Should stocks replace CDs these days?
An 80-year-old woman who needs income wants to use JNJ instead of a low-interest certificate of deposit. Hey, why not?
I got a great call Monday night on "Mad Money" from an 80-year-old woman whose situation pretty much crystalizes what's going on right now in this market. She has CDs rolling over now that pay 5%. She knows the current CDs won't give her more than 1% at best.
So she wanted my blessing to buy Johnson & Johnson (JNJ), and I said yes, because I liked the yield, the balance sheet, the new management and the breakup value.
Now, at no other point in history that I have seen would you ever suggest that an 80-year-old woman use JNJ as a replacement for a CD. Never. Sure, on an after-tax basis, the 3.5% yield that JNJ gives you is so much better than the current CD. And JNJ is perhaps among the top 10 trusted brands in the world, even after the production issues have dogged it so badly. It doesn't have the earnings power you would like to see, but it is pretty darned clear that if you broke the company up, it would be worth substantially more than its current value.
But still, this question represents the desperate shape of investors everywhere who seek a fixed-income replacement. Johnson & Johnson has to go down only $2.50 to make it so the CD alternative is better for this woman, and that could happen in the blink of a high-frequency trader's eye.
Yet somehow I think it is reckless to keep her in CDs.
It's funny, in the same show I interviewed Edward Aldag, the chairman, president and CEO of Medical Properties Trust (MPW), a real-estate investment trust that owns buildings and leases them to hospitals.
The trust yields 7.2%, and it has enough rental income to cover all of that yield and maybe a little more.
That would normally serve as a terrific fixed-income alternative. But I couldn't bring myself to suggest it, because if I did, I would fear that something could go wrong with MPW and it would be on me. But if something went wrong with JNJ, it would be on it!
Either way, I am spelling out the exercise because when people say there is a bubble in higher yield, they should remember this woman's call. She needs the income. She can't get it from CDs.
Why not go for JNJ? Not only that, but there's real upside.
Why not go for Medical Properties Trust? The stock should be yielding only about 5% to get in sync with the group.
Either is better than the alternative. It's as simple as that.
Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and has no positions in the stocks mentioned.
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The advice she should have gotten is while JNJ is a good stock to invest in she should purchase 10 or more big name dividend stocks to make her portfolio risk adverse. I like to have a portfolio of about 25 Big Name Iconic dividend stocks in various sectors like Coke (KO) , XOM, COP, IBM, Intel, Kraft, Phillip Morris etc. If all of the go under then your money will useless no matter what you invested in!
Apple an the enter stock mkt and CD's T-bills etc...will nose dive after Romney is elected.
His job one is to build a 'WAR MACHINE'- 2 Trillion $$$ more in your taxes above present military baseline. The present military leaders don't want it but he wants to invade Syria, Iran and back off the Russians as he says ie restart the cold war(?). He is a War Hawk like G.W. He will send your kids to war to died but not his. He like G.W. made sure neither he nor his kids went to war. Ours (the poor and middle income families ) will supply the kids again and again for his ego.
A 1% CD yield less 2.5% of inflation and 10% - 15% for taxes is not capital preservation. It's a recipe for poverty.
And greedy toads like cramer would sell their granny's false teeth if it makes them a few bucks.
Well, finally Cramer talk about this in the open....
Since the times of the famous Greenspan Put, the name of the game is this precisely, stop saving and investing on the long term and start playing in the biggest casino of the planet...err...invest in stocks.
BTW I was reading that gambling has increased in the US, I think this is due because it is way better to play with professionals in Vegas or guess in the lottery than invest in WS under the advise of some morons..
i replaced my cd's with a few high yield mutual funds (bond) and a couple of tax free closed end funds a few years ago. (i am able to survive for now.)
and a few short term investor grade corporate bonds
i still invest in stocks as well (like you would throw a few on a horse at a race track)
i was recently advised some REIT's but i remember how everybody got ripped off on them so i passed on that. when the housing shows solid recovery i will go into something else other than REIT's.
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