Tuesday, August 23, 2005

Corn the New Oil/A Word on Friedman Billings

Boring businesses can be great stocks.

That was Cramer's thesis on Monday's Mad Money after giving two thumbs up to Archers McDaniels.

ADM, he said, should promulgate their ethanol development capacities and branch off into plastics.

The ethanol will come from corn, which Cramer unabashedly called "the new oil."

Ultimately, the wise investor will be hedging against the rise of oil vis-a-vis this renewable replacement.

He literally held up AMD management to follow through on his request.

Interesting to see what AMD will do at the open on Tuesday.

The stock closed up almost a dollar on Monday after an upgrade from Citigroup.

Trading at just 13X earnings, we see plenty of upside potential left for ADM.

On another note, Cramer mentioned Tyco (TYC), one of our old favorites.

TYC, like DOV is doing right now, made a series of seemingly unrelated acquisitions so as to propel growth and boost shareholder value.

Today, DOV is trying to break into the hearing aid business.

Hearing aids and manufacturing?

Yes, says Cramer.

Baby boomers will deafen while their grandkids pump up the volume on the portable music players.

In addition, Cramer resuscitated the SIRI/XMSR battle, charging Sirius Satellite has no chance until it sees palpable results from Howard Stern and falls back down a bit to a respectable multiple.

He likes XM strictly on valuation merit.

Finally, Cramer made a bullish call on FBR, a bank I used to own for clients.

In 2004 I was convinced FBR would be bought out by a larger bank looking to roll up a boutique IB.

I still do.

But Cramer keenly points out that FBR's mistake was breaking into the subprime lending business at the wrong time (Fed cycle).

Catablast! Media Group nevertheless thinks Friedman Billings Ramsey is cheap at these levels and still acquisiton prone (Buy recommendation with a $16-$18 price target).

Just look at the number of boutiques that have been swallowed up over the last 18 months -- I have the Soundview/Schwaab deal in mind, as well as the Alex.Brown one from many years back.

$2 Bilion market cap on the table for 7 X trailing 12 month earnings.

Something's got to happen.

There is still that massive dividend FBR pays out, too.

Problem is, FBR is stil roiling from a disastrous managment change after the stock went from $28 to $12.

Speaking of large banks, Cramer praised Wachovia (again) for its dividend; we're urging our readers to stay away from these type of banks.

We are Neutral on commerical & retail banks until Fed activity simmers down.

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