TheStreet.com TV Recap: How to Play the Banks Now
When evaluating the banks and brokers and deciding which one to buy, market players need to think like hedge fund managers, Jim Cramer said on TheStreet.com TV's Wall St. Confidential
Web video Thursday. The way they think about the banks and brokers should be in terms of risk and reward.
Investors who believe things are not good with the economy and that the
Federal Reserve
will be slow to cut rates should consider owning
Wells Fargo
(WFC) - Get Report
. This bank, he said, needs the cut the least and can take advantage of the expanding margins that are left.
On the other hand, if market players think things are going to get better -- which is where Cramer said he is -- then they should buy
Wachovia
(WB) - Get Report
. As an investment, Wachovia is a good play, he said.
"It is the one that raised its dividend in the middle of August at the height of all this nonsense." Plus, the bank has a nice yield, just bought Golden West, has a big deposit base and should make its numbers, he said.
If people believe that a year from now rates are going to be 4% or 3.75%, then they have to go buy
Downey Financial
(DSL) - Get Report
or
FirstFed Financial
( FED) "because these are the companies that actually make a huge amount of money when the yield curve is no longer inverted, but sloping," Cramer said. "They have historically not been great lenders, and when you think the Fed is going to cut dramatically, you have to own the worst."
The reason he said he knows FED and DSL are the worst is because their default ratios are high, and more important, the shorts are all over them.
In the broker world, if investors feel things are really bad and are going to get better, they should own
Bear Stearns
( BSC), Cramer continued. If people think things are good or going to get good right away, they should get into
Goldman Sachs
(GS) - Get Report
, which he owns for his charitable trust,
Action Alerts PLUS.
"A guy who really wants to roll the dice and thinks the Fed is going to cut dramatically should buy
Washington Mutual
(WM) - Get Report
because they have the highest yield, but they also have the worst book of mortgage business," Cramer went on.
Before buying a stock, market players need to have a world view first, he said. Then they need to figure out what their time frame is and only then should they be picking stocks.
As for Cramer, he said he's in the middle camp. "I think DSL and FED are dice rolls," he said. "I don't need to roll the dice for Action Alerts PLUS; I just need to perform, and that would make it Wachovia. If you want to make the bet, it's Downey and FedFirst."
At the time of publication, Cramer was long Goldman Sachs.
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