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Cramer's 'Mad Money' Recap: Domestic Steel Is Back

TheStreet.com Staff

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Despite the severe downturn in the economy, steel stocks are one of the best performing groups in the market, Jim Cramer told students Wednesday at his live "Mad Money" TV show at Penn State University's Smeal College of Business.

Cramer credits the surge in steel stocks to 52-week highs to industry consolidation, dramatically lower capacity and decreased steel imports.

In the 1980's, he pointed out, there were 12 large domestic steel companies, two of which were in the Dow Jones Industrial Average. Today, there are only three, and none of them are worthy of inclusion in the Dow.

This industry consolidation, Cramer noted, has made the three remaining players much stronger and much more valuable.

Cramer also noted the industry consolidation led to a dramatic decline in production capacity and strong demand for steel as well as higher prices.

Cramer also credited the "renaissance" in steel to a decline in steel imports. Strong internal demand from countries such as China and India, coupled with higher freight costs and a weaker dollar have led to a sizable decline of imported steel in the U.S.

According to Cramer, investors should expect to see more weakness in the steel stocks and take advantage of down days to begin buying.

Student Pitches

Cramer listened to stock ideas from members of Penn State's student-run investment club, the Nittany Lion Fund.

The first student suggested buying Nike (NKE Quote - Cramer on NKE - Stock Picks), a stock that has been up in this down market. Cramer agreed that Nike is a strong company and liked the idea of sticking with the winners.

A second student liked Excelon (EXC Quote - Cramer on EXC - Stock Picks) as a clean energy play with a great dividend. Cramer questioned the company's nuclear efforts, but said a strong dividend stock is perfect for this environment.

The third student asked about Allergan (AGN Quote - Cramer on AGN - Stock Picks), makers of Botox. Cramer recounted Allergan's earlier losses and a weakening economy. He called the stock "a tough call" and said he's still on the fence.

The final student picked Raytheon (RTN Quote - Cramer on RTN - Stock Picks) as his favorite defense play. Cramer agreed with this pick and said he owned Raytheon for his charitable trust, Action Alerts PLUS.

A Man of Steel

Cramer returned to his steel thesis to recommend U.S. Steel (X Quote - Cramer on X - Stock Picks), a stock that he's liked since he first recommended it in January, 2006. During that period, U.S. Steel shares have increased 149%, but Cramer says the company is still cheap.

Cramer says U.S. Steel trades at just 11 times expected 2009 earnings while competitors like NuCor (NUE Quote - Cramer on NUE - Stock Picks) trades at 12 times earnings and AK Steel (AKS Quote - Cramer on AKS - Stock Picks) trades at 13 times earnings.

Cramer welcomed John Surma, CEO of U.S. Steel, to the show to discuss the company's outlook. Surma said his company survived the fall of the steel industry by making smart decisions. He said he sees a strong future ahead of the company.

Regarding competition from cheap, imported steel, Surma explained that the playing field has been significantly leveled over the years. His company is now more competitive, with increased productivity and new labor contacts, which give it a strong cost position.

He also confirmed Cramer's thesis that a weaker dollar and increased freight costs make domestic steel more attractive to their customers.

Asked about recession fears, Surma cited low inventories and no excess supply as the catalysts that are driving his company's strong growth. He sees no signs of that slowing anytime soon.

Cramer on Energy Stocks

A student asked Cramer about investing in Sunoco (SUN Quote - Cramer on SUN - Stock Picks). Cramer warned that Sunoco is not making a lot of money as long as oil stays high.

He recommended owning Valero (VLO Quote - Cramer on VLO - Stock Picks) or a refiner with natural gas exposure such as Conoco Phillips (COP Quote - Cramer on COP - Stock Picks).

Lightning Round

Cramer was bullish on Public Service Enterprise (PEG Quote - Cramer on PEG - Stock Picks), McDonald's (MCD Quote - Cramer on MCD - Stock Picks), L-3 Communications (LLL Quote - Cramer on LLL - Stock Picks), General Dynamics (GD Quote - Cramer on GD - Stock Picks), Raytheon (RTN Quote - Cramer on RTN - Stock Picks), Textron (TXT Quote - Cramer on TXT - Stock Picks), EMC (EMC Quote - Cramer on EMC - Stock Picks) and Walt Disney (DIS Quote - Cramer on DIS - Stock Picks).

Cramer was bearish on Tata Motors (TTM Quote - Cramer on TTM - Stock Picks), Boeing (BA Quote - Cramer on BA - Stock Picks), Moody's (MCO Quote - Cramer on MCO - Stock Picks) and Sony (SNE Quote - Cramer on SNE - 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.