Cramer's 'Mad Money' Recap: In the Wolverine Den
TheStreet.com Staff
04/25/06 - 07:40 PM EDT
Click here for an archive of Cramer's "Mad Money" recaps.
"Welcome to Mad Money 101," Jim Cramer told viewers of his "Mad Money" TV show, which was broadcast from the University of Michigan as part of his "Back to School" tour Tuesday.
"I am putting my fashion reputation on the line to try and make you some mad money," he told the audience in Ann Arbor, Mich., suggesting they should take a look at
Wolverine World Wide(WWW Quote).
The footwear maker's main brand, Hush Puppies, has already hit a "tipping point" and become widely popular, he said. Cramer believes that the company's other brands, including Merrill and Caterpillar boots, will see a similar fate.
Wolverine shares trade at 17 times next year's earnings, which is cheap, he said. Moreover, the Rockford, Mich., company just reported a fabulous quarter on April 19, and the stock jumped.
"This is where we pull out our discipline," he said. When a stock reports a great quarter and has a big run, it's time to play a waiting game.
Cramer said that it's generally a good idea to wait a few days for people to start taking profits, and then to buy the stock when the price pulls back.
If it's a good stock, the pullback won't last and the price will start moving higher again, he said.
Pizza Special
After a couple of Cramer doppelgangers took the stage to throw chairs in the traditional prelude to the show's Lightning Round segment, Cramer welcomed
Domino's Pizza(DPZ Quote) CEO David Brandon to the stage.
"In just six years at the helm, [Brandon] turned a college favorite into a financial powerhouse," Cramer said of the University of Michigan alumnus.
Wall Street says that Domino's can't follow its own act, Cramer said. But Brandon replied that such a sentiment is ridiculous, and that with steady results for the last seven years he is confident that the company will continue to perform well.
The Ann Arbor-based company has bought stock back from Bain Capital, which led Cramer to ask whether the company wants Bain out of the picture.
Brandon said that it really isn't a concern for him. Bain is a great private equity firm that has added value to the company, he said, but the company now has a substantial amount of cash and is using it to buy back stock.
He added that his company is growing its business by building stores domestically and internationally and that Domino's has generated positive same-store sales domestically for 12 years in a row.
The company grows earnings at 11% and has an 18 multiple, Cramer said, noting that
Papa John's(PZZA Quote) has a 26 multiple. He asked Brandon how he plans to close that gap.
"We're better than them and ultimately we'll get the valuation we deserve," Brandon said, adding that Wall Street just needs to become better acquainted with his company to see that there's a lot of value there.
To watch Cramer's video segment with Brandon, please click here.
It Pays to Research
Cramer said that when he was in college "people either did drugs or they did homework." And whether or not things have changed, he told the University of Michigan audience that he wants to make homework more appealing.
Mad Money homework gives you incentive, he said. "You write a great essay and the best possible outcome is that you get an A. Cramer's got nothing against the alphabet, but when you do my kind of homework ... you can make mad money."
He used
Comfort Systems(FIX Quote) to walk the audience through what it takes to get the homework done.
In order to get himself to Comfort Systems, first he needed an idea. And he came up with his idea while listening to the conference call for a totally different company, the conglomerate
United Technologies(UTX Quote).
Every major publicly traded company holds a conference call when it reports earnings, he said. And these calls are usually available on the company's Web site.
You're always listening for something that is better than expected, he said, some part of the business that is booming. From there, he said to extrapolate and find other companies that should benefit from this trend.
While he was listening to the United Technologies call, the company said that its heating ventilation and air conditioning (HVAC) business saw its business improve on double-digit growth and higher prices.
That gave him his idea -- HVAC -- so he looked for all of the companies that are involved in this segment.
The first company he came up with,
Goodman Global(GGL Quote), didn't pan out because it is levered to the residential market. United Technologies does commercial HVAC work.
But Comfort Systems does heating and air for commercial and industrial markets, so Cramer decided to investigate further.
He went through the earnings report, analyst research and articles to see if the company's fundamentals were up to snuff. After all that work, he decided that he had found an undervalued stock that is ready to run higher.
If you can do all of this, you'll be doing the work of a Wall Street analyst in about two hours, he said. And if you figured it out before the Street did, then you can get in and make money before the analysts hand this knowledge out to everyone else on a "silver platter."
The Build in Infrastructure
It's not hard to tell which stocks are in bull mode because they're the ones that are going higher, Cramer said. But it's hard to know which ones have legs and how to play them.
Right now the infrastructure sector is in a "fantastic bull market," he said, especially for energy infrastructure.
Because there is a scarcity in energy infrastructure, he believes that this will be a long-term story. And because it's long, "you'll be able to do a 'mon back* every time these stocks get hit," he said.
After decades of underinvestment in the energy infrastructure around the world, there aren't enough power plants and it's getting hard to produce enough power, Cramer said.
But even the best bull markets need catalysts before the stocks will really move, he said. And the energy infrastructure space got a catalyst when
TXU(TXU Quote) announced last week that it plans to spend $10 billion on 11 new coal plants.
This is much more than the market had expected the company to invest, he said. And when you get this kind of news in a sector that's already in bull mode, "it's like Christmas came early."
TXU said it would use
Fluor(FLR Quote) and
Bechtel to do the work.
Bechtel is not publicly traded and everyone will go out and buy Fluor on this news, Cramer said. That's why "you have to be clever and go further down the food chain." Both companies will outsource work to other companies, he said.
Among the subcontractors you need to look into buying, he said that
Caterpillar(CAT Quote) and
Terex(TEX Quote) will provide the construction machinery used to build the plants.
He said that
McDermott(MDR Quote) and
Foster Wheeler(FWLT Quote) make equipment that that gets rid of pollution produced by coal plants.
He said he would buy
ABB(ABB Quote) (a stock he owns for his
ActionAlerts PLUS charitable trust) because it provides systems integration automation for power plants, and
InfraSource Services(IFS Quote), which takes care of transmission distribution.
Finally, he said that he would take a look at
SPX(SPW Quote) because the company makes cooling towers.
The show ended with a student who asked Cramer for a stock recommendation that was cheaper than
Google(GOOG Quote), which she said is too expensive for college students to buy.
He said that he'd rather own one share of Google than a lot of shares in a lesser company. But if even one share is not feasible, then Cramer said to take a look
Yahoo!(YHOO Quote), which has a similar valuation and sells for a fraction of the price of Google.
Lightning Round
Cramer was bullish on
Cisco Systems(CSCO Quote),
Wells Fargo(WFC Quote),
Abercrombie & Fitch(ANF Quote),
Occidental Petroleum(OXY Quote),
Nabors(NBR Quote),
GameStop(GME Quote),
Anglo American UK(AAUK Quote),
Lehman Brothers(LEH Quote),
Bear Stearns(BSC Quote)
and
Goldman Sachs(GS Quote).
Cramer was bearish on
Wachovia(WB Quote),
Pacific Sunwear(PSUN Quote),
Royal Dutch Shell(RDS.A Quote),
BP(BP Quote),
Diamond Offshore Drilling(DO Quote),
North American Palladium(PAL Quote)
and
Dick's Sporting Goods(DKS Quote).
For more of Cramer's insights during the most recent Lightning Round, click here.
*For all you home-gamers, a 'mon-back opportunity means Cramer would back up the figurative truck and load up on a stock.
Want more Cramer? Check out Jim's rules and commandments for investing from his latest book by
clicking here.
