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 Federal Reserve's 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.
Cashing In On Brazil's Housing BoomIn the last segment of his week-long series on Brazilian stocks, Cramer told viewers to take a look at Gafisa ( GFA), 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 PitchesCramer 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. First up: Flowers Foods ( FLO). 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. Cramer put PharMerica ( PMC) 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 Clorox ( CLX) was a good choice. He noted the company's rising raw costs, recent downgrade and lowered guidance. Instead he recommended PepsiCo ( PEP) as an alternative play. Cramer sees EnerNoc ( ENOC) 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.