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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
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
, which he also owns for his
Action Alerts PLUS portfolio,
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
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
, 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.
. 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.
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
was a good choice. He noted the company's rising raw costs, recent downgrade and lowered guidance. Instead he recommended
as an alternative play.
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.
Profiting on Cell Phone Upgrades
Cramer welcomed David Aldrich, President and CEO of
to the show for an update on the company's business.
Aldrich said the company's business continues to be strong. The cell phone industry, he said, is in the middle of an upgrade cycle, with older voice-only phones being replaced by smartphones that provide GPS, Internet and other services.
In addition, he said, Skyworks is now a sizeable supplier to all of the major cell phone manufacturers including
Research In Motion
Calling Skyworks a great story, Cramer said he continues to be behind the company.
Cramer was bullish on
Sirius Satellite Radio
Cramer was bearish on
Wellcare Health Plans
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At the time of publication, Cramer was long McDonald's, Schering-Plough and ConocoPhillips.
Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for TheStreet.com, Inc., and CNBC, and a director and co-founder of TheStreet.com. All opinions expressed by Mr. Cramer on "Mad Money" are his own and do not reflect the opinions of TheStreet.com or its affiliates, or CNBC, NBC UNIVERSAL or their parent company or affiliates. Mr. Cramer's opinions are based upon information he considers to be reliable, but neither TheStreet.com, nor CNBC, nor either of their affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Mr. Cramer's statements are based on his opinions at the time statements are made, and are subject to change without notice. No part of Mr. Cramer's compensation from CNBC or TheStreet.com is related to the specific opinions expressed by him on "Mad Money."
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