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Cramer's 'Mad Money' Recap: Why Starbucks Will Rebound

TheStreet.com Staff

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"It's time to worry less about capital appreciation and more about capital preservation," Jim Cramer told viewers of his "Mad Money" TV show Tuesday -- at least until the Federal Reserve finally acts and slashes rates big.

Cramer said he wants to keep home-gamers involved in the market, but advised them to keep a low-risk profile. They should invest in stocks with good dividends and hold some cash on the sidelines to take advantage of opportunities.

And one of those opportunities has arrived, said Cramer, when four companies recently took a lesson from Donald Trump and fired three CEOs and one chairman. Cramer examined each of these firings to see which ones will make money.

First up is Starbucks (SBUX Quote - Cramer on SBUX - Stock Picks), which just replaced CEO Jim Donald with company founder Howard Schultz. Cramer has loathed Starbucks since February 2007.

Cramer, long a fan of Schultz, said the stock has taken a beating because Starbucks has too many stores; it was expanding to suit the needs of Wall Street; it was failing to innovate; and it was lagging in customer service.

That all changes now that Schultz is back at the helm, Cramer said. He compared the company's turnaround to that of McDonald's(MCD Quote - Cramer on MCD - Stock Picks), a stock he owns for Action Alerts PLUS. Coincidentally, McDonald's also brought back key executives to spur innovation and growth.

Cramer's change of heart in Starbucks came after Schultz called him to assure him he would do whatever it takes to turn the company around. Cramer said he believes him.

According to Cramer, the best way to scale a position in Starbucks is to buy one-quarter of the position now, another quarter a week from now, and the remaining half after the company reports at the end of January.

A Lot More to Do

Next on the list of "resignations" is Jimmy Cayne, CEO of Bear Sterns (BSC Quote - Cramer on BSC - Stock Picks), who was just replaced by Alan Schwartz. This stock has fallen from $172 to $71.

Bear is a firm that's now known for its exposure to mortgage-backed bond trading, Cramer points out, "and changing the CEO won't fix that." Bear Sterns is a stock that investors should not touch, Cramer said. The company has a lot more work to do to clean up its reputation and balance sheet.

Cramer recommended Merrill Lynch (MER Quote - Cramer on MER - Stock Picks) as an alternative to Bear Sterns. Merrill, he points out, is a stock with solid management, an indestructible brand, and a substantial retail network. Cramer feels Merrill has already cleaned house and is laying the ground work for future success.

Broken Companies

Cramer reminded viewers that he still prefers Goldman Sachs (GS Quote - Cramer on GS - Stock Picks) over all other brokers, but now feels Merrill is getting attractive.

While Cramer feels there is something to salvage at Starbucks and Bear Sterns, that's not the case with the firings at Sallie Mae (SLM Quote - Cramer on SLM - Stock Picks) and Krispy Kreme (KKD Quote - Cramer on KKD - Stock Picks). The former, he points out, are broken stocks, while the latter are broken companies with considerable earnings risk.

Sallie Mae's business is changing, Cramer said, with more students opting for grants instead of loans and more graduates defaulting on the few loans they have. Business is so bad, Cramer inducted CEO Albert Lord to the top spot on his "Wall of Shame."

Krispy Kreme, Cramer says, "is sinking, no matter who runs it." It has a history of no real earnings and closing stores because franchisees are losing money. Cramer said he "would not touch KKD with a 10-foot pole."

Air Products CEO John McGlade

Cramer was once again taking the temperature of the economy by welcoming John McGlade, CEO of Air Products and Chemicals (APD Quote - Cramer on APD - Stock Picks) to the show.

McGlade indicated that their business, like that of AirGas (ARG Quote - Cramer on ARG - Stock Picks), is also strong, with 55% of its sales now outside of the U.S. He also confirmed that the company has been able to raise prices successfully and, with shortages in gases such as helium, it's ramping up production to meet demand.

Cramer reiterated his buy on Air Products, saying that if the Federal Reserve continues to cut rates, investors could see a 25% boost in the price of stock.

In the Lightning Round, Cramer was bullish on Bristol-Myers Squibb (BMY Quote - Cramer on BMY - Stock Picks), Schering-Plough (SGP Quote - Cramer on SGP - Stock Picks), Biogen Idec (BIIB Quote - Cramer on BIIB - Stock Picks), EMC Corp (EMC Quote - Cramer on EMC - Stock Picks), Intercontinental Exchange (ICE Quote - Cramer on ICE - Stock Picks), Foster Wheeler (FWLT Quote - Cramer on FWLT - Stock Picks), Sirius Satellite Radio Inc (SIRI Quote - Cramer on SIRI - Stock Picks) and Deckers Outdoor Corp (DECK Quote - Cramer on DECK - Stock Picks)

Cramer was bearish on VMware (VMW Quote - Cramer on VMW - Stock Picks), E*TRADE (ETFC Quote - Cramer on ETFC - Stock Picks) and Citigroup (C Quote - Cramer on C - Stock Picks)

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

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