Eye on Cramer: Thursday

By Rick Aristotle Munarriz
February 13, 2009 | Comments (8)

Recs

8

Disney Buys Marvel!

David Gardner called it. He’s up 1,334%! See what David’s recommending that you buy NEXT.

If I hear another "boo-yah," I'm going to go Van Gogh on myself.

I've been watching CNBC's Mad Money all week long to give Jim Cramer, financial theater's biggest celebrity, a chance. I'm also tuning in to make sure that investors have a second opinion before acting on his words.

Last night's show began with Jim Cramer waxing ominous about the market's near-term direction. He sees yesterday's late market rally as a reason to sell, arguing that the two pillars of bullish hope -- the passage of the stimulus package and the tech rally triggered by IBM's (NYSE: IBM) better-than-expected results last month -- are bogus.

Cramer doesn't think that the stimulus plan will shore up the housing and banking sectors, which we'll need to lead this country out of its deep economic funk. I agree. He also feels that the tech rally isn't exactly justified, and I partly agree there.

The market did make way too much out of IBM's report three weeks ago. The stock soared 12% that day, after posting improving profits despite a dip in revenue.

"IBM is a great proxy for the state of corporate spending," I wrote at the time. "That would make the top-line slip the only metric that matters, but good luck trying to tell IBM shareholders that." 

Oh, no! I'm starting to agree with Cramer. Boo-yah, buddy!

But our harmony was torn to shreds when Cramer panned Life Partners (Nasdaq: LPHI) for his "Sell Block" segment. He pulled up the company's chart, showing that the weakening stock was selling off on high volume, an indicator that institutional investors are bailing. He then turned to the fundamentals, spooked by the heavy short selling of the stock and legal obstacles of the niche itself.

I disagree with his bearish thesis. Life Partners occupies a gruesome niche, the viaticals business, which essentially buys up life insurance settlements of terminally ill patients at a discount. Dying policyholders get their money early, and Life Partners has the grim distinction of rooting for speedy deaths.

I'm appalled, too, but let's look at the company. Over the past three months, analysts have gone from expecting Life Partners to earn $2.43 a share to $2.84 a share next fiscal year. How many companies have seen their outlooks improve over the past few months? Life Partners should grow its earnings for its fiscal year that ends this month by 46%. Wall Street sees a 25% spike in profits over the next 12 months. Life Partners is now trading for just 10 times this year’s earnings estimate. My moral compass doesn't like the business, and I don't like the risks. But the value proposition here is too juicy to ignore.

Lightning round? Of course. As usual, Cramer keeps shooting down any banks that aren't the investment banking duo of Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS). This time, Bank of Montreal (NYSE: BMO) and Astoria Financial (NYSE: AF) got dissed when callers asked. Why are folks still calling in with banks?

Anyone care to wager on the over-under for bank stocks brought up in tonight's show? Yeah, I didn't think so.

Further entirely sane Foolishness:

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Longtime Fool contributor Rick Munarriz is a fan of Cramer, and even read his autobiography a few years ago. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool's disclosure policy does not have its own bobblehead doll.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 13, 2009, at 4:08 PM, sidinsd wrote:

    As I understand it, Life Partners just brokers the sale of life insurance settlements between the dying person and some investor willing to take the risk. If they were investing in these settlements themselves then I would be more inclined to agree with Rick that Cramer is off-base with this one. But, since they are just brokers, I am much more on Cramer's side on this one. Why? Well I believe it is a pretty compelling argument that with the downturn in the stock market in general, where is Life Partners going to find investors who are flush enough to want to take the risk as well as pay their pretty hefty commisssion?

  • Report this Comment On February 13, 2009, at 6:01 PM, jbarkatejr1 wrote:

    Life Partners also invest in policies themselves, as well as allowing high net worth individuals to invest in the policies.

    If you believe the investment in morbid or immoral, then you do not understand the investment. Insureds go to Life Partners asking them to buy their policies. If a company like Life Partners does not buy their policy, then chances are the insured will let the policy lapse. Don’t make the naive mistake that life insurance has something to do with someone living or dying. That’s health insurance. Life Insurance is just about money. Rather, who gets the money. When a policy lapses, the insurance company gets all the money-years and years of premiums without a payout. When Life Partners steps in, the insured and investors get some of the money too. I invest in life settlements and that investment have been unaffected by our financial crisis.

    Where is Life Partners finding investors? It’s the people, like me, that are tired of getting slammed by the stock market and are objective enough to see Life Settlements for what they are-a darn safe place to make money!

  • Report this Comment On February 13, 2009, at 7:45 PM, texam wrote:

    Life Partners has purchased their own product. Over $7 Million last year alone. $12 Million to date.

    They have changed their business model and reporters don't even take enough time to get it right. They specialize in Senior LIfe Settlements. Less than 1% are viaticals. They are helping folks out.

    Giving them an option. They will typically pay 2-4 times more than

    the cash surrender value. No one

    is complaining about all the money they are recieving. This company cares about it's customers and it's investors. If an honest reporter would fly to Waco and tour the entire operation and study the business model and ethics. They could reveal how great this company is.

  • Report this Comment On February 13, 2009, at 8:08 PM, THEECLECTIC wrote:

    I disagree with the premise that Life Partners business of buying life insurance policies is a gruesome or appalling business.Death is an imminent result of life.Life Insurance Companies benefit on death by selling Annuity Contracts and most pension plans become annuitized.Undertakers,morticians,funeral homes and cemetaries are all businesses that make money on death.are they rooting for it?The misconception of the business is that they only buy policies of the terminally ill.They do check the health of the insured and use actuarial assumptions.sometimes medical science fools them.There is a big potential market with the baby boomers that had their assets decline in their 401k and home.They may want cash now more than a death benefit.There are plenty of investors that want an alternative investment to stocks,bonds,real estate and comodities.THE BIG QUESTION IS will the regulators secumb to the pressure from the insurance industry that priced the cost for the mortality on a potential lapse.They will push for a cap on the potential profits a buyer or broker can make.

  • Report this Comment On February 14, 2009, at 12:20 AM, KimTech wrote:

    I totally agree Cramer is hustling for basher money! Actually I even challenge Cramer! I challenge he is only a copy cat looking for a show.

    Even churches in the name of Jesus Christ make money off of death!

    What is a life insurance policy anyhow? Who sells them in the first place? Just how do life insurance companies make their money? How many people have been ripped off by term life policies. People carry term life policies for a few years and drop them. That is what those bastard life term insurance companies are betting on in the first place.

    I do not like the letter Pardo sent out to investors asking them not to loan their shares, then he turns around and sells numerous shares from his family trust. That part of Pardo is scummy without a doubt. I cannot defend Pardo from being a low life sniveling scumbag for doing that to loyal shareholders. I do not even care if he claims it is general business for his trust. He pleads with longs to hold, all the while he is selling as part of his family trust. TRUST? Define TRUST Pardo?

    Life insurance policies are investments people make. The policies can name anyone or company a beneficary. So LPHI is an expert on the business and deals in top quality. They broker an investor with a policyholder.

    All in all as money making also includes making and swallowing snake oil. I do not believe that LPHI business is going to get worse, if anything it should get better.

  • Report this Comment On February 14, 2009, at 12:29 PM, bullishduck wrote:

    I don't know if Cramer made these comments simply based on the stock sell off or not, but if he did then he would be off base not to mention that Citronresearch.com (formerly Stock Lemon) just wrote a scathing article on the company. The link is

    http://www.citronresearch.com/

    I think that the Life Settlement industry will continue to grow, will LPHI be a part of that? I don't know, you read the report and decide. It looks like to me that the company may have to reduce fees dramatically to stay competitive going forward, or even worse will be found to have been overselling returns and may be in legal hot water. Either way, I would certainly hold off on buying this stock for a while.

  • Report this Comment On February 16, 2009, at 6:03 PM, krankie wrote:

    LPHI's official response to the Citron piece can be found here...

    http://www.lphi.com/CitronResponse.htm

  • Report this Comment On February 17, 2009, at 5:19 PM, OldEnglish wrote:

    The Citron report was mentioned by Cramer. Why was that ignored in this article? Motley Fools employees should be familiar with Citron. When they question the legitimacy of a company, it matters and shouldn't be ignored.

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