Cramer's 'Mad Money' Recap: A Game Plan for the Recovery

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To get a better understanding of the recovery of the economy, you just need to know the letters L, U and V, Jim Cramer told viewers of his "Mad Money" TV show Friday.

Cramer sees three distinct scenarios for the recovery. The first scenario is what he calls the "V" recovery in which the economy snaps back to previous levels as a result of the Federal Reserve's string of rate cuts.

Investors following this scenario are buying the financials, homebuilders and even the mortgage insurers on expectations of getting an immediate bounce.

The "L" recovery is at the other end of the spectrum. In this scenario, the economy will bottom, but never really take a significant turn upwards.

Stabilization is the key in this scenario. These investors, he noted, buy safe stocks such as McDonald's (MCD Quote), which he also owns for his Action Alerts PLUS portfolio, Verizon (VZ Quote) and United Technologies (UTX Quote).

In between these two extremes is a "U" recovery. Cramer described this scenario as a slow but ultimately successful recovery that could take as long a year to complete.

"U" investors cautiously buy stocks such as retailers and do so slowly on weakness.

In Cramer's view, believers in the "V" recovery are too aggressive and view the world "through rose-colored glasses." At the other end, believers in the "L" recovery are not bullish enough.

Cramer said he believes in the "U" recovery and would buy such retailers as Kohl's (KSS Quote), J.C. Penney (JCP Quote), Jones Apparel (JNY Quote) and Lowes (LOW Quote).

Cashing In On Brazil's Housing Boom

In the last segment of his week-long series on Brazilian stocks, Cramer told viewers to take a look at Gafisa (GFA Quote), the country's No. 2 homebuilder. He said Gafisa is on fire this year, with earnings expected to grow 203% and revenue by 53%.

Cramer said Gafisa's growth has been sparked by a recent change in the country's housing laws that allows banks to repossess defaulting properties in a fraction of the time previously allowed. The result: Brazilian banks have stepped up their lending activity now that the risk-reward equation has swung in their favor.

Brazil has seen an 80% growth in the number of mortgages, and Cramer said Gafisa is going along for the ride.

The company is one of the few homebuilders that is actually growing and is raising home prices. Gafisa trades at just 7.2 times estimated 2008 earnings and Cramer said even if the stock quintupled in price, "It would still be a steal."

Grading the Pitches

Cramer said he did some homework on the four stocks pitched to him by the student-run investment club, Smart Women Securities (SWS), during "Ladies Night" two weeks ago. Here's how he sees them.

First up: Flowers Foods (FLO Quote). Cramer said that while Flowers might have looked good two weeks ago, it's a sell due to rising raw costs. The company trades at 22 times its earnings, but is only growing at 10%, and that makes it too expensive in Cramer's book.

Cramer put PharMerica (PMC Quote) in the "don't buy" camp. This company is too new and unseasoned to invest in, he said, adding he saw no compelling reason to take on the extra risk.

Cramer didn't think Clorox (CLX Quote) was a good choice. He noted the company's rising raw costs, recent downgrade and lowered guidance. Instead he recommended PepsiCo (PEP Quote) as an alternative play.

Cramer sees EnerNoc (ENOC Quote) as a speculative energy conservation play. Cramer said this one is a buy, adding the company's energy conservation efforts are perfect suited for the upcoming election cycle.