NEW YORK ( TheStreet) -- "The cavalry isn't coming to save Europe," Jim Cramer announced to his "Mad Money" TV show viewers Monday. "If you're hoping for the cavalry, stop," he continued, "as hope should never be part of the investing equation." Cramer said there are many things wrong with the cavalry thesis in Europe. First, he said, there needs to be a cavalry before it can ride to the rescue. But just who would that cavalry be? With so many banks and countries in need of help, Cramer said the incredible size of a bailout is unfathomable. He said there will be money available to bail out depositors at these banks, but shareholders and bond holders will most certainly be left out to dry. These banks and countries can, of course, continue to offer new bond auctions, he said, but for how long? Cramer said these auctions are a recipe for instant losses and the world's investors won't be fooled for long. Cramer explained that the European Central Bank won't act as the cavalry because they can't agree on anything. The Germans won't be the cavalry either, as they're too worried about inflation. Some think the Chinese will ride to the rescue, but the Chinese are already losing money in Europe and aren't likely to throw good money after bad. Even the Middle East isn't likely to invest, as they too are already heavily involved in the crisis. So with no one left to ride to the rescue, Cramer said he scoffs at the idea that a cavalry will ever come to save the banks and countries of Europe. He said that investors need to stop expecting a rescue and warm up to stocks with dividends, like Bristol Myers-Squibb ( BMY) and Pfizer ( PFE) and utilities like ConEd ( ED) and Duke Energy ( DUK). Cramer was recently asked about Plains All American Pipeline ( PAA), an oil and gas master limited partnership, and how it compares to his all-time fav Kinder Morgan Energy Partners ( KMP), one of the stocks he owns for his charitable trust,
Kinder Morgan is one of the largest and most consistent players in the oil pipeline space, said Cramer, with 37,000 miles of pipeline and more than 180 terminals across the continent. Kinder also currently yields a hefty 5.8%. Plains All American, on the other hand, is about half the size, with 17,000 miles of pipeline, but it yields 5.7%. Cramer explained that in the short-term, shares of Kinder Morgan may be stuck in the mud, thanks to the acquisition of El Paso Energy ( EP), a deal that should close in 2012. Until then, however, he said that the smaller Plains All American is an attractive bet. While Kinder is more diversified, Plains All American is more levered to the red-hot oil liquids market, he said. The company is also growing its capacity by 8% to 9% next year and has great assets in the Bakken and Eagle Ford shale regions as well as the oil sands in Canada. Cramer also noted that Plains All American currently generates more than $6 a share in cash flow, making its dividend a safe bet. In the long-term, Cramer said that the management of Kinder Morgan will always make it his favorite master limited partnership, but until the El Paso deal closes, he said that Plains All American is also a thoroughbred contender that's just starting to stretch its legs.
Eat, Drink, Be Merry and ShopJust in time for the holidays, Cramer rolled out a new "Eat, Drink, Be Merry and Shop" series to highlight some of his favorite stocks in each area. His first pick was Yum! Brands ( YUM), the world's largest restaurant operator with over 38,000 locations around the globe. Cramer said that unlike Darden Restaurants ( DRI), a domestic operator that missed numbers by a mile, Yum! Brands is an international story, with nearly three quarters of its profits stemming from outside the U.S. The crown jewel for Yum! Brands is its KFC brand in China, which now accounts for 45% of all the company's profits. Yum! currently has just 4,200 locations in China, which translates to 3.1 restaurants for every one million in that country. Compare that figure to the 60 restaurants per million people in the U.S. and investors can see the size of the opportunity.
Yum! Brands is about a lot more than just China, where sales are rising up 19% for the year. The company's international division is also rapidly expanding into other southeast Asian counties as well as in India and Africa. Cramer said, trading at just 17.8 times earnings, with a 12.7% growth rate, shares of Yum! Brands hardly assign any value to its U.S. operations. But that could be changing as the company is rumored to be considering a spinoff of some or all of its U.S. assets. Short of a spinoff, Cramer said there is still lots of room for good old-fashioned improvements in Pizza Hut, KFC and Taco Bell. Cramer said with shares just off their 52-week high, he would wait for a pullback before jumping into this red-hot international growth story.
Eyeing Covidien"We love break ups," Cramer told viewers, as he highlighted yet another company that's splitting itself into two and unlocking value for its shareholders. Tonight's stock was Covidien ( COV), a company that's largely seen as a medical device maker, which is why it plans to spin off its drug business in a deal that should be completed over the next 18 months. Cramer said the spin off of Covidien's drug business, which accounts for 17% of sales, is a smart one, as the drug business and the medical device business are more unrelated than people think and require different sales channels, different customers, different capital structures and talent. He said the stand-alone medical device business will be more focused and won't be brought down by the lower-margin drug business. Cramer explained that the drug business is also a volatile one, and Covidien's in particular has been plagued by recalls and supply shortages, as well as pressure from generic competition. But management now feels that most of the drug division's problems are behind them, which makes it the perfect time to spin off the entity. So how much is the spin off worth to shareholders? Cramer said that Covidien currently trades at just nine times earnings. Giving it a multiple of 11 times earnings as a stand-alone device maker and adding on the drug division makes it a $44 stock, he said, or a gain of 15% from today's prices.
But recent research reports value the spin off as a more lucrative deal, offering price targets of $59 a share, or a 38% premium. Cramer said either way, shares of Covidien are too cheap and should be bought.
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