Cramer's 'Mad Money' Recap: Preparing for the Selloff (Final)

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NEW YORK ( TheStreet) -- "If health care reforms pass this weekend, this market's going to catch a cold," Jim Cramer told the viewers of his "Mad Money" TV show Thursday.

He said investors need to immunize their portfolios with good, high-paying dividend stocks, if they expect to survive the coming selloff.

Cramer said there's now little doubt that 2011 will be the year of higher taxes on capital gains and dividends if Obama's legislation passes. That means at some point this year, investors will be selling stocks to lock in lower tax rates.

"Investors need to be worried," Cramer said, as he outlined a portfolio of five stocks that should afford some protection from what he believes could be a sizable decline.

First, Cramer recommended an oil stock like BP ( BP), a stock which he owns for his charitable trust, Action Alerts PLUS . BP yields 5.8%, said Cramer, and is cutting costs while still providing growth.

Cramer also recommended a recovery stock, like DuPont ( DD), which yields 4.4%, and an energy trust, like Kinder Morgan Energy Partners ( KMP), which yields 6.5%.

Cramer advised adding a utility like Verizon ( VZ), with its 6.3% dividend, and finally a drug company like Eli Lilly ( LLY), which yields 5.4%.

Cramer said this portfolio averages 5.7%, a nice protection against higher taxes. For those looking for even greater yield, Cramer said investors could swap DuPont for Altria ( MO), another Action Alerts Plus name, which would raise the portfolio's average yield to 6.2%.

Recent IPOs to Avoid

In the Thursday "Sell Block" segment, Cramer warned viewers about three recent IPOs in the shipping business that need to be avoided at all costs. He said these companies are not only bad, they're offensive to shareholders.

Cramer explain that after a tough time in the shipping business, many companies appear to be on the ropes. Since these companies are unable to raise capital on their own, it appears they're using the U.S. equity markets to raise much needed cash.

Consider Baltic Trading ( BALT), which recently went public at $14 a share. Cramer said this company not only doesn't have revenues or operating history, it doesn't even own any ships.

He said the company is nothing more than a subsidiary of Genco Shipping ( CNK), which still controls 50% of the new company. Cramer said Baltic Trading is worse than Baltic Avenue in Monopoly.

Likewise with Crude Carriers ( CRU), an oil tanker play that became public at $18 a share. Cramer said this is a newly formed company, incorporated in the Marshall Islands, which also doesn't own any ships. The company appears to be nothing more than a subsidiary of a larger company, whose sole purpose is to buy assets from its parent at inflated prices.

Crame also advised staying well clear of Alma Maritime, set to come public next week. All of these companies, he said, are nothing like quality shippers, like Diana Shipping ( DSX) and Nordic American Tanker ( NAT).

A Metamorphosis

In the "Off The Charts" segment, Cramer went head to head with colleague Dan Fitzpatrick over the chart of Qwest Communications ( Q), a stock whom Cramer said has gone from lottery ticket to legitimate investment.

According to Fitzpatrick, Qwest has undergone a long-term turnaround, falling from $10.45 a share in 2007, to $2.05 a share by November 2008. After that bottom, however, Fitzpatrick felt the supply/demand balance on the stock shifted, putting the bulls in charge.

Fitzpatrick noted the on balance volume, a measure of trading volume in relation to stock price, shows that volume has been rising as Qwest shares have been rising to the psychological $5 level where big money managers feel its OK to invest.

Turning to the fundamentals, Cramer said Qwest is up against easy comparisons, which makes posting stronger numbers seem easy. The company is also lowering costs, cutting its network expenses and reducing its debt. Making the deal even sweeter, Cramer said Qwest also pays a hefty 6.4% dividend that he feels is no longer in jeopardy of being cut.

Cramer said Qwest has gone through a metamorphosis, and is now no longer a gamble, but a legitimate stock with huge upside that money managers are now starting to take notice of.

Hong Kong Telco Play

In the "Executive Decision" segment, Cramer sat down with Niq Lai, CFO of City Telecom ( CTEL), a regional telco provider serving Hong Kong, and a company with a 4.2% dividend yield.

Lai said City Telecom currently has an end-to-end fiber optic network in Hong Kong that offers speeds of up to 100 megabits per second to its customers for the equivalent of $13 a month. The company also offers TV service for 150,000 customers and has applied to offer an advertising supported free TV service that could reach 1.6 million households.

When asked how the company can be so successful while U.S. carriers struggle, Lai said that the key is density. In Hong Kong, he said, there are 16,000 people per square mile, compared to just 80 in the U.S. Lai said there are also utility access laws in Hong Kong that grant carriers access to buildings far easier than in the U.S.

When asked about the company's dividend, Lai noted that company management owns 60% of City Telecom, which means they love dividends. He said that by 2011, the company will have completed its build-out, and will be able to harvest immense cash flows.

Cramer said City Telecom is a great company with a bright future.

Lightning Round

Cramer was bullish on Raytheon ( RTN), Nabi Biopharmaceuticals ( NABI), Apple ( AAPL), GlaxoSmithKline ( GSK), Flextronics ( FLEX), Allscripts-Misys ( MDRX), Coach ( COH), FLIR Systems ( FLIR) and ArcSight ( ARST).

He was bearish on Palm ( PALM).

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

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

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

For more of Cramer's insights during the Lightning Round, click here .
At the time of publication, Cramer was long BP, Altria, Apple.

Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for, Inc., and CNBC, and a director and co-founder of All opinions expressed by Mr. Cramer on "Mad Money" are his own and do not reflect the opinions of 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, 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 is related to the specific opinions expressed by him on "Mad Money."

None of the information contained in "Mad Money" constitutes a recommendation by Mr. Cramer, or CNBC that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. You must make your own independent decisions regarding any security, portfolio of securities, transaction, or investment strategy mentioned on the program. Mr. Cramer's past results are not necessarily indicative of future performance. Neither Mr. Cramer, nor, nor CNBC guarantees any specific outcome or profit, and you should be aware of the real risk of loss in following any strategy or investments discussed on the program. The strategy or investments discussed may fluctuate in price or value and you may get back less than you invested. Before acting on any information contained in the program, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.

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 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, 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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