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Cramer's 'Mad Money' Recap: Toxic-Stock Plays

TheStreet.com Staff

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American Ecology (ECOL Quote) is a waste-disposal company that could make you money, Jim Cramer told viewers of his "Mad Money" TV show Tuesday.

When Cramer looks at toxic waste, he doesn't see a problem; he sees an opportunity. "Hazardous waste equals mad money," he said.

Cramer called toxic waste a secular growth story, which doesn't need the economy to be strong to perform well. In fact, the best thing about this stock is that it does well because of a "government-sanctioned oligopoly," he said.

American Ecology didn't start getting interesting until it got into the toxic-waste-management business, which is when it started to grow, Cramer said.

Only a small number of companies are allowed to operate toxic-waste management, which effectively keeps the competitors out, he continued. And the government says people have to pay a company like American Ecology to get rid of their hazardous waste.

This is the kind of government-backing that Cramer likes to see, he said. He believes that American Ecology is a defensive growth stock, which has a cushion with its "nice" 3.4% yield.

Plus, because there are only five analysts covering it, the company is relatively low on the radar, Cramer said.

Trash Talk

Another great hazardous-waste stock that Cramer believes is a "strong secular grower" is medical-waste company Stericycle (SRCL Quote).

He first recommended this stock 14 points ago, and although Stericycle is up, Cramer believes it is "still worth buying." Not only is Stericycle heavily regulated by the government, which keeps out competitors, but it is the "only national player in the medical-waste business," he said.

Cramer believes that the business of medical waste is good right now because it is consistent, as medical products such as needles will never get tossed out with normal garbage.

Also, Stericycle has negotiated long-term agreements with hospitals and medical centers, which means it has stable income, he said.

Bed Bath From Both Sides

Recently, Morgan Keegan downgraded Bed Bath & Beyond (BBBY Quote) based on "declining fundamentals," and at the same time Goldman Sachs upgraded the retailer based on "improving fundamentals," Cramer said.

Right now, he considers Bed Bath & Beyond to be an "expensive stock based on its earnings." But even though "its concept seems to have lost its way" and the stores have slowed because of housing, Cramer said he would not sell the stock if he owned it.

He urged his viewers to learn how to use these reports to analyze the stock by looking at both sides of the story.

On one side, Morgan said that the company's guidance is "reasonable," meaning when it reports it won't overdeliver. Morgan also said that BBBY's buyback will be finished earlier than expected, which it views as a negative, and that the store's valuation doesn't include risk factors such as deceleration of sales growth.

On the other hand, Goldman said that BBBY has a history of taking down guidance and then beating it. It also sees the retailer's accelerated buyback as a sign of great things to come.

Moreover, Goldman said BBBY's recent acquisition of Christmas Tree Shops could "reignite" the store.

Both Morgan and Goldman have the same facts but "totally different conclusions," Cramer said. But whether an analyst is right or not depends on the price of the stock, he said.

Therefore, right now, at $40, Cramer said market players should not buy BBBY. But they shouldn't sell it, either. He said people can't buy it because Morgan is right regarding the company's earnings not making it a compelling buy here.

But Cramer would be "loathe to sell it" because he believes that BBBY is likely going to be bought by a private-equity firm.

"At $40, it's in no man's land," he said.

If the stock ran up to $43.25, Cramer said he would take some profit, but if it went down to $37, he would be buying it.

Steak Appeal

Cramer welcomed Craig Miller, Ruth's Chris Steak House's (RUTH Quote) CEO, to the show and asked him how the company was able to preannounce the fourth quarter up.

"It starts with our brand," Miller responded. "We have a terrific brand."

In terms of pricing, while last year Ruth's had 5% hedged, this year it has more than 50% hedged, Miller continued. Although there have been some labor pressures, Ruth's is all about the experience, and when people go to the restaurant, Ruth's makes sure that that experience is delivered in an "extraordinarily great way."

Moreover, Miller said he believes that the company can build more Ruth's restaurants because of the breadth of its appeal.

Even though Ruth's has been able to deliver numbers time and again, it has not been able to create a tremendous amount of wealth for its shareholders. That's because it's still gaining credibility in the marketplace and because the market is still understanding its business model, Miller went on to say.

When Cramer asked if Ruth's has the flexibility to do more for its shareholders than deliver numbers, Miller said that the company is reinvesting its cash flow to expand its brand.

Miller said that international expansion is on the horizon for the steakhouse.

Lightning Round

Cramer was bullish on Disney (DIS Quote), McDonald's (MCD Quote), Omniture (OMTR Quote), Melco PBL Entertainment (MPEL Quote) and Sears Holdings (SHLD Quote).

Cramer was bearish on New York Community Bancorp (NYB Quote), Sirius Satellite Radio (SIRI Quote), Charter Communications (CHTR Quote) and Conexant Systems (CNXT Quote).

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

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