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Cramer's 'Mad Money' Recap: Top Three Speculative Plays for '07

TheStreet.com Staff

Click here for an archive of Cramer's "Mad Money" recaps.

Continuing with this week's theme of the top stock picks for 2007, Jim Cramer offered his top three speculative plays on Friday's "Mad Money" TV show.

"The best and long-lasting way of keeping your interest in the market is speculation," he said, adding he regards these stocks as being "sexy."

But before naming his top stocks in the category, Cramer issued a warning. While he believes investors should "give into temptation and speculate," he said they must use protection. First, people should not put any of their retirement money into speculative stocks. Second, when speculating, use a basket, Cramer said.

He advised to take 20% or less of your portfolio money and buy five different speculative stocks with it. Rather than owning a single speculative stock, a basket makes the moneymaking odds more favorable, Cramer said.

"We like taking risks on 'Mad Money,' but there's no reason why you shouldn't spread the risk out," he said.

(This week, Cramer is issuing his annual market forecast. Click here for his top three value picks, which he offered Wednesday, and here for the top three growth stocks he discussed on Thursday.)

Savvy Choice

Taking the "risk factor up a dozen notches," Cramer named Savient Pharmaceuticals (SVNT) as his No. 3 speculative pick.

Although the stock's been on a "tear," Cramer believes it still has "room to run." In particular, he said, Savient has three great attributes.

The company has "skilled management" and recently launched a testosterone drug, Oxandrin, that helps promote weight gain after surgery. While those first two traits are good, Cramer said the main reason he considers Savient "exciting" is its phase III drug for gout, Puricase.

Three million to five million Americans suffer from gout, and "they're going to take Puricase if they want anything to work for them," he said.

Cramer said Savient shares could easily double if positive phase III data are released in the third quarter.

No. 2 on Cramer's "sizzling" speculative stocks list is Rite Aid (RAD).

Only 10 analysts cover this stock, and it's not getting support from the Street, he said, adding that he loves it "when a hot stock is unloved."

Cramer believes Rite Aid should be valued higher and urged viewers to get in on the action before the Street figures this one out. He advised people to buy it Monday afternoon.

Not only is the company's deal with Brooks-Eckerd supposed to save Rite Aid $150 million, Cramer said it is the one drugstore that seems to have immunity from the "Wal-Mart (WMT) disease."

He believes it can't go too much lower without "catching a takeover bid." Moreover, Cramer said this "seemingly innocuous stock" is also a "great inner-city" play.

That said, Cramer welcomed the "architect" of the store's turnaround, CEO Mary Sammons, to the show and asked her how it felt to be the chief executive of his second speculative pick of the year.

Sammons said it felt "great" and that Rite Aid would prove Cramer right.

When asked whether Rite Aid's expected savings of $150 million from its merger with Brooks-Eckerd was a low estimate of what could be saved, Sammons said it was.

The estimate doesn't take into account increased revenue and increased productivity from the stores Rite Aid is acquiring, she said. If a store is too small or in a bad location, Rite Aid's priority is to relocate it, Sammons continued. With each new store, the company tends to generate "strong double-digit gains for five years," she said.

Responding to a question about integration risk, Sammons said there is always risk but that Rite Aid is "well covered on it."

On the Level

Cramer's top speculative stock of the year is Level 3 Communications (LVLT), a company that owns a broadband network and sells bandwidth.

Although LVLT has spiked more than 35% since Cramer first recommended it in September, that's OK, he said. In fact, he believes the stock has gotten even more attractive since then, scoring a YouTube contract and inking a deal with NBC, allowing the network to get highlights from all other Sunday football games.

Plus, on Thursday, Level 3 completed its acquisition of Broadwing, Cramer said. He called it a "big risk, big reward" speculative stock and said there is "more than an insignificant" chance that it might lose people money.

But he believes that "if you're gonna stay interested in stocks, you gotta take a few risks, and one of those risks is taking LVLT, even at its $6 level."

Lightning Round

Cramer was bullish on Toyota Motor (TM), Spectra Energy (SE), Kinder Morgan Energy (KMP) and Cisco (CSCO).

Cramer was bearish on Yamana Gold (AUY), Ultra Petroleum (UPL), Deere (DE), EarthLink (ELNK), Cleveland-Cliffs (CLF), Amylin Pharmaceuticals (AMLN), AngioDynamics (ANGO), Sonus Networks (SONS) and Shanda Interactive (SNDA).

For more of Cramer's insights during the Lightning Round, click here.

Opening the Mail

In his "Mad Mail" segment, Cramer gave a mailer Saks (SKS) as an extra arm weather play, and he told another viewer he wants to own Time Warner (TWX) even up here at $22.23.

There Goes Swifty!

In his "Sudden Death" round, Cramer was bullish on Hewlett-Packard (HPQ), which he owns for his charitable trust, Action Alerts PLUS.

He was bearish on Sun Microsystems (SUNW) and Harrah's Entertainment (HET).

Want more Cramer? Check out Jim's rules and commandments for investing from his latest book by clicking here.

1 What would best describe your stance heading into the coming week of trading? Bullish Bearish Neutral 2 Which of these sectors do you think is set to move up in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities 3 Which of these sectors do you think is set to move down in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities View the results without voting