Cramer's 'Mad Money' Recap: Look for Buying Opportunities

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NEW YORK ( TheStreet) -- Nobody wants to hear about opportunities on big down days in the markets, Jim Cramer told "Mad Money" viewers Monday.

That's because for most investors, down days are a time to wallow in the European morass and focus on losses. But for smart investors, down days are nothing more than the markets putting great companies on sale.

Investors not suffering from "market paralysis" Monday were able to buy great American stocks like Petsmart ( PETM), Ross Stores ( ROST) and Colgate-Palmolive ( CL) all at terrific prices.

Other great buys included Johnson & Johnson ( JNJ) and Coca-Cola ( KO).

What makes all of these stocks so attractive? The competition, said Cramer. With a 10-year Treasury bond yielding next to nothing and the 30-year bond netting just 2.5%, who won't be interested in a stock like Johnson & Johnson yielding 3.6% or Verizon ( VZ) yielding 4.5%?

There are tons of great opportunities out there if investors know where to look. Sure, Johnson & Johnson didn't have a spectacular quarter, but its new CEO is highly motivated to streamline operations and bring out value, Cramer said, while the stock's 3.6% dividend pays you to wait for good things to happen.

Even in the beaten-down oil patch, Cramer said there are opportunities like Baker Hughes ( BHI) and Halliburton ( HAL). Similar opportunities exist with the industrials.

"It's hard to be a buyer when the sellers are shooting at you," admitted Cramer, but buying high and selling low is not an investment strategy that will make you any money.

Executive Decision

In the "Executive Decision" segment, Cramer spoke with Sandy Cutler, chairman and CEO of Eaton ( ETN), a company that delivered an earnings beat of six cents a share but also cut its full-year guidance amid a slowing global economy.

Despite the weakness, shares of Eaton soared 9% in Monday's trading and are up 9% since Cramer reiterated his buy on the stock a month ago.

Cutler said that despite some global weakness, Eaton still saw a strong quarter with higher margins thanks to its new, innovative products. Here in the U.S., he noted, non-residential construction was up 4% and looks to be beginning a multiple-year run to the upside. Aerospace is also bother area of strength for Eaton.

In emerging markets, however, a different story is playing out. In Brazil, Cutler said the country saw a big pop after the 2008 recession but is now slowing along with many other emerging markets. Cutler said the pickup he expected to see in China in late 2012 will likely not materialize until 2013.

Turning back to the U.S., Cutler said he has been vocal about the coming "fiscal cliff." He said now is the time for leadership with our country's budget, both on the revenue and expense side. It's a problem that "needs to be solved" in order to create certainty that both consumers and business can build on.

Cramer called Eaton a transformational company that's not sitting idly by while the world's economies slumber. He said "this is the bottom" for Eaton's stock and once again touted it's 3.7% yield as paying investors to wait for the economy to turn.

Another Look at Chipotle

When the facts change, investors need to change along with them, Cramer reminded viewers. Such is the case with Chipotle Mexican Grill ( CMG), the restaurant chain that reported slowing sales last Thursday, news that sent shares down 87 points, or 22%.

Cramer explained that before Chipotle's latest results, the company had accelerating revenue growth and same-store sales growth of 12% a quarter, the highest of any restaurant chain. That meant it deserved its 44 times earnings multiple and its $400 share price. But now those assumptions are out the window, said Cramer, and Chipotle's valuation must be recalculated.

Chipotle's same-store sales dropped from 12% to just 8% in its most recent quarter and company management cited a weakening economy for the decline, a trend it expects to continue into the next quarter. After its massive haircut, Cramer said shares now trade at just 34 times earnings, but that number may still be too high.

So what is a fair price for Chipotle? At 34 times earnings, shares now match that of Whole Foods Markets ( WFM), but Whole Foods still has accelerating growth. Investors could compare Chipotle to Panera Bread ( PNRA), which trades at 25 times earnings, but Chipotle has almost double the revenue growth of Panera.

Cramer said Chipotle is likely fairly valued at its present 34 times earnings. He said a Panera-style multiple of 25 would be a floor for Chipotle, while Whole Foods would likely be a new ceiling. But with Yum Brands ( YUM) citing a 13% rise in sales at low-end Taco Bell, the trade-down play is clearly happening, said Cramer, which means Chipotle shouldn't be owned until it hits 30 times earnings, or $270 a share.

Chipotle isn't the same company we knew last week, Cramer concluded, which is why we must now wait for its valuation to come back into line.

Lightning Round

Here's what Cramer had to say about callers' stocks during the "Lightning Round":

Thermo Fisher Scientific ( TMO): "I like this business and I think it's inexpensive. I want to buy it."

Frontier Communications ( FTR): "No, no, no. I've gone back to CenturyLink ( CTL)."

Hess ( HES): "Too poorly managed. Sell, sell, sell. I do like the oils though."

Netflix ( NFLX): "That is the hardest stock in the world. I don't know what they will do next."

Monster Beverage ( MNST): "I think that business is good but no one wants to pay that multiple. "

On the Horizon

In the second "Executive Decision" segment, Cramer spoke with Brian Jordan, chairman, president and CEO of First Horizon ( FHN), a regional bank whose shares fell 5% after reporting earnings despite the company already having one of the cheapest valuations in its sector.

Jordan said there are a number of things affecting bank valuations. Despite having strong core fundamentals and an improving capital markets business, the overhang from the mortgage crisis still weighs on First Horizon's stock. When asked about the lingering mortgage morass, Jordan said his bank is on the back side of the crisis and feels they now have enough reserves set aside for any mortgage repurchases that may come along.

Turning to the question of what is a fair valuation for First Horizon, Jordan said that tangible book value is an important reference point as it takes into consideration many of the bank's core fundamentals. He said First Horizon's business is in line with an economy growing at 1% to 2% a year but also of a bank that's been able to take a little market share from its competitors.

Finally, when asked about what needs to happen to get the U.S. economy moving, Jordan said getting Europe off the front page would be a start. But he also said that the November elections and the pending "fiscal cliff" are also important factors.

Cramer remained bullish on First Horizon.

No Huddle Offense

In his "No Huddle Offense" segment, Cramer opined on the $20 billion worth of mergers and acquisitions announced Monday including China's CNOOC ( CEO) buying Canada's Nexen and closely held Joh H. Benckiser shelling out $1billion for Peet's Coffee & Tea ( PEET).

He said while it may be easy to dismiss these mergers in the shadow of Europe, they mean a big deal for those who own shares of any of these companies. For the companies themselves, it's an even bigger deal.

Cramer said while many see acquisitions as a needle in a haystack, Monday's deals may be signaling the beginning of a trend. These stocks may not be worth a lot to the markets, he said, but to other companies who need growth they're a bargain.

--Written by Scott Rutt in Washington, D.C.

To contact the writer of this article, click here: Scott Rutt.

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To watch replays of Cramer's video segments, visit the Mad Money page on CNBC.

At the time of publication, Cramer's Action Alerts PLUS had a position in ETN.

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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Some of the stocks mentioned by Mr. Cramer on "Mad Money" are held in Mr. Cramer's Action Alerts PLUS Portfolio. When that is the case, appropriate disclosure is made on the program and in the "Mad Money" recap available on TheStreet.com. The Action Alerts PLUS Portfolio contains all of Mr. Cramer's personal investments in publicly-traded equity securities only, and does not include any mutual fund holdings or other institutionally managed assets, private equity investments, or his holdings in TheStreet.com, Inc. Since March 2005, the Action Alerts PLUS Portfolio has been held by a Trust, the realized profits from which have been pledged to charity. Mr. Cramer retains full investment discretion with respect to all securities contained in the Trust. Mr. Cramer is subject to certain trading restrictions, and must hold all securities in the Action Alerts PLUS Portfolio for at least one month, and is not permitted to buy or sell any security he has spoken about on television or on his radio program for five days following the broadcast.

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