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Cramer's 'Mad Money' Recap: A Yardstick for Sears

TheStreet.com Staff

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

On Friday, Fortress Investment Group becomes the first publicly traded hedge fund in America, but the big beneficiary from that offering will be Sears Holdings (SHLD), Jim Cramer told viewers of his "Mad Money" TV show Thursday.

Sears, a stock Cramer owns for his Action Alerts PLUS charitable trust, is more than just a retailer -- it's an investment business, he said. And the "mastermind" behind Sears, Chairman Eddie Lampert, "is one of the best money managers in history," Cramer said.

Right now there are no publicly traded hedge funds in the U.S. marketplace so there's no way to measure how much the investment side of Sears' business is worth, Cramer explained. "There's no yardstick to measure it against."

Generally, if Wall Street doesn't have comparable stocks, investors will not buy the stock because they don't know what it is worth if they don't have any similar businesses with which to compare it, he explained.

Because people can't value Sears' investment business, they treat it like a retailer, Cramer continued. But now that Fortress is ready to come public, market players will be able to see what Fortress trades for and stick that multiple in the earnings Lampert generates at Sears, he said. Cramer believes that once Sears has a comparable, more people will invest in it.

"Fortress' multiple, which will probably be 17 times earnings, tells us what we should pay for Sears' investment business," he said.

When people compare Sears and Fortress, they'll see the former is cheap, Cramer added. On a conservative level, he believes Sears should be worth $237 a share. Sears closed at $180.81 Thursday.

Also, since the company could do a lot more to raise cash for Lampert to manage, Sears could have even better returns, Cramer said.

While some feel the Fortress yardstick could also be used with Goldman Sachs (GS), which Cramer also owns for Action Alerts PLUS, he said he can't go along with that because he feels Goldman Sachs is more than a hedge fund.

DST Is Ripe for Buying

When State Street (STT) bid to buy asset management firm Investors Financial Services (IFIN), it should have caused other stocks in that line of business to leap, Cramer said.

Particularly, he believes "DST Systems (DST) should have gone up huge on the State Street bid." That it did not was "wrong," Cramer said. "It should have shot up."

Because Cramer believes DST is the next takeover target, he recommended people buy it before it gets bought out. The Street missed the chance to get into this stock, and now it's an opportunity, he said, adding that even if DST is worth less than Investors Financial, DST should still go up to $88. DST closed at $71.94 Thursday.

Cramer said the company likely will not be independent a year from now because, he believes, Bank of America (BAC) or SunTrust (STI) could buy it.

If no takeover happens, Cramer still considers DST a buy because its last quarter was a "blowout" and, despite its recent run, the stock is inexpensive. Right now, he said, is a good entry point because DST "has a bulls eye painted on its back and its fundamentals are good."

Sell Block

In his "Sell Block" segment, Cramer apologized for putting Avon's (AVP) Andrea Jung on his CEO wall of shame, because Avon just reported a "terrific" quarter and "the company showed real growth after a long time."

However, he advised people to sell Wells Fargo (WFC), a bank he's "liked seemingly forever," because he feels the stock has gotten expensive. While he said people don't need to dump their whole position, he did recommend taking some off the table and swapping into Goldman Sachs instead.

Also, even though Cramer said he's liked Abercrombie & Fitch (ANF) for a long time, now he believes it's time to close off the position and take profits in the stock.

Lastly, he advised selling Circuit City (CC) and buying Best Buy (BBY).

Mad Mail & Sudden Death

In response to a viewer's letter in the show's "Mad Mail" segment, Cramer said Altria (MO) and Diageo (DEO) have good dividends. He said the two stocks, both of which he owns for his charitable trust, are not in the same camp as Las Vegas Sands (LVS), which he called a "high-rolling, conceivably one-month shortfall of a Macau stock."

He told another viewer that he believes Level 3 Communications (LVLT) is turning around, buying out its high-yield debt. Cramer believes this strategy is working but advised people to listen to the company's conference call and to do their own homework before buying the stock.

During the "Sudden Death" round, Cramer was bullish on EMC (EMC) and Melco PBL Entertainment (MPEL).

Lightning Round

Cramer was bullish on Archer Daniels Midland (ADM), Acme Packet (APKT), Whirlpool (WHR), ValueClick (VCLK), Vulcan Materials (VMC), MasterCard (MA) and Corning (GLW).

Cramer was bearish on Aventine Renewable Energy (AVR), SAP (SAP), Oracle (ORCL), Thor Industries (THO) and Tibco Software (TIBX).

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 popular book by clicking here.