Mad Money Recap

Return to Article

Cramer's 'Mad Money' Recap: When Broken Stocks Get Fixed

TheStreet.com Staff

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

"How does a broken stock let you know it's been fixed?" Jim Cramer asked viewers of his "Mad Money" TV show Tuesday.

Simple: Before investors get back on board a stock, they want the broken company to do something drastic, which shows that management has finally "gotten religion" and understands that profits mean more than anything else, he said.

On Monday, Viacom (VIAB) did just that and gave market players what they wanted, Cramer said. The company announced that it is cutting 250 jobs at MTV.

Personally, Cramer feels bad that people have lost their jobs at MTV, but this is business, where layoffs are a good thing, he said. Now he's going bullish on Viacom.

Media companies are all the same, Cramer explained. He reminded viewers about how he got bullish on Time Warner (TWX) when it decided to sell off 18 of its magazines.

"Since Time Warner made its ritual sacrifice," it has gone up, he said, and changed from "Time Goner" back to Time Warner.

Viacom has been run like a growth company even after its growth ran out, Cramer continued. "It became a victim of its own success" as it maxed out its younger demographic. Now it needs to stop worrying about growth and focus on profits, he said.

Cramer believes this is the quarter that Viacom and Sumner Redstone, the company's chairman, will deliver. It is trading at a "big discount" to its peers, but now that Viacom understands it needs to concentrate on profits, it's in the "sweet spot," he said.

Ménage à Plumbing Trois

"Right now there is a dammed-up flood of money in private-equity firms," Cramer told his viewers.

If he worked at a private equity firm, Cramer said, he'd be "eager" to buy Lamson & Sessions (LMS). The stock is a "gift" down 50 cents at $28.25 today, and it's Cramer's private-equity play to viewers, he said.

"This one is a dream come true for two reasons," Cramer said.

First, although Lamson makes really boring stuff like electrical conduits, safety products and PVC (polyvinyl chloride) piping, the raw cost for PVC piping is "dropping like a rock," which should translate into some mad money, he said.

Lamson reported a shortfall, but that is already priced into the stock, Cramer said.

Second, Cramer said he likes it because of his private-equity master plan.

Right now there are three companies up for sale, Cramer explained, and Lamson is "one of the three legs of his private-equity dream." The other two are American Standard's (ASD) plumbing business and Home Depot's (HD) building and supply company, both of which recently went on sale.

Cramer believes that a private-equity company would be interested in buying these three to create one "plumbing and construction powerhouse" that it could bring public a couple of years from now.

"We want to find the next company to get taken private for a big premium," Cramer said. "And that stock is Lamson."

Panic Not

According to The Financial Times, the market has "the highest percentages of earnings misses this quarter since the third quarter of 2004," Cramer told his viewers. But although the newspaper makes things sound bad, resist the urge to panic, he said.

People shouldn't always sell when a company misses its earnings, Cramer said. In fact, in some cases, it is an opportunity to buy because the stocks tend to bounce back harder than the S&P 500.

Most earnings misses are already baked into prices, he said. Even if you want to sell and the company has no balance sheet issues, wait a few days because it might bounce back, Cramer said.

Whirlpool (WHR) had the type of earnings miss that was already in the stock, he said. It, along with General Electric (GE), has a "virtual monopoly" on washers and dryers. Plus, it is doing a good job integrating recently acquired Maytag, Cramer said.

"Buy it before it takes out its high," he advised, warning people not to buy after hours or before doing their research.

Secret Life of Plants

Cramer welcomed Michael Wilson, Agrium's (AGU) president and CEO, to the show and asked him if the stock's upside is sustainable.

Historically with fertilizer stocks, Cramer said, he's seen "capacity come on and new plants being built."

"However, that doesn't seem to be happening here," he said. "Why is that?"

"It's happening, but it's going to take a lot longer," Wilson responded. "People haven't anticipated this tight market, so they haven't been building the plants."

However, Wilson said he owns 500 retail stores, which does make a difference.

When Cramer asked for a worldwide picture, Wilson said the demand for fertilizer "is a major global phenomenon."

Cramer said there is something to be said about the whole agricultural complex, and it is keeping him bullish on Agrium.

To view Cramer's interview with Michael Wilson, please click here.

During his "Sudden Death" round, Cramer was bullish on Celgene (CELG) and Lamson & Sessions (LMS).

He was bearish on Allos Therapeutics (ALTH) and Symmetricom (SYMM).

Lightning Round

Cramer was bullish on Palomar Medical Technologies (PMTI), Joy Global (JOYG), Marvell Technology (MRVL), Ford (F), Lundin Mining (LMC), L-1 Identity Solutions (ID), CarMax (KMX), AutoNation (AN), United Auto Group (UAG), Asbury Automotive Group (ABG), Service Corp (SCI) and Level 3 Communications (LVLT).

Cramer was bearish on LSI Logic (LSI), Advanced Micro Devices (AMD) and Urban Outfitters (URBN).

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.