Cramer on BloggingStocks: Eventually, balance sheets will matter again

Posted Jul 16th 2008 9:10AM by Jim Cramer
Filed under: Microsoft (MSFT), Cisco Systems (CSCO), Intel (INTC), Market Matters, Caterpillar (CAT), Johnson and Johnson (JNJ), Black and Decker (BDK), Boeing Co (BA), Wachovia Corp (WB), Texas Instruments (TXN), Deere and Co (DE), United Technologies (UTX), Eaton Corp (ETN), Stocks to Buy, Cramer on BloggingStocks

TheStreet.com's Jim Cramer says when the dust settles, we'll notice the reduced equity here, and stocks will rise to reflect it.

Do corporate balance sheets matter? One of the things that you will see in the next few weeks is everyday industrial companies brimming with cash. You are going to see buybacks of huge proportions. Companies like Deere (NYSE: DE) (Cramer's Take) and Parker-Hannifin (NYSE: PH) (Cramer's Take) and Caterpillar (NYSE: CAT) (Cramer's Take) are swimming in cash. United Technologies (NYSE: UTX) (Cramer's Take), Emerson (NYSE: EMR) (Cramer's Take), huge. Every drug company, big. Almost every major tech company from Intel (NASDAQ: INTC) (Cramer's Take) and Microsoft (NASDAQ: MSFT) (Cramer's Take) to Cisco (NASDAQ: CSCO) (Cramer's Take) and Texas Instruments (NYSE: TXN) (Cramer's Take). Johnson & Johnson (NYSE: JNJ) (Cramer's Take), which just reported, has a monster amount of cash. (Eaton (NYSE: ETN) (Cramer's Take) will soon, after the smoke clears.)

I know it doesn't matter at all. Right now we are so stuck on the banking problems and on the companies bleeding from higher energy prices that nobody cares about all of this cash, which will be used to shrink equity. They won't care because the banks, brokers and homebuilders, and the hobbled companies that use oil, have to issue so much equity that you can't see the effect of the equity shrinkage. But it will eventually matter. It has to matter that Deere has taken out 10% of its stock in the last four years. It does matter that Black & Decker (NYSE: BDK) (Cramer's Take) has eliminated almost 20% of its equity. Emerson's taken out 5%, same with Boeing (NYSE: BA) (Cramer's Take). There's just a huge amount of equity being shrunk.

It is not too soon to begin thinking of the post-banking world, where much of the banks' equity is wiped out. To me it will go to these stocks after the money that's headed to oil and gas, a segment that I think will only be expanding as oil and gas gets added to the S&P to replace all of the banks that are coming out of it.

Don't focus on these amounts of cash yet. But when we blow through the banks, they will be worth looking at for certain.

Random musings: Opco's "sell" call on Wachovia (NYSE: WB) (Cramer's Take) yesterday seemed too glib. As Bob Steel, the new CEO, tries to figure out what to do, it isn't worth downgrading here. Steel's splitting WB into a good and bad bank, and it may actually restore some value rather quickly. I have hopes that it will work, but events are overcoming the situation so fast that it will be hard to split WB into a good and bad bank. This one's too big to fail, by the way, if you are caring. Nonperformers for this Pick-a-Pay portfolio bought from Golden West are at 3.8%. That's just catastrophic. But the actual total portfolio is still not bad at 1.18% of total, and it isn't until 2% that I really worry -- that's not included in the report. ... JNJ's quarter is magnificent. This is the group to own besides oil and gas, and the latter is in for some very rough days. ...

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RELATED LINKS:
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J&J Beats Profit Expectations
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Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer was long Deere and Black & Decker.

Tags: ba, balance sheet, BalanceSheet, bdk, cat, csco, de, emr, etn, featured, intc, jim cramer, JimCramer, jnj, msft, ph, txn, utx, wb

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Reader Comments (Page 1 of 1)

7-16-2008 @ 12:23PM

nickerson said...

Crammer needs to get into a new line of work. Carry the water for his CEO is making him brain dead. The guy is a true Obama fan you can tell the way he pushes stocks.

7-23-2008 @ 10:13AM

Ron R. said...

XM - SIRI MERGER .. observation & suggestion.

After 18 months, one of our DC elected representatives has decided XM-SIRI merger should include a rate freeze for six (6) years. How can this been seen as anything less than unconscionable? Surely this would/will be the kiss of death for both companies.

Let me suggest .. three (3) year freeze (already agreed upon); with the CPI dictating the rate of increase for each of years 4 thru 6.

Theoretically, "if" gov't does their job .. this will trickle down and benefit the satellite radio users.