Cramer's 'Mad Money' Recap: Spitzer Weighs In On the Credit Crisis

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Jim Cramer welcomed New York Gov. Eliot Spitzer to his "Mad Money" TV show on Friday to discuss the current credit crisis and what he is doing to tackle the problem.

Spitzer said that Cramer's views on the crisis have been dead-on for months. He agreed that the Federal Reserve and the federal government should have stepped in months ago to address the problem, and that the current stimulus package will do little to help the economy.

Spitzer also agreed that the Federal Housing Administration should get involved and offer 30-year fixed rate mortgages to homeowners with no other options and that the federal government should step in to bail out the mortgage insurers.

According to Cramer, two mortgage insurers are at the center of the market's problems. They are Ambac (ABK Quote) and MBIA (MBI Quote).

Cramer took issue with the mortgage insurers being allowed to pay dividends to their shareholders while their underlying finances deteriorate. Spitzer said that the state has stepped in to limit the outflow of capital from these companies while they work out their financials.

Spitzer also said that there is a serious problem with the credit rating system that has allowed these insurers to maintain their AAA ratings while the markets were faltering.

In response to Spitzer's comments, Cramer replied, "We have to solve this problem, and at least Gov. Spitzer is trying."

The Right Way to Speculate

For "Speculation Friday," Cramer touted diagnostics company Quidel (QDEL Quote) as a stock that should be great for everyone. Quidel, he noted, can teach investors how to speculate the right way.

"Diagnostics is one of the best long-term stories out there," Cramer said. And since diagnostics lowers medical costs and makes people healthy, it makes Quidel a twice- blessed stock, he added. Quidel currently holds 70% of the market share for flu testing and 40% to 50% of the market for strep and pregnancy detection.

So far, this year's flu season has been mild, but Cramer said it's now quietly roaring back to life with many states reporting increased flu activity. "This is a trend that will send Quidel higher."

Flu testing accounts for 40% of Quidel's sales, so a strong flu season provides significant upside and is not a part of the current earnings estimates, Cramer said. "This gives us the edge over Wall Street."

Quidel reports its quarterly earnings on Feb. 21, and Cramer recommends buying the stock ahead of the results. He expects Quidel to not only report an in-line quarter, but says the guidance for the upcoming quarter should cause analysts to raise estimates.

Cramer than ran down his speculative stock checklist. "Is the balance sheet clean?" he asked. "Yes."

"Does the company have a buyback program for downside protection?" "Yes, it does," he said.

And finally, "How's the valuation?" Here Cramer said Quidel is cheap. The company trades at just 27 times its earnings but has a 25% long term growth rate. That gives Quidel a 1.2 times multiple and that makes it cheap.

Too Expensive

Cramer revisited Stanley Associates (SXE Quote), a stock that a caller stumped him earlier in the week. After doing his homework, Cramer said the stock has the potential to go a lot lower.

Stanley reported a disappointing quarter, missing sales estimates by $10 million. "When a company can't make their own estimates, they need to be in the penalty box," Cramer said. Stanley was priced for perfection, but delivered imperfection.

Cramer said the average multiple for companies in the government IT business is 16 times forward earnings, but Stanley currently trades with an 18.6 times multiple. This makes Stanley extremely expensive for a company who just missed their own estimates.

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