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Mad Money Spotlight: Cramer Likes BJ's

Jim Cramer says in a battle between warehouse clubs, BJ's is the clear winner.

It's no secret that warehouse stores are outperforming competitors these days; bargain-bin prices on household basics are a siren song to cash-strapped shoppers.

But there can only be one winner in any sector, and Jim Cramer says that title goes to

BJ's Wholesale Club

(BJ) - Get BJ's Wholesale Club Holdings, Inc. Report


On Monday's "Mad Money," Cramer said that when you compare BJ's against its biggest rival,

Costco Wholesale

(COST) - Get Costco Wholesale Corporation Report

, BJ's is not only the better company, but also the better stock.

In response, BJ's stock rose more than 2% in Monday's after-market trading. Costco spiked down more than 2% in the after-market, before creeping back to yesterday's close at the start of trading Tuesday.

The underlyings are persuasive: Costco is mainly located in the West Coast, with many stores in California, one of the areas hardest hit by the recession. BJ's on the other hand, is predominantly on the East Coast, with stores in New York and Florida.

And while Florida has also been an epicenter of hardship, BJ's has more store-growth advantage, giving it the upper hand. Cramer said that even if BJ's were to double in size, it still wouldn't be as large as Costco.

Last month, BJ's said it saw a

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41% jump in first-quarter earnings and raised its full-year outlook


The company earned $24.3 million during the quarter, or 45 cents a share, compared with $17.2 million, or 29 cents, a year earlier. Analysts expected earnings of 44 cents a share.

Its sales rose slightly to $2.26 billion from $2.25 billion, but its total same-store sales declined 1.5%.

BJ's now expects full-year earnings in the range of $2.44 to $2.54 a share, up from an already raised forecast of $2.42 to $2.52 a share.

In comparison, last week Costco said that it once again missed expectations, as third-quarter earnings fell to $209.6 million, or 48 cents a share. Excluding litigation costs, Costco's profit was 52 cents a share, a penny shy of analysts' forecasts.

Sales at the company declined 5% to $15.48 billion, as membership fees fell 6%.

Granted, while it's clear that BJ's is currently the better retailer, there is some discrepancy when looking at the stock of both companies.

BJ's trades at 13 times its earnings, and is closer to its 52-week low than it is its high. Costco trades at 18 times its earnings. This, according to Cramer, makes BJ's the clear winner, and the stock to own in the warehouse space.

But Dan Fitzpatrick disagreed during his "3 Stocks I Saw on TV" segment Tuesday morning. He says that of the two, BJ's is a sloppy stock, trading all over the map.

"It looks like barf on a piece of paper," he said.

Costco's charts are more structured, and Fitzpatrick thinks there is more potential.

But if you do decide to go with BJ's, how do you protect yourself from volatility? Fitzpatrick says to take a small position going in, let it ride, and then add to it when you receive confirmation that you're right.

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