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TheStreet.com TV Recap: Dead Sectors Rallying

TheStreet.com Staff

The stock market is getting a lift today because of a flurry of M&A activity, Jim Cramer said on TheStreet.com TV's Wall St. Confidential video Webcast.

This action is igniting paper stocks, online education stocks and banks -- all of which were "previously dead sectors," he told Aaron Task, the host of Wall St. Confidential.

Among the stocks that have gotten caught up in the acquisition frenzy, Cramer said he likes Laureate Education (LAUR Quote), calling it an undervalued stock that was not getting any credit for its massive Latin American division.

However, Cramer does not believe every company should take part in a leveraged buyout transaction. Unlike the hedge funds, Cramer said he doesn't want to own equity or bonds of companies that are experiencing bad times.

But if there is a company that can't do publicly what it can do privately, then he believes it should allow itself to be bought out by a private-equity firm. For example, "the Gap is a legitimate LBO," Cramer said.

Gap(GPS Quote), after consistently trying to make Street estimates, has failed, he explained. What the retailer really needs to do is look at selling 500, or even 1,000 of its stores, which would be "catastrophic for the company's earnings," Cramer said.

Meanwhile, as a private company, the Gap would have more flexibility and would be "much less beholden to Wall Street for coverage and for sponsorship," he went on to say.

"When you're running a company, a lot of what you would want to do to the company is unpalatable to the public markets," Cramer said. "When you have those situations, you don't want to be in the glare," even though these moves are good long term for the company.

When Task mentioned that on the flip side, more management doesn't want to have any part in becoming private, Cramer said it's because management does not want to lose its jobs.

There are many instances in which companies can do it themselves, and many instances in which companies don't need to become private, "but the payday for private, I find, has been very positive," he said.

Cramer commented on how the public has not been excited about the market this year and how he hasn't seen a lot of inflow of capital. He said that is possibly because "a lot of people are fed up with our country" and a lot of money is going into other stock markets.

"If you look at the White House, we're perceived as being a weak and hobbled country right now, and people don't necessarily want to invest in a weak and hobbled country," Cramer said. "If you joined where other capital flows are going, you'd probably do better."

He said Europe is a safe place to invest and has alienated fewer people than the U.S. has, and has a better worldview.

"I'm not a political guy and could care less what President Bush does, but at a certain point, he's starting to hurt the multiple," Cramer said.