Jim Cramer's Best Blogs

NEW YORK ( TheStreet) -- Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:
  • why the bears are wrong on Radian; and
  • why it makes no sense to rotate out of quality stocks into cheaper names in the same sectors.

Click here for information on RealMoney, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.

Radian Has Room to Run

Posted at 3:08 p.m. EDT on Friday, March 15

Not up enough. That's how I feel about Radian ( RDN) after I spoke to CEO S.A. Ibrahim last night on "Mad Money." This mortgage insurer has had a fabulous run, up recently from $2, but I don't think it is done.

Here's the deal right now. Radian is the No. 1 mortgage insurer in the country. It's biggest competitor isn't a company, it's the Federal Housing Administration, which is under a mandate to get out the business.

The issue had been that there's a ton of old business for which Radian is under-reserved. That was the rap on them from Barron's, which called the company a house of cards.

I think that the new, good business, which is coming fast and furious, will offset the old, poorly underwritten business much sooner than most expect.

More importantly, the company's not under-reserved at all. The reason I think you should buy this stock now is that I bet the company is about to settle a ton of delinquencies that are three years and older, the bad claims. There are about 20,000 loans that are in dispute and they are mostly underwritten by the now-defrocked Countrywide. You could argue that these loans were totally questionable -- some would charge fraudulent -- from day one. Any settlement for these loans may come in at a very low number, maybe at $10,000 a loan, a much lower level than the $30,000 for which they are reserved.

That's important for two reasons:
  1. The bears think that the $30,000 reserve is way too low.
  2. That would allow it to increase its statutory capital. Don't forget that this company just sold 34 million shares for $8 to shore up its balance sheet.

What makes me optimistic that the bears will be wrong and something like $10,000 per claim may be a realistic settlement? Recently, competitor MGIC ( MTG) just settled almost 9,000 delinquent loans for $5,000 a claim vs. the $70,000 per claim that Countrywide was asserting. Although Ibrahim could not comment on that possibility, I think it is a very reasonable bet that it could happen and that the remaining bears in the name will be forced to cover.

Radian is hugely correlated with new housing. If you believe, as I do, that housing starts could go not to the 1 million predicted by the bulls for 2013 but to the 1.2 million that I think is doable, Radian would be a buy no matter what.

You add in this catalyst and I think you have something very big. Certainly bigger than the $10 stock you have now.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.

It's Tough, but Stick With Quality

Posted at 7:49 a.m. EDT on Friday, March 15

We've got the replacements out there right now!

That's right, we are now picking stocks to replace perfectly good ones that we sold because we thought they were done rising, or because we feared that they would be vulnerable to the FBFH -- the Fed Bolt From Hell -- which is the term I am inaugurating to describe the moment when central bank chief Ben Bernanke goes from bond-buyer to bond-seller.

The FBFH is so widely anticipated that, this morning, I heard someone predict it would transpire by Memorial Day -- that you know the best stocks are being sold lest they be struck by Bernanke lightning.

For example, we trimmed some retailers from the Action Alerts PLUS portfolio in part because of the anticipated FBFH. But now what are you supposed to do? Are you supposed to replace Costco ( COST) with Big Lots ( BIG) because one's up and one's a laggard? Is this the chance to replace 52-week-high achiever Macy's ( M) with cellar-dweller J.C. Penney ( JCP), especially after my friend Scott Wapner at CNBC broke that story about the troubling aspects of Penney's balance sheet?

Do you replace, say, Cummins ( CMI) because it has moved up so much, with a stock like Emerson ( EMR), which has moved up less but isn't as good?

You sold Accenture ( ACN), thinking it has to come in because of Europe or the FBFH, and it doesn't. Do you now say something like this? "You know what? I will go buy Hewlett-Packard ( HPQ) because maybe its consulting business is coming back." Is that prudent?

You sell a high-quality semiconductor-equipment company, but tech has lagged and now it is coming on strong. Is it time to buy some Applied Materials ( AMAT), which isn't as good but at least hasn't moved as much? Do you really risk trading down in quality just because you need to replace a stock to gain exposure, particularly to what may turn out to be a less vulnerable area of the index?

The replacement factor is figuring huge here, because without a pullback, the cash is just killing managers. If you take your cash position up, say, to 10%, the stocks you do own have to do an awful lot of heavy lifting in order to stay pace with the S&P 500. Forget beating it; that's almost impossible.

So you sell, because of the FBFH, and it doesn't strike, and the market keeps going, and you have to put something back on. You can either admit defeat and go right back in at a higher level, or you trade down and risk the replacement factor, like the replacement referees at the NFL or the replacement players during the NFL players' strike.

For many portfolio managers, this is a new phenomenon. They know markets can't keep going up like this. But they also look at their run-ups, and they see the basis points growing between the red-hot averages and where they are, and they start taking risks and trading down.

It is only after they have traded down -- putting that sidelined capital to work, and thus finding themselves in inferior merchandise, or without any shorts -- that the market can have a serious correction, even if we do not see FBFH. In other words, at any short-term pop you tend to have less cash and more subpar names, simply because you layered on replacements to stay closer to the S&P.

I think the replacement army is out there in a lot of portfolios. Just stick with the quality, even if it means eating some crow. The really bad stuff that you might be cycling into will simply not hold up as well when we do see a pullback.

Yep, staying up with the averages now is almost impossible if you are a prudent manager. But don't compound it by replacing the good with imprudent choices of hitherto underperforming stocks. You can only imagine what happens to those when we do get the FBFH!

Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.

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