Cramer's 'Mad Money' Recap: The Banks Are Back (Final)

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NEW YORK ( TheStreet) -- "The second blastoff of the financial stocks is beginning now," an excited Jim Cramer told the viewers of his "Mad Money" TV show, as he outlined 10 reasons to buy the banks.

Cramer said the critics are still predicting a meltdown in the sector, but he said these pundits were wrong a year ago, and they'll be wrong again, as the financials begin a second ascent.

Here are the reasons Cramer gave for buying the banks.

1. The worst of the credit losses are now behind us, and nothing matters more to the banks than credit losses, as they can now begin to rebuild reserves.

2. Washington is becoming less of a factor, as it becomes more apparent that financial reforms are slowly dying.

3. Citigroup ( C) CEO Vikram Pandit gave fabulous testimony to Congress last week, calming everyone's fears.

4. Both Citigroup and Comerica ( COM) have proven that banks can find the capital they need.

5. Banks are now ready to raise their dividends, just as soon as the government allows.

6. Predictions of an implosion in commercial real estate are vastly overblown.

7. The Federal Deposit Insurance Corporation is not taking over a lot of banks anymore.

8. The financials have dramatically underperformed the markets over the last six months, attracting the eye of money managers looking for profits.

9. Strong retail sales numbers show that consumers are shopping, and that's good news for credit card-issuing banks.

10. Banks always rally as soon as unemployment peaks, and it appears that has happened.

For all these reasons, Cramer said stocks like JPMorgan Chase ( JPM), a stock which he owns for his charitable trust, Action Alerts PLUS, are a buy.

A Giant Breakup

Cramer said the pending breakup of energy giant McDermott ( MDR) has created an opportunity that's too juicy to ignore. He said after the company splits, there will be two ways to play energy, one that favors President Obama's agenda, and one that doesn't.

In the "pro" Obama camp will be a company to be named Babcock & Wilcox, which manufactures industrial power generation systems perfect for retrofitting old coal fired power plants.

Babcock will also have a nuclear arm that will be manufacturing steam generation units for nuclear facilities. And finally, the company will have exposure to biofuels, hitting a triple play in Obama's energy agenda. Babcock will also have a $4.6 billion backlog of business.

In the "anti" Obama camp will be a company named J. Ray McDermott, which will concentrate on off-shore drilling rigs, helping big oil companies around the globe drill more to replenish dwindling reserves. It would be moving against the Obama agenda, which does not favor increased drilling. J. Ray will have a $3.9 billion backlog when it comes public.

Cramer said as it stands now, he's not a buyer of McDermott, the combined company, as it has no earnings momentum. However, Cramer said the breakup should unlock $5 to $7 a share of value, which makes it too big to ignore.

After the split, Cramer said investors can choose which company to keep based on their personal politics.

Metallurgical Coal Demand

"Not all coal is created equal," Cramer told viewers. That's why he recommended Walter Energy ( WLT), the country's leading producer of metallurgical coal, used in the production of steel.

Cramer explained that thermal coal, the type used in power generation, is seeing demand fall, as utilities have begun to shift away from coal-fired plants in favor of natural gas and other cleaner sources. He said that in the U.S., the thermal coal market has already shrunk by over 30 million tons.

Metallurgical coal, however, is on fire, said Cramer, with demand coming squarely from China, which has recently gone from a net exporter to a net importer of coal. In 2008, China imported 7 million tons of metallurgical coal for steel production. In 2009, that number rose to 25 million tons. And so far in 2010, the Chinese have already placed orders for 7 million tons, on target for over 28 million by year's end.

Cramer said Walter is the natural choice for metallurgical coal, as 90% of its income is tied to the commodity. With the annual benchmark pricing season upon us, Cramer said Walter should benefit big, as 60% of its 2010 production is yet to priced.

Walter, with just $11 million in debt, has $165 million in cash on its books. Cramer said the stock is cheap, trading at just 9.1 times its earnings and should make out like a bandit as the demand for metallurgical coal continues to grow.

Am I Diversified?

Cramer spoke with with callers to see if their portfolios have what it takes. The first caller's portfolio included Panera Bread ( PNRA), Kirkland's ( KIRK), Apple ( AAPL), Symetra ( SYA) and Weatherford ( WFT).

Cramer said the portfolio is perfectly diversified.

The second caller's top holdings included Intermune ( ITMN), Hecla ( HL), Akamai ( AKAM), Toyota ( ¿) and Ford ( F).

Cramer identified two of a kind with Ford and Toyota, and recommended selling Toyota in favor of an industrial like Honeywell ( HON), a stock which he owns for his charitable trust, Action Alerts PLUS.

The third caller had Freeport McMoRan ( FCX), Mosaic ( MOS), Coca-Cola ( KO), Texas Instruments ( TXN) and Merck ( MRK) as their top five stocks.

Cramer said this portfolio was rocking.

The fourth caller's top stocks were JPMorgan Chase ( JPM), Caterpillar ( CAT), J. M. Smucker ( SJM), Dendreon ( DNDN) and Travellers Companies ( TRV).

Cramer also blessed this portfolio as diversified.

Lightning Round

Cramer was bullish on Electronic Arts ( ERTS), Incyte ( INCY), Cognizant Technology ( CTSH), Monro Muffler ( MNRO), Gastar Exploration ( GST), Corning ( GLW), Cree ( CREE), Netflix ( NFLX) and First Niagara Financial ( FNFG).

He was bearish on THQ ( THQI), Satyam Computers Services ( SAY), Tyson Foods ( TSN) and Radian Group ( RDN).

Closing Comments

Cramer told viewers that the secondary offering from EQT ( EQT) is an excellent buying opportunity and investors should get in on the deal.

-- Written by Scott Rutt in Washington D.C.

To watch replays of Cramer's video segments, visit the Mad Moneypage on CNBC .

Want more Cramer? Check out Jim's rules and commandments forinvesting from his latest book by clicking here.

For more of Cramer's insights during the Lightning Round, clickhere .

At the time of publication, Cramer was long JPMorgan Chase, Honeywell.

Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for TheStreet.com, Inc., and CNBC, and a director and co-founder of TheStreet.com. All opinions expressed by Mr. Cramer on "Mad Money" are his own and do not reflect the opinions of TheStreet.com or its affiliates, or CNBC, NBC UNIVERSAL or their parent company or affiliates. Mr. Cramer's opinions are based upon information he considers to be reliable, but neither TheStreet.com, nor CNBC, nor either of their affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Mr. Cramer's statements are based on his opinions at the time statements are made, and are subject to change without notice. No part of Mr. Cramer's compensation from CNBC or TheStreet.com is related to the specific opinions expressed by him on "Mad Money."

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Some of the stocks mentioned by Mr. Cramer on "Mad Money" are held in Mr. Cramer's Action Alerts PLUS Portfolio. When that is the case, appropriate disclosure is made on the program and in the "Mad Money" recap available on TheStreet.com. The Action Alerts PLUS Portfolio contains all of Mr. Cramer's personal investments in publicly-traded equity securities only, and does not include any mutual fund holdings or other institutionally managed assets, private equity investments, or his holdings in TheStreet.com, Inc. Since March 2005, the Action Alerts PLUS Portfolio has been held by a Trust, the realized profits from which have been pledged to charity. Mr. Cramer retains full investment discretion with respect to all securities contained in the Trust. Mr. Cramer is subject to certain trading restrictions, and must hold all securities in the Action Alerts PLUS Portfolio for at least one month, and is not permitted to buy or sell any security he has spoken about on television or on his radio program for five days following the broadcast.

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