Skip to main content

tv   Mad Money  CNBC  March 20, 2013 6:00pm-7:00pm EDT

6:00 pm
over 400 stores nationwide. where queen mattresses start at just $699. and right now enjoy the lowest prices of the season on our most popular bed sets. sleep number. comfort individualized. some brokerage firms are. but way too many aren't. why? because selling their funds makes them more money. which makes you wonder -- isn't that a conflict? search "proprietary mutual funds." yikes! then go to e-trade. we've got over 8,000 mutual funds, and not one of them has our name on it. we're in the business of finding the right investments for you. e-trade. less for us. more for you. the fund's prospectus contains its investment objectives, risks, charges, expenses, and other important information and should be read and considered carefully before investing. for a current prospectus, visit etrade.cotualfunds.
6:01 pm
time for time for the final trade. mike? >> also had a great run, i'd take profits, might use some calls as a stock substitution. >> b.k. >> spoke about the meat space quite eloquently, i like the ag space, dba. >> i bet you do. also, $56, 40 times earnings, john rogers did great, i would sell it here, though. >> j.j.? >> the food space, starbucks
6:02 pm
likes like they can go up and test the 52-week high. >> gold, gld, a nice reversal a couple weeks ago, i think gold's in play again. >> see you tomorrow 9:00 a.m. for "squawk on the street." back here again at 5:00 for more "fast money." meantime, "mad money." morning "squawk on the street." meantime, "mad money" with jim cramer starts right now. i'm jim cramer. welcome to my world. >> you need to get in the game! you're going to go out of business, they're nuts! they know nothing. >> there's a bull market somewhere. "mad money," you can't afford to miss it. >> hey, i'm cramer. welcome to "mad money." welcome to the cramerica. people want to make friends, but i'm trying to save you some money. i'm trying to coach and teach you. so call me at 1-800-743-cnbc. i got two of them here. you've got the good economy.
6:03 pm
tremendous housing numbers, miraculous retail sales, terrific oil and gas markets. you have the bad economy. weakening commodity prices. slow commercial real estate business. really bad world commerce outlook. real soft information technology sales. you mix them all up together and you get the absolute perfect environment for the fed reserve to stay stock market friendly. that's what happened today. ben bernanke allowed the averages to power higher. the s&p rising today, nasdaq jumping 7.8%. it's not sleight of hand or alchemy at work here, despite what critics say when they constantly slam the fed. >> boo! >> bernanke is not playing a game of move the stock market higher by simply continuing to keep the competition in bonds incredibly weak. he's got a real good reason for doing what he's doing which is staying the course, keeping
6:04 pm
rates low. that reason? 1937. see, ben bernanke is a rigorous guy. he's a professor. and a genuine scholar of american financial history. it's what he does best. he knows that 1937 after three years of 12% economic growth that took unemployment from 25% down to 14%, the fed, the president, congress, declared victory over the great depression. ♪ hallelujah >> washington raised income taxes on the wealthy. >> boo! >> took the marginal rate to the 75% and instituted a 2% payroll tax for social security. their goal? they wanted to start trying to balance the budget because the treasury secretary were worried about the long term deficit? does that sound familiar? the fed tightened rates. doing what all the bears say bernanke should do, betting that inflation could rage and rage easily. if the fed stayed even by which
6:05 pm
is what his critics are saying he should do right now. but when we went down this road in 1937 it sent the economy into an amazing tail spin. causing a recession within a depression. it was an economic calamity that was totally avoidable and the people in power made different, smarter choices. especially the federal reserve. ben bernanke does not want history to repeat itself. he's not going down the path of what the fed did in 1937. he's not stupid. even though that's exactly the path unfortunately that the president and congress are taking. bernanke recognizes that obama and congress have repeated the errors of 1937 down to a tee. he can't let the fed's part in the drama be repeated. otherwise he'd go down as the fed chief that didn't get the economy going and put it back in a recession, a recession in a great depression. only world war ii ended the depression. and bernanke is not banking on being rescue by that. some people who don't know history are pressing him to do
6:06 pm
so. he's cognizant that we have seen the economy get hot and each time it's fizzled. he knows that things can be more fragile than hay seem. he set the goal of 6.5% nowhere near where we're right now and he'll wait until we get there until he decide toss tighten. don't you wish you go back to 1937 and you could undid what the fed did then? i know bernanke would love to go back there. bernanke knows that's no do over. he'll play it safe the way his predecessors should have played it 76 years ago. consider what we heard today. i was on the street signs with brian and mandy and an intelligent guy thought he cyprus would be the next lehman brothers. i don't think it will. i don't think bernanke thinks it will either but the pessimistic gentleman who made the analogy was not alone. the pending cyprus collapse
6:07 pm
would do a ton of damage and bernanke doesn't need to wager that it's wrong. we have nasty sales news from two of the most important companies, caterpillar and fedex. caterpillar reported that the machinery sales dropped. and that's a bone chiller. and fedex dropped about 7%. so that if you absolutely positively have to have something delivered overnight so now you choose united parcel. this is an extremely worrisome fact. and then after the bell, oracle, th the technology company got hammered. that's a ferocious sign. shipping, earth moving, these are gigantic technology. and of course, just three weeks ago we heard when the sequester kicks off the economy is going
6:08 pm
to down shift as hundreds of thousands of people are going to be laid off. i mean, how many times have we heard that? in two weeks the shutdowns begin. people were negative. come on, right? now the feds who were praying for a fed bull from hell to vindicate their lack of performance will say that bernanke is a phony. can you have the stock of williams sonoma rally and not think that things are enormous? and especially when the -- plus toll had some big numbers talking attack spring. the bears think that bernanke is playing a dangerous game here. and that he won't be able to unload all of those bonds he bought without moving interest rates dramatically higher. >> no! >> me, look, i genuinely do believe there are two economies here.
6:09 pm
i think the housing part of the recovery is terrific and the stocks that go with it including ends will cramer favorites whirlpool, fortune brands and new top dogs key bank, suntrust and radiant the mtgage insurer are doing fabulously with the last three being super strong buys that should be bought now. i know retail is going great guns and i know that the stocks of costco, target, bed bath and beyond kacan't be rallying if t consumer is not spending, but the manufacturing and export world is terrible. am i thinking the u.s. is getting better? the rest of the world is getting worse. almost by the day. i have had high hopes for china, but the prices, aluminum, iron and copper, it shows the people's republic is doing worse than it is. bernanke is thinking that can happen here any day. that's why caterpillar flashed so alarmingly. what if it means that engineering construction
6:10 pm
projects are being scrapped, something that would be dreadful coming at the same time that the military spending would be crimped and city and state funding will be cut back by is equester? history said that bernanke is right to wait. this is coming with a back drop of low inflation. that's no gun to the maestro's head. here's the bottom line. bernanke refused to refuse the fed bull from hell to slow it down with higher interest rates because there's no reason to do so. better just to stay the course with no repeat of 1937 and no inflation on the horizon. you should take your cue from the master and stay the course too. let's go to peter in new york. >> caller: how you doing? >> really good. >> caller: that's talks about the usa buying visa europe for $3 billion. if that's true, the visa usa has to sell stocks or borrow money to acquire something they don't need. sounds like a lose/lose to me.
6:11 pm
>> i disagree. they have plenty of liquidity. maybe they have to borrow money but the borrowing rates are so low. everything you said, sir, was said today and how did visa do, did it go down? no, it was 3.33 cents. so that news is down, the market liked it. this could be a tale of two economies. but bernanke gets it. the fed is staying stock market friendly. he's staying the course. i'm urging you to do the same. "mad money" will be right back. coming up -- breakfast of champions? the big g raised the outlook, but after warning of rising costs is it in danger of losing the lucky charm? cramer speaks to the ceo of general mills next. and later, the game rolls on. when companies dominate the competition, you can end up being the winner. that's why all week cramer is checking out stocks that have weeded out the weak in their industry.
6:12 pm
tonight, the rails are picking up speed. find out which one you may want to hop aboard. plus, game changer? sanchez energy made news today by staking its claim in the oil-rich section of texas. could this fresh face in the domestic energy space fuel growth for your future? all coming up on "mad money." don't miss a second of "mad money." follow @jim cramer on twitter. have a question? tweet cramer #mad tweets. send jim an e-mail to or give us a call at 1-800-743-cnbc. miss something? head to [ kitt ] you know what's impressive?
6:13 pm
a talking car. but i'll tell you what impresses me. a talking train. this ge locomotive can tell you exactly where it is, what it's carrying, while using less fuel. delivering whatever the world needs, when it needs it. ♪ after all, what's the point of talking if you don't have something important to say? ♪
6:14 pm
all stations come over to mithis is for real this time. step seven point two one two. verify and lock. command is locked. five seconds. three, two, one. standing by for capture. the most innovative software on the planet... dragon is captured. is connecting today's leading companies to places beyond it.
6:15 pm
the the consumer staple names have been on fire lately. it's not something that normally happens when the economy is doing pretty well. you rarely see it go up with the
6:16 pm
industrial stocks. yet that's happened. but i'm worried. the space i don't know if this rally can be maintained but that's not stopping the staples. i'm starting to feel like while i'm a long-term bull in the group maybe i'm too cautious. take general mills which reported a fabulous quarter. it rose about 3%. this was an impress receive quarter and especially given the run that it's already had. this total household name delivered a 7 cents over a 57-cent basis and the revenues rose year over year. even though the company only gets 25% of the sales from overseas they reported strength overseas. plus general mills raised the guidance for 2013, reaffirmed the strong guidance for high single digit earns groets in 2013 and this comes on top of a 15% dividend boost last week. a lot better than the treasury it's rallied about 18% since the beginning of the year. does the general have more room to run after this terrific quarter? or is it time to ring the
6:17 pm
register? let's check in with ken powell, the bankable chairman and ceo of general mills and find out where it's headed. mr. powell, welcome back to "mad money." >> jim, great to be here. >> ken, this is the most bullish i heard you. whether it's because of the cash flow or the money you're putting to buy back stock or the dividend boost, you are -- this is really the time i can hear any caveats. you have said that things are just blame getting better in your business. >> they are getting better and you know, you go back a year ago we had very high inflation. it was tough out there for us. we had to take a lot of price increases not only general mills but across the entire industry. the consumer was not buying it. we saw unit volume declines. it was tough out there, so a year later we have moderate inflation that we can manage very well with our productivity. the consumer is seeing stable prices throughout. the economy is a little bit better. so it's getting better.
6:18 pm
you know, we'd like it to get better faster, but we are starting to see some growth. and we think we've got a lot more in front of us. >> it sounds like also your spending has changed for advertising. you don't have to spend -- i know you want to take the share back in cereals. but you're back to a level where you can return a lot more money to the shareholders than i expected in this cycle. >> i suspect we'll be the biggest advertiser in the food space again. but we'll down a little bit. we chose this year to put a little more investment into value into making sure that we had the prices right on all of the products. you know, again, that's because the fact is that it's still tough out there. the consumer is very focused on value and we had a couple of products, yogurt for instance with we didn't think the value was right and on cereal where we didn't think it was right. we trimmed the sales a bit. and we have a high investment in advertising. frankly when we got our value
6:19 pm
right the rest of the marketing, awful the consumer promotion that works better already. so we made that adjustment this year and we think that that was the right thing to do. over time, you know, we're really about new product innovation, renovating core brands. we like to see our advertising grow in line with sales eververy year. we think that's really sort of the key to our model. >> well, i think there are some callouts t chinese market incredibly strong for you. progresso, this is a 1 to 2% category growing much faster. frozen food, other guys are having trouble, but looks like you're coming on strong in that business. >> well, i mean, as you said we had a great year in soup and helped along i would say but we're happy to take the help by a pretty cold winter and cold winters help those seasonal brands. but progresso had a good year. we have totino hot snacks doing very well.
6:20 pm
we have good shares in that sector. so, again, as you say, we did have really good performance across our portfolio, both in the u.s. and around the world. we had good yogurt growth in europe, good growth in china. our haagen-dazs ice cream brand is growing strong, particularly in china. the thing about general mills we have powerful brands in great categori categories. we don't promise that 100% will be growing, but we have a lot of ways to win and we're winning again this year. >> do you have to worry about cereal? you have so many things going for you. i know you have good innovations. january 2018, you have more cereals. conagra, sharp operator, kellogg after stumbling for a while really seems to come on strong. you still got quaker in there. i'm wondering this. does it matter -- i mean, should we stop thinking about is it like carbonated soda we don't want to take our eye off the
6:21 pm
ball? if you look at pepsi and coke, you never would have bought their stocks, they're winners. do we have to not worry about cereals as much as we used to? >> i mean, i always worry about them, jim. it's an important business for us, so we're focused there. what i would tell you, this was a category whereas we entered the year again our value and promotion wasn't exactly right. after five years of share growth, and our cereal reins on kellogg's after five years of share growth, we were a little uncompetitive on merchandising and we lost some share. that's a category over the last couple quarters we got them back in line. we're still down a little bit, but seeing the shares improve. so we've got that value right. and we're seeing base lines improve. we have also got some products that we want to renovate. we think we can strengthen our fiber one offering, so we'll work on that. we just put new advertising on the air on our core yellow box
6:22 pm
traditional cheerios and we are seeing base lines respond to that. so, you know, usually for us when we're seeing shares decline it's a combination of value and some aspect of marketing execution. we are working on both of those right now and we're starting to see that division to respond. we have such a powerful portfolio of brands. we have got the largest brand in the category by far in cheerios. we have great kid brands. we can win and sometimes we have executional issues, but we'll fix those and we'll get that cereal business going the way we want it to. >> i wanted to hear that. last question, ken. cash flow, so big. so share repurchase, $745 million, more than double a year ago. dividends plus 9% to shareholders. the stock has had a 19% move here. is it time to stop repurchasing and increase the dividend a little bit more? >> we're committed to doing both, jim. we have very stable, very strong cash flows. our investors are looking to get that back and so as you said, we just announced another dividend
6:23 pm
increase, we increased it 15% over the last five years. we have increased the dividends at 11% annually. we are committed to doing it that way. and as you say, in this environment that's very appealing to investors. but we're committed to that share buy back. we announced what we would do, you heard what we'd do this year. next year we'll do significantly better than that. with -- we don't see any big acquisitions on the horizon. share buy back and returning cash to the shareholders is a key part of our position and we're committed to doing that over time. >> you have the best social contract of all the companies with your shareholders. you have done remarkably well. thank you so much for coming on the show. congratulations on a fabulous quarter. >> thanks a lot, jim. >> thank you. that's ken powell, you see why people own the stocks? this is how you make real money in the market. you buy, you reinvest the
6:24 pm
dividends and ken powell makes the money for you. after the break, more money for you. when companies dominate the competition you can end up being the winner. that's why all week cramer is checking out stocks that have weeded out the weak. tonight, the rails are picking up speed. find out which ones to hop aboard. acceler-rental.
6:25 pm
at a hertz expressrent kiosk,
6:26 pm
you can rent a car without a reservation... and without a line. now that's a fast car. it's just another way you'll be traveling at the speed of hertz. try running four.ning a restaurant is hard, fortunately we've got ink. it gives us 5x the rewards on our internet, phone charges and cable, plus at office supply stores. rewards we put right back into our business. this is the only thing we've ever wanted to do and ink helps us do it. make your mark with ink from chas with natural gas prices soaring up to nearly $4 per thousand cubic feet, they're the
6:27 pm
highest level in 18 months. shouldn't the stocks be roaring? a lot of people are betting that utilities could start switching back to coal from natural gas. now, that might be terrible for the environment. but it's darn cheap. and if coal volume starts coming back because of the switch, well, that's the holy grail of the railroad business. because the truck don't too well. i bring this up, because we're playing a game. a new game here on "mad money." it's called oligopoly. no free parking, no passing go and sadly no community chest. but unlike monopoly where you make money, it's fake, right, in the investor game we can help you make real money. amazing when it comes to the railroads we have the situation where the truth is stranger than fiction. le of golly is where a small number control all the business.
6:28 pm
we know pennsylvania, redding, b & o. still baltimore and ohio by the way. the short line. you know what? in a bizarre coincidence, 90% of the rail freight in the united states belongs to just four companies. but this is not an industry where you have four companies generally competing against each other, even though you'll see some overlap. you have two in the east, csx and norfolk southern. and burlington and santa fe. the reality of the railroad is less competitive than on the monopoly board. if we were playing monopoly with the real rails they would be as expensive as the board walk. i know they're in the same region, but oftentimes they're going in different directions to different cities. there's not a lot of overlap and these guys are not coming in
6:29 pm
against those guys any time soon. all right, there's a fifth player you need to know about, called kansas city southern which we favor here on "mad money" because it controls most of the freight between here and new mexico. they have got the -- well, they have expanded into the balken. they have got the balken. the rails are going to trunk line. they also take the oil right down to the gulf of mexico. by the way, they take a lot of autos from mexico to the united states. this is where all of the auto manufacturing is for -- that's coming from audi, from bmw, nissan. that's where the factories. i have gone to see it myself. yeah, that's really true. over the last 30 odd years the rails have become what i can only call a slap happy oligopoly. this is an industry where it actually makes sense to have only a handful of operators, because if you're going to compete you need to build out your own track. it's nuts to think we'll have lots of different railroads
6:30 pm
running parallel to one another. whatever happened to pennsylvania railway to redding? it was competitive. we don't like that. ever since the railroads were deregulated in 1970s we had seven different class one. by 1997 we had just nine class one railroads. and in this consolidation allows them to cut locomotive stocks by 30% over the period. shrinking their network size by 40%, reducing the work forces by an astounding 60%. you know what? doesn't take a lot of people to run a train. in 1997 the rails were leaner and meaner than ever and ever since then the industry has only consolidated even further. in the east, csx and norfolk southern carved up the failing conrail. and then the santa fe rail, and union pacific swallowed up the southern pacific. the railroad industry resurrected itself from a money
6:31 pm
losing business with too many players into a much more concentrated business. so profitable that warren buffett decided to buy burlington northern in 2009. boy, buffett stole it, man. he knew the rails would come back and come back with a vengeance and he was right. what's the best play to play it? you can't own burlington anymore. given the exposure to the insurance and housing, two businesses that are roaring right now. and i still like the smaller kansas city southern, the best quarter of all the rails by the way. this one is already run up 40% since i got behind it just in december. december 5th of last year. all right. so how about the three remaining major players. right now, union pacific is up 11%, and the other guys are up more than 20%. the reason?
6:32 pm
union pacific has been held back by soft volumes in coal. as well as weakness in agriculture. that represents 17%. that's the largest exposure to the lousy ag market. but if you utility stops substituting that will gas for coal in the peak hour generation, given that natural gas has doubled, union pacific would be the catch-up play. also because this company is a western railroad it ships a great deal of coal to china. the global coal market has been weak lately. although not as weak as the domestic market. union pacific should benefit as the economy recovers. china, they're still allowed to put up plants. the epa makes it difficult to put up coal plants. and timber should give them a nice boost as we are on track to build at least 1 million homes this year. you know by listening to lennar's conference call, a million could be too low. now, union pacific, they have
6:33 pm
the big port connections. coal shipments account for 26% of the company's revenue. nsc is in the north and most of norfolk southern's business is doing very well. in the last two quarters a 14% drop in coal shippals has called them to decline by about 1%. in other words the horrible weakness in coal has been off setting in strength everywhere else, especially in intermodal freight which accounts for 50% of the norfolk southern. you can stick the intermodals on the train and unload them in the back of the truck. lately we started to see some evidence that they're starting to stem the bleeding. the coal traffic is down just 2.5% now. that's the smallest decline of any class one railroad in the country. as long as natural gas keeps rising, they can start to recover in the second half of the year. if you peer trying to play a natural gas indeuced recovery,
6:34 pm
norfolk southern is the way. it's gone up 20 points in a straight line. i would wait for a pull back. very well run railroad, but csx is getting hammered by the clients in coal. the volumes are down 17%. that's at csx the traffic is very strong. over the last year the company has started to ship oil. now they're running a whole train worth of crude a day. the plants will add two more oil terminals in 2014. the big fear remaining -- they should keep chugging. plus, they're putting through price increases on every other freight. there's nobody to play off of. if you don't believe in the coal come back, stick with kansas city southern. the smaller railroad that connects mexico with the united states. and all the bountiful funds that we talk about all the time on the show.
6:35 pm
plus -- 17% of the business. here's the bottom line. the railroads are a classic oligopoly and the best way to ship everything, including coal. coal could be making a comeback. making coal a better value proposition for the utilities. union pacific, csx, they all work in the environment where coal is no longer being hammered. kansas city southern it works no matter what. let's go to linda in kentucky. linda? >> caller: hi, my name is solinda. i'm from madisonville, kentucky. i'm a small town investor in g.e. and the ceo he might sell off -- spin off some of the g.e. capital business. what do you think? >> i read that. i thought -- >> caller: what do you see them doing this year? >> i think d.e. is going to go up substantially from here. i think g.e. represents tremendous value. us surprised that this -- i was
6:36 pm
surprised that this stock wasn't up much more on the news i read and you heard. i think it will be. tonight's oligopoly, four railroad companies that are moving ahead. they all work and when coal gets hot, they could really fly. kansas city southern doesn't matter about coal at all. i think you can still go higher. don't move. lightning round is next. ♪ ♪ [ male announcer ] help brazil reduce its overall reliance on foreign imports with the launch of the country's largest petrochemical operation. ♪ when emerson takes up the challenge, "it's never been done before" simply becomes consider it solved.
6:37 pm
emerson. ♪ ♪ ♪ i don't want any trouble. i don't want any trouble either. ♪ [ engine turns over ] you know you forgot to take your mask off, right? [ siren wailing in distance ] ♪ [ male announcer ] introducing the all-new beetle convertible.
6:38 pm
now every day is a top-down day.
6:39 pm
"lightning round" is sponsored by td ameritrade. it is time. time for the "lightning round." bye-bye bye. sell sell sell. you hear this sound and then it's over. are you ready? why don't we start with sam in ohio. sam? >> caller: hey, jim, big boo-yah to you. >> i like. allealler: my question, my stock is oks. it's been going down, insider buying. it's beat street estimates six out of the last 11 quarters. i it had a nice 2% pop today. but it's going down.
6:40 pm
>> sellers are wrong. i'm with you. buy buy buy. look at this. i don't know. oil has been going down. people are worried about it. i'm a buyer not a seller. clear. let's go to john in missouri. john? >> caller: hey, jim, your take on wind stream is it dying? >> we don't need wind stream. go buy some verizon. we don't need it in the portfolio. sell sell sell. go to silver back in missouri. silver back? >> caller: hey, jim. a big north missouri march madness boo-yah to you. >> best of luck, march madness boo-yah right back at you. bracketology. what's up? >> caller: hey, with all the brackets being selled out, what do you think of international paper? >> i think it's still a buy. buy 200 shares, buy a 100 and hope for a pull back. but they're doing a great job. will in connecticut. will? >> caller: when i say boo, you say yeah.
6:41 pm
boo -- >> yeah. >> caller: snb. i think this is a -- >> i like this stock! i think it's a -- buy buy buy. warm up to it. it keeps getting away. i like this. this sinovis it's good. kathy in pennsylvania. >> caller: this is kathy. i wanted to know about oracle. i bought it ten years ago, paid $33. what's your thoughts? >> okay, stephanie link the co-director of my travel trust with me. she's putting out a bulletin, and it's disappointing but the second half could be stronger. i'm going to be agreeing with stephanie, because i think she knows this company better than anybody. it's still a disappointment after the close. let's go to baron in massachusetts. >> caller: boo-yah, mr. cramer. long time, first time. >> excellent. >> caller: my stock is valley. i know you're a charitable trust holder. it's down about 17% this year. and actually, about 9 or 10%
6:42 pm
last two weeks. >> well what we do, we play it like this. buy some here and then it goes back to 19, 20. you know we sold some. we did some schnitzel, 1720, 1720, maybe it breaks the 16. it breaks the 16, i'm a buyer. dan in florida. dan? >> caller: boo-yah, jim. this is in regard to facebook. i'm in my 30 and i'm starting to worry -- >> no, come on, look, very difficult story to get your arms around, meaning that the valuation is not great. stephanie and i think this stock could go to 24 where we would pull the trigger for more. it goes to 21, 22 that would be a gift. i don't think think you'll get that gift. that is the conclusion of the "lightning round"! >> "lightning round" is sponsored by td ameritrade. coming up -- game changer? shale oil newcomer sanchez energy made news today by
6:43 pm
staking its claim in the oil rich eagle ford region of texas. could this fresh face fuel growth for your future? ♪ [ cows moo ] [ sizzling ] more rain... [ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim. from td ameritrade. otherworldly things. but there are some things i've never seen before. this ge jet engine can understand 5,000 data samples per second. which is good for business. because planes use less fuel, spend less time on the ground and more time in the air. suddenly, faraway places don't seem so...far away. ♪
6:44 pm
suddtoday is gonna be an don'important day for us. you ready? we wanna be our brother's keeper. what's number two we wanna do? bring it up to 90 decatherms. how bout ya, joe? let's go ahead and bring it online. attention on site, attention on site. now starting unit nine. some of the world's cleanest gas turbines are now powering some of america's biggest cities. siemens. answers.
6:45 pm
6:46 pm
if if you have been watching the show lately you know i have been pounding the table about the big oil companies in the midst of creating, simply by breaking itself up. well now there's another company that's benefitting in a huge way from the hess breakup. maybe even more than hess itself. i'm talking about sanchez energy. it's a $632 million oil and gas exploration production company. but mainly focused on the eagle ford shale in texas. it's been a volatile stock since 2011, at $22 a share. i closed down 17% on its very first day of trading. now it's a $19 and change stock. i have a feeling this company's luck just changed in a very big way. see, on monday night we found out that sanchez is buying 42,000 acres in the eagle ford from hess for just $265 million. come on, that's an incredibly cheap price, practically a fire
6:47 pm
sale. this deal instantly more than doubles sanchez's energy daily production and it adds 14.4 million barrels at a ridiculously low cost of $19.70 per barrel. plus, they have a joint venture with marathon oil that contains some of the best wells in eagle ford with the opportunity to drill many, many more. a year ago sanchez was producing just 500 barrels a day. these days they're producing 3,800 barrels a day. the company should be producing 8500 or 9500 barrels a day. this is a transformation deal. so let's talk to tony sanchez the president and ceo of sanchez energy to learn more about the company and the prospects in the wake of this transaction. mr. sanchez, welcome to "mad money." >> hi, jim, thank you. >> now, sir, frankly, we are big fans of the eagle ford. we know because we have had mark papal on from times. we believe it's like saudi
6:48 pm
arabia. so we were surprised, how were you able to get the assets which we think are premiere assets for kind of not that big amount from hess? >> well, jim, i think -- i think the price that we paid is a fair price. it's a price thats he was willing to transact at. the assets are in a good part of the trend. they're regionally right near are some of the production is, and as you mentioned earlier they're a transformational acquisition for the company. they bring forward and accelerate our growth by about a year and a half. >> now, will you have enough money to do the drilling after the money you have paid hess? >> yeah, jim, we're basically fully funded. as you might know, we did a preferred stock offering in c conjunction with the signing of this deal and that preferred stock offering is meant to pay for the acquisition and with the increase in our borrowing base and our current liquidity and
6:49 pm
cash flows we're fully funded for next two years. >> in your presentation from earlier this year it looked like you hedged out a lot right now, but you're really kind of open if oil goes up higher. is it your plan to hedge out this hess acquisition very quickly and make sure -- because you can lock in some great prices. >> oh, yeah, absolutely jim. i think prices are strong right now. in the eagle ford we can get a premium to wti. so we're fairly aggressive where our hedging. as we move to close this acquisition we'll be laying in some more hedges. currently we're 75% hedged prior to this acquisition for this year. about 25% hedged for next year and that -- both of those will be bumping up significantly as we move towards closing this acquisition. >> in your most recent conference call there was a discussion about natural gas. listen, we're flaring what we have. if natural gas were to go up substantially in price, would you find a way to get that to market or look, there's nothing
6:50 pm
you can do? >> no, we're actually selling it now. a great question. and the wells that we're bringing on now and that holds for this acquisition as well, the wells that we're bringing on now we put on sales from a gas perspective as quickly as possible. so about 80 to 90% of any given wells flow stream is natural gas. it's rich gas and we try to get that to sale as quickly as possible. so the only time we flare gas is when we're drilling the first wells in the certain area. then we move quickly to put the infrastructure in place and get the rest of that gas sold because it is incrementally more revenue for the company. >> well, let's talk about the infrastructure. is there a good -- did hess give you a good set-up? when learned when we were in the balken, we were shipping it by truck, which costs a fortune. they were trying to lay track, getting the train tracks finally up there. is this oil accessible to the
6:51 pm
market? >> fully accessible, jim. the acquisition itself has all of the infrastructure completely built out. they are piping out oil and they're piping out gas. and some of the wells that are not near the pipeline we truck out the oil. but those are short haul trucks. the rest of our assets we're in the process of laying oil pipelines. but they're short distances. less than ten miles so we are piping our oil out. one of the benefits to the eagle ford of being an operator in this basin is that as -- being in south texas it is a historically an oil producing basin. so a lot of that infrastructure is already in place. much of it has to be upgraded and expanded. but for the most part we don't face some of the same take away capacity issues. >> all right. one last question, tony. what i have seen over time is when you have the gigantic oil companies like hess, they'll have the parcels and even though they're terrific they're too small to move the needle for hess. could it be that eagle ford is
6:52 pm
an afterthought? hess was the lowest per enterprise value, and you were the highest net acre. is this -- they didn't even spend a lot of time thinking about it and you can drill dill drill? >> i think that's exactly what this is. i think hess in the balken has a million acres. it's a core position for them. and the eagle ford it's a smaller position, 43,000 acres for hess is not a core position so they made a corporate decision to get out of the basin. we were there at the right time. we had a few months to study the properties. we got comfortable with them. we like the area and we made our move. >> i think this is going to be huge. i followed the eagle ford very closely. i think you got a great deal. tony sanchez, thank you for coming on "mad money." >> thank you very much, jim. >> guys this is the opportunity. okay, this is the kind of thing i'm talking about. eagle ford, this could be a huge winner too. it is highly speculative.
6:53 pm
but that's tony sanchez, chairman and president of sanchez energy. stay with cramer. . [ female announcer ] what if the next big thing, isn't a thing at all? it's lots of things. all waking up. ♪ becoming part of the global phenomenon we call the internet of everything. ♪ trees will talk to networks will talk to scientists about climate change. cars will talk to road sensors will talk to stoplights about traffic efficiency.
6:54 pm
the ambulance will talk to patient records will talk to doctors about saving lives. it's going to be amazing. and exciting. and maybe, most remarkably, not that far away. the next big thing? we're going to wake the world up. ♪ and watch, with eyes wide, as it gets to work. ♪ cisco.
6:55 pm
balkans. balkans. we don't talk enough about execution around here. yet, in the era where sectors are all the rage and etfs are the preferred method of trading them, the whole notion of long term individual company management performance gets lost
6:56 pm
in the shuffle. ♪ hallelujah >> then you get a couple of days where the great works of certain ceos just shine through. today's one of those days. just think about how many terrific ceos we heard from or read about today. think of how hard they're working for you if you open their stocks. we know that ken powell's deliverying a level of performance at general mills that i find astounding. and it was buy one get one for cereal and he gives you good earnings reports and endless buy backs. everything you ask for in a ceo. how about stewart miller at lennar? not easy to follow his dad, leonard, but his late father has to be smiling about what he's done in the toughest housing market since the depression. the beautiful quarter shows he's building more homes, making here money per home and accumulating
6:57 pm
a land bank. he lit up the whole group. i reiterate, i think toll and palty will go higher. then laura albert, the remarkable ceo of williams and sonoma. she steered them on to perhaps the best growth path of anyone in the lux home goods industry. this includes pottery barn and they're firing on every one of them. yes, the expectations were so high and yet she just cut them. i think we're in the early earnings of williams sonoma and she's turned it into a high performance vehicle. then there's al walker. the quiet executive of anadarko pete who had to follow in the huge footsteps of the towering jim hackett and continues to that maintain the reputation as the best wildcatter on earth. this announcement of the new find in the gulf of mexico shows
6:58 pm
there's still plenty of oil left if you know where to look for it. finally, great watson, the ceo you have seen many times. the ceo behind the remarkable renaissance of wall green. he made an amazing deal that raises estimates for the company while cutting prices on generics for consumers. no wonder we have seen multiple upgrades since the announcement of the transaction. it's totally transformational and comes on the heels of a brilliant merger with alliance and boots. i questioned it at the time as being too expensive and now i admit i questioned incorrectly. sure you can keep buying etfs, getting into the sector stuff and say that that's all that matters, but the fabulous executives are delivering amazing performance and should be celebrated every time we think about the so-called big issues like cyprus, the fed, the budget deficit. hey, look, they have their eye on the ball. don't take your eye off these
6:59 pm
executives just because european woes or fed worries. you're liable to miss a big fat pitch that you can hit right into the upper deck. stick with cramer. try running four.ning a restaurant is hard, fortunately we've got ink. it gives us 5x the rewards on our internet, phone charges and cable, plus at office supply stores. rewards we put right back into our business. this is the only thing we've ever wanted to do and ink helps us do it.


info Stream Only

Uploaded by TV Archive on