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?

By Jim Cramer Oct 9, 2012 8:56AM

TheStreet.com logoImage Source, Getty ImagesI 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 headshot, TheStreet


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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31Comments
Oct 9, 2012 12:39PM
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Wall street has been succesfully working for years to move personal savings into the stock market - it started with changing defined benefit pensions to 401ks and will end when our politicos give them our social security funds ........peoples money goes in the front door and funnels out the back into the hands of the super greedy like cramer here....

For an 82 year old CAPTAL PRESERVATION SHOULD BE SACROSANCT !
Oct 9, 2012 11:18AM
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yet you never hear about alcoa at 18 15 then 12 ...now 8
Oct 9, 2012 12:39PM
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"Hey, why not?"  Because she could lose money.  That's why not.  What good will JNJ's 3.5% yield be if it loses that much or more in value?
Oct 9, 2012 1:08PM
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A 1% CD yield less 2.5% of inflation and 10% - 15% for taxes is not capital preservation.  It's a recipe for poverty.

Oct 9, 2012 12:41PM
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If cramer made money selling a newsltetter that promotes CDs he would be recommending she stay n CDs.
Oct 9, 2012 12:01PM
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Nice call Cramer...JNJ down almost 2% today.  All you 80 year olds, don't be shy...high dividend stocks are the way to got.
Oct 9, 2012 1:16PM
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A stock,any stock..even a good one, can easily go down in value,all the way to ZERO. Sure you could place stop loss sell limits..but in the end..a stock investment is a gamble. A CD...not a gamble,and zero risk for her principle. Shame on you telling Granny to gamble with what little money she has. Even at a mere 1% return.at least she could still live off the principle if need be,instead of lying on her back, FLAT BROKE because Wall street crooks managed..once again,to plunder the market in one of their free fall shorting binges. Gee,Granny..sorry we took your money..but you knew the risk...!
Oct 9, 2012 12:39PM
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And greedy toads like cramer would sell their granny's false teeth if it makes them a few bucks.
Oct 9, 2012 2:44PM
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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!

Oct 9, 2012 2:07PM
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No matter what, Granny is bent over the desk... if she's lucky she might even get some lube!!!
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I know of three banks that are paying 2.25 percent interest for checking account up to 25K then like .25 percent on balances over that.

 

I am parking my mad money there

Oct 9, 2012 12:29PM
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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..

 

Oct 9, 2012 2:24PM
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Some people are up in arms about the possible loss in capital value. If she's rolling over CDs specifically for fixed income, what does it matter if the value of the stock wavers day to day. Just hang on to it, and use the dividends just like any other fixed income investment. 

The real danger to a fixed income is a dividend cut, and that doesn't look likely at JNJ any time soon.
Oct 9, 2012 4:05PM
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Big Ben and Wall Street must be salivating right now as they eye her savings. What the heck, low interest rates make the FED and our POLS happy with low borrowing costs and the Wall Street gang happy as it forces folks like this 80 yeat old to seek out some way to generate income. Oh well if everything in the market melts down in the coming year she might hit the jackpot and be able to snag a job as a Wal Mart greeter.
Oct 9, 2012 11:17AM
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every time this hack degrades CLF it pops .....what a moron
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Hmmm governments are not doing anything to stop the Death Spiral of lost jobs and an ever weaker and weaker economy -- governments giving their citizens confidence has nothing to do with the greatest depression all around us.

 

WE NEED JOBS STUPID

 

QUOTE

The global economic recovery is weakening as government policies have failed to restore confidence, the International Monetary Fund has said.

It added that the risk of further deterioration in the economic outlook was "considerable" and had increased.

END QUOTE

Oct 9, 2012 7:28PM
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At this point in time, considering the impending "fiscal cliff", economic slowdowns in Europe and Asia, and continued high private debt levels in this country, the stock market as a whole is over-valued by approx. 20%. It is enormously risky for an 80 year old to transfer large amounts of financial assets to stocks in hopes of getting larger returns. My advice to her: Hold on to your cash and wait for the market correction that will occur...most likely in 2013. 
Oct 9, 2012 11:24AM
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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.

Oct 10, 2012 8:41AM
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Romney ' WHERE'S THE BEEF' to your 5 point economic plan, all fake.

Romney the numbers don't add up. 8 Trillion means BIG tax increases for middle income.

Romney "47% of the people, I'm not interested in them their victims."

Romney Bain mgt style was corp raider not empathic at all to people.

Romney State run healthcare isn't balanced and fair it's a circus.

Romney Mass. came in 47 of 50 states for job creation, when you were gov'r

Romney "let GM go bankrupt", isn't a plan it's a Bain corp raider tactic

Romney immigrants "let them self deport" ...

Romney "women have there place"....

Romney is King.....of 'FLIP FLOPPERS' is the only reality here.....

Oct 9, 2012 3:29PM
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Well don't forget Mittbot 2000 has promised Sheldon Adelson a war with Iran to protect israels interests.

How many mormons will he sacrifice to pay for Adelsons 100 mill  ........ZERO !
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