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Cramer's 'Mad Money' Recap: The Next Great Diagnostics Play

TheStreet.com Staff

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When Jim Cramer learned that Biosite (BSTE Quote) got a takeover bid from Beckman Coulter (BEC Quote), he immediately started thinking about which stock could follow in Biosite's footsteps, he told viewers of his "Mad Money" TV show Monday.

Now Biosite, a stock Cramer recommended to viewers on his Feb. 23 show, is in the past, and people must sell it, he said. Market-players should take their profits from Biosite and buy Cepheid (CPHD Quote) as "the next great diagnostics play," Cramer said.

Last weekend, there was an article in Barron's that said the Veterans Administration is mulling who should get the big contract for staph-infection tests in hospitals, and Cramer believes tiny Cepheid could get the contract over Becton Dickinson (BDX Quote).

And even if Becton Dickinson does get it, that company is too big, and winning the contract won't have as positive an effect on the stock as it would on Cepheid's, Cramer said. "If [Cepheid] gets the deal, it could soar," he said.

If Cepheid doesn't win the contract, it still should go up, Cramer said. He said the diagnostics business is "hot" and that even though the Democrats in Congress are anti-Big Pharma, they seem to like diagnostics companies.

Cepheid also could be a good takeover candidate for a company looking to expand its diagnostics division.

Cramer urged people to wait three days before buying the stock and to use limit orders.

'The Benefit of the Doubt'

"There are times when trust will make you more money than distrust," Cramer told viewers as part of his weeklong "Benefit of the Doubt" series. "There are some CEOs that will make you more money if you take what they say at face value, even if they screw up, than if you place your bets against them."

Some of these managers, he said, "deserve the benefit of the doubt." Although this may run against any single instinct people have, it's true. When Cramer talks about deserving the benefit of the doubt, he said he's referring to managers in the consumer products and retail industries.

"I'm talking about something more important than the numbers," he said, adding that the time frame for these stocks is longer than 24 hours. "We're not trading here."

One such CEO who deserves the benefit of the doubt is Coach's (COH Quote) Lew Frankfort, Cramer said. Last May, when Coach missed its numbers, Frankfort went on the show and said it was a one-time thing, Cramer said. And if viewers gave him the benefit of the doubt then, they might have caught a double in the fancy-handbag maker, Cramer said.

The first name on Cramer's Benefit of the Doubt list on Monday was VF Corp.'s (VFC Quote) Mackey McDonald.

When people wanted VF to get rid of its Vanity Fair bra business, it did, Cramer said. Instead of going up after that, the stock suffered. But now, a month later, the stock is up significantly, he said.

"This man is a man I can trust," he said. "When VF misses a number, you can take it as a buying opportunity."

Activists and Underperformers

The new template is that an underperforming management plus an activist investor equals money, Cramer said. A stock that fits this model and one that investors should consider getting into is PDL BioPharma (PDLI Quote).

The company gets millions of dollars in royalties, but people wouldn't know that from the performance of its stock. PDL BioPharma's management has made "many bad decisions" over the years and turned the company into something people don't want to touch with a 10-foot pole, Cramer said.

But now that credible activists have moved in and have estimated that the $20 stock should reach $39 to $59, he believes it is time for viewers to get in as well. The activists will be doing the "heavy lifting" here to get the management to start acting more intelligently, and all that market-players have to do is "piggyback" off that, Cramer said.

PDL BioPharma has taken its money from royalties and "spent it like a drunken sailor," he said. "This was a company that should have been printing money, but it was bleeding it."

Some excessive spending includes PDL BioPharma's $500 million acquisition of ESP Pharma and $200 million to $250 million in capital expenditures when the company thought it was three years away from delivering its first drug, Cramer said.

Cramer said he got the idea from Stockpickr.com's portfolio of stocks targeted by activist investors.

Mad Mail

In his "Mad Mail" segment, Cramer told a viewer that he prefers Transocean (RIG Quote), which he owns for his Action Alerts PLUS charitable trust, to Weatherford International (WFT Quote) because the latter has too much exposure to Canada.

Responding to another mailer, Cramer said he would pull the trigger on Quest Diagnostics (DGX Quote), which he also owns for his charitable trust, because it has a big buyback and he believes "it's a bull stock."

Lightning Round

Cramer was bullish on Transocean (RIG Quote), Washington Mutual (WM Quote), Bank of America (BAC Quote), Thermo Fisher Scientific (TMO Quote), Western Union (WU Quote), Freeport-McMoRan (FCX Quote), Best Buy (BBY Quote), Northern Orion Resources (NTO Quote), Lundin Mining (LMC Quote), BigBand Networks (BBND Quote) and Cisco (CSCO Quote).

Cramer was bearish on Helix Energy (HLX Quote).

There Goes Swifty!

During his "Sudden Death" round, Cramer was bullish on Western Refining (WNR Quote), Valero Energy (VLO Quote) and Energy Metals (EMU Quote).

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

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