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As private equity firms are looking to get into semiconductor companies "on the cheap," Jim Cramer told viewers on his "Mad Money" TV show Monday that there are two plays investors should consider:
Cramer believes that investors could make some money from Atheros and Broadcom, just like they might have with
, a company everybody "hated with a passion" once
spun it off.
While Freescale was "a forgotten-about tech stock that looked like nobody wanted" to own it, Cramer urged people to buy it -- and he was right. Eventually firms were fighting for it, which caused a bidding war. Freescale recently got taken over at a 30% premium, he said.
Although market players may no longer be able to make money off of Freescale, Atheros and Broadcom are two plays that Cramer is blessing right now. After tech and especially semiconductors "got ripped to pieces last summer," Cramer believes that now the environment is different for tech.
"It's in favor now and on fire," he said.
The first of two important things about Freescale that made it a good takeover target is that it was "a cheap stock that was going places," which, though they might not have been great places, were "good enough" places, he said.
Second, Freescale was a spinoff that everyone hated once Motorola dumped it.
Atheros and Broadcom are two cheap stocks that look like Freescale and could make people some money, Cramer said. Even if these companies don't get taken over, people still could make money on speculation that they might, because the fundamentals of Atheros and Broadcom are good, he said.
The two things these companies have in common with Freescale is that they both make chips and are both cheap, Cramer said.
Atheros is a big player in the wireless network space, and Broadcom is the best of breed and "ludicrously cheap," Cramer said. And, like Freescale, he said, Broadcom has "tons of cash."
If people are going to speculate, they should do it after they've done the necessary research and homework, Cramer stressed. Speculating does not mean "throwing money into a stock and hoping with your fingers crossed that it will make you money," he said.
There are number of ways to be a speculator without "treating the market like a casino." One such way is looking at spinoffs that haven't attracted much attention, Cramer said.
Investors liked when it Freescale got spun off from Motorola because it created a company that was easier to understand, he said. Two spinoffs that Cramer believes could be the next Freescale and could eventually get taken over -- and make people money -- are
Verigy, which was recently spun off, is an unknown company whose stock should be bought, he said. The company's business, which entails supplying equipment that tests semiconductor chips, is similar to that of a business
is selling for an estimated $3 billion, Cramer said.
This company could be purchased by private equity groups, as they "have a lot of cash to spend," he said. "Their money has to be invested somewhere, and Verigy is a good" place to put it, he said.
In addition, both
could buy Verigy, Cramer said.
However, because Verigy has been publicly traded for only four months, it could take a while to be bought. But if people are patient, he believes the company will get taken over and "in a solid 20 months before it gets acquired, it could go up all on its own, takeovers aside."
Verigy is not a trade, but an investment for a couple of years, Cramer said. If people want something more near term, he suggested looking into
spinoff, Novelis. Cramer owns Alcan for his charitable trust,
Action Alerts PLUS.
"Novelis could get a bid in three months," Cramer said.
Once in a while, a stock that is "written off and lost" manages to turn itself around, where its news becomes too good to ignore, Cramer said. One such stock that he believes people can make money off of is
One of IP's largest raw costs is natural gas, which the company needs to process paper. Although natural gas has gone down, it still hasn't given IP a big boost, Cramer said.
In addition, the company is as much a real estate play, as it is a paper play, he said. In fact, it is the largest private owner of timberland in the U.S., which has not been affected by real estate trends because the land it owns is not commercial.
IP has begun selling million of acres of its real estate in an effort to focus on paper and packaging. Thus, it could raise billon of dollars this way, he said.
The company has also cut its labor force in half, Cramer said.
With this money, International Paper is buying buy back 20% of its shares outstanding, and it has paid off its debt, Cramer said, calling it a "smart company that knows what its doing."
He suggested buying IP now, before it announces how it's spending the rest of its money and too many people buy it.
"There is a lot of speculation that IP will boost its dividend," Cramer said.
IP has lost people a lot of money, flat-lined and is now "ready to kick butt," he said.
In Cramer's "Mad Mail" segment he told a viewer he likes both
He advised another emailer inquiring about
to get into it.
Cramer was bullish on
Abercrombie & Fitch
Cramer was bearish on
Smith Micro Software
Chartered Semiconductor Manufacturing
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At the time of publication, Cramer was long Alcan.
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