Cramer's 'Mad Money' Recap: Red Zone Defensive Plays

Takeover Rumors: Alcoa, Dow

Although investors shouldn't take stock tips seriously, rumors can make people some mad money if they know what they're doing, Cramer said.

On Feb. 26, there was a story in a British newspaper that said Dow Chemical (DOW Quote) could be a target for a private equity buyout, Cramer said. And shortly after, there was another rumor about how Alcoa (AA Quote) could also be a takeover target.

Both of these rumors have "credence," Cramer said, and after today, the private equity guys will be all over Dow and Alcoa because they, unlike those that have been selling everything, "know everything is not linked to mortgages."

Moreover, Cramer said he wouldn't have recommended the stocks if their fundamentals were bad -- but the fundamentals are actually good, and both stocks are worth buying even without the rumors. Plus, as an added incentive: "These two stocks could be where lightening is about to hit," he said.

There is speculation that the big private equity firms could take Dow out at $60 a share, Cramer added. On top of that, at this level the stock has a 3.5% yield and the company has been raising prices and lowering costs, he said. Dow closed Tuesday's session at $42.94.

Concerning Alcoa, Cramer said BHP Billiton (BHP Quote) and Companhia Vale do Rio Doce (RIO Quote) are rumored to have been looking at it as a prospective target, but neither of them has approached Alcoa's board yet.

BHP and RIO each value Alcoa at $40 billion, and the purchase would make sense for both companies because they are in aluminum, as is Alcoa, he said. Even if a takeover never materializes, there's no need to worry, said Cramer. Aluminum has been a dog lately, but that should not last for long, he said.

"Listen to the takeover rumors," he said. "Buy Dow and Alcoa, because in the end, where there's smoke, there's fire."