also been the most right.
that is very encouraging because you did sell out a great price and you're buying back at the right price too. this is dr. ed cohen, president and ceo of atlas energy. these guys are money makers. take a look at the stock. take a look at the predecessor. and you'll see not everyone did what chesapeake did. some guys were actually prudent and responsible. stay with "mad money." thank you, sir. on my journey across america, i found new ways to tell people about saving money. this is bobby. say hello bobby. hello bobby. do you know you could save hundreds on car insurance over the phone, online or at your local geico office? tell us bobby, what would you do with all those savings? hire a better ventriloquist. your lips are moving. geico®. fifteen minutes could save you fifteen percent or more on car insurance. get two miracles in one product. new tone rehab 2-in-1 foundation. covers spots, lines... and wrinkles. and helps improve skin tone over time.
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user. the other has 900 million internet users and growing strong. one that can be sold and monetized to produce good growth and fabulous earnings, maybe 6 bucks and change in 2014, the other might be able to earn if it can use all the personal data at its fingertips to craft novel advertising solutions. to me, this dichotomy between the eaton cooper and the facebook speaks volumes about the stock market and the world right now. you see, i would rather own an underhyped metal bending american company that is dominant in commercial construction, truck manufacturing, and aerospace to an overhyped company that is a dominant social media play. now that might not always be the case because price matters. i know going into the deal this morning, for instance, where eaton's buying cooper for a considerable premium and a stock and cash deal, you couldn't give eaton or cooper away. all last week they traded down. they have been hammered mercilessly, despite reporting two of the best industrial quarters we've seen in 2012. both levered to worldwide growth.
[ booing ] >> sandy cutler, the ceo of eaton, someone who has been on "mad money" just about every quarter for years now, probably one of the best industrial managers on earth. he is a shrewd steward of capital. but in the end his company is hostage to the business cycle. i do think the 3.6% yield protects you from some of the vicissitudes of the market. in the end until today, eaton shares were for sale everywhere. now it's to buy. facebook does have phenomenal growth and earnings. it isn't a fly-by-night by any means, unlike the other social media plays, and the stock is definitely worth something. i am not telling you facebook is worth nothing. not at all. the problem is what is it exactly worth? what would you pay for the putative earnings power in 2015? the answer is something 15 to 16 times earnings, because as great as facebook is, i'm reluctant to give it more than a 40% premium to google or apple's multiples. even after today's big facebook decline and stunning advances by
google and apple, it's being valued well north of those two. no need for panic, because amazon, another potential facebook analog, which i like, sells at 22 times 2015 earnings estimates. and i'm sure when the smoke clears some of the growth guys will be buying facebook down here. that would put the stock at 44, close to where it opened. in other words, it looked like it was going to be amazon when it opened. now it's trading closer to apple and google. the key thing is to not to lose sight of the fact that the estimates being put together for eaton might value the stock at only eight times earnings as the $5 number seems reasonable for next year, 6 bucks for the year after. given that eaton is shooting for 20% earnings growth, it might be the cheapest industrial stock out there after this deal. it all comes down to growth versus value. if you are a growth manager you might think facebook is getting interesting and at $30 it's a plain old buy.
if you're a value manager you're salivating at what the cooper merger will mean for eaton. to me eaton is much cheaper than facebook, and that's what matters. it's a buy right now. facebook, i would like it to come down a little more before i think it's safe to own, something it seems to be doing from the very first moment of trading. stick with cramer. patient prone to episodes of manic behavior. degree of aggression grossly disproportionate to the circumstances and environment. all symptoms point to intermittent explosive disorder. >> higher! >> huh, might make a good middle linebacker. >> get out! >> this diagnosis by dr. dani from "necessary roughness," returns wednesday june 6th 10:00 on usa. four kids, it can just be too expensive. yeah, so to save money we just made our own. oh no! what could be worse than ninety-foot swells?! typhoon! first prize!
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