Cramer's 'Mad Money' Recap: Risk vs. Reward

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NEW YORK ( TheStreet) -- The stock market is all about risk and reward, Jim Cramer said on "Mad Money" Wednesday.

In today's market, the perfect analogy is Caterpillar ( CAT) versus ConAgra ( CAG).

Cramer explained that Caterpillar shares continue to slide thanks, in part, to weakened iron ore and mineral demand world wide. While the company's construction business is picking up, its mining equipment business continues to pull down the entire company, which caused yet another analyst downgrade for CAT earlier today. Shares now trade at just nine times earning and yield 2.5%.

Compare that to ConAgra, said Cramer, which trades at 14 times earnings with a 2.9% yield. While CAT continues to fall, raising its yield, ConAgra shares continue to climb, thereby lowering its yield. While CAT suffers from falling commodity prices, ConAgra benefits from lower food and packaging costs.

So which stock is the better buy? Cramer said ConAgra lets its shareholders sleep at night, while Caterpillar may still have further to fall. There may not be a lot of upside left in ConAgra, but the risk in CAT far exceeds the lack of rewards in ConAgra. He advised sticking with ConAgra for now and waiting for the bottom in CAT to materialize.

Executive Decision: Gary Evans

In the "Executive Decision" segment, Cramer spoke with Gary Evans, chairman and CEO of Magnum Hunter Resources ( MHR), a stock that's fallen 39% since Cramer recommended it in February 2012. Since that recommendation, shares of Magnum Hunter have been plagued by falling natural gas production, accounting issues, a huge secondary offering of shares and missed earnings.

But after all of that, Cramer said Magnum may have finally turned a corner, finding a buyer for its Eagle Ford shale assets and giving the company a much-needed infusion of cash.

Evans said that it's taken a lot of capital to build out the company's positions in the Utica and Marcellus shale regions, investments that required the company take on a good amount of debt. However, they were able to make an 80% return on the sale of their Eagle Ford assets, which were the smallest of their positions.

Evans said that Magnum will use the $401 million in proceeds from the sale to pay down debt and take questions about the company's liquidity off the table once and for all. He said that Magnum will still be producing 20,000 barrels of oil a day, even without the Eagle Ford, and the company will make a 60% to 70% return on their remaining assets.

Evans explained the economics in both the Utica and Marcellus will be better for Magnum, especially given that natural gas prices have risen from $2 to $4. He said his company is hedged for 2013, but remains open for 2014 and 2015 given that gas and oil prices continue to creep ever higher.

Cramer admitted that he was clearly wrong to recommend Magnum Hunter a year ago, but with the changes the company's made and its outlook greatly improved, he said that now is the time for investors to average down.

Game-Changing Gene Therapies

Continuing with his focus on smaller, speculative biotech opportunities, Cramer looked at Isis Pharmaceuticals ( ISIS), Alnylam Pharmaceuticals ( ALNY) and Sangamo BioSciences ( SGMO), three companies hoping to change the game when it comes to gene therapies.

Cramer said shares of Isis are already up 78% since he recommended it in October, but this orphan drug maker still holds a lot of promise. He said the company has over 20 drugs in development including treatments for breast and prostate cancers. He said investors should use any weakness in the stock to buy more.

Then there's Alnylam, a company working on similar gene therapies. It currently has five drugs under development. Cramer said Alnylam only has a $1.3 billion market cap, which means any Food and Drug Administration approvals would "move the needle" significantly for the company. Alnylam also has a suite of large biotech partners helping it along, which makes success all the more likely.

Finally, there's Sangamo, a company with a $500 million market cap and a stock that's "highly, highly speculative," said Cramer. Sangamo is a high-risk, high-reward stock, he said, but the company's HIV treatment, currently in Phase II testing, could offer the first functional cure for the disease.

Cramer said these three stocks represent the leading edge of gene therapies and, while risky, could pay off big if they're able to deliver on the promise of their technologies.

Lightning Round

In the Lightning Round, Cramer was bullish on Radian Group ( RDN).

Cramer was bearish on Ford Motor ( F), Western Union ( WU), American Capital Strategies ( ACAS) and CVR Partners ( UAN).

Executive Decision: David Henry

In his second "Executive Decision" segment, Cramer sat down with David Henry, president and CEO of Kimco Realty ( KIM), a retail REIT with a 3.74% yield and a 93% occupancy rate. Shares of Kimco are up 16% since Cramer last spoke with Henry last year.

Henry painted a very bullish picture for Kimco, saying his company continues to focus on providing good real estate at affordable rents for its retail tenants. He said Kimco currently has over 1,000 leases that are over 20 years old and up for renewals at higher rates. Also, his company is seeing planned new store openings by retailers trending to five-year highs.

Henry noted there are continued barriers to entering the retail real estate market in some places, such as California where it can sometimes take up to five years to build a new retail center. That requires patient tenants, he noted, which is why many stores are willing to pay higher rents for properties that are ready to lease today.

When asked about the properties Kimco is currently selling, Henry explained that with over 900 properties in its portfolio, Kimco is always looking to sell its least-profitable properties so it can "upgrade" into more profitable ones.

Cramer said the Kimco story remains a great one and he's still a buyer of the stock.

No Huddle Offense

In his "No Huddle Offense" segment, Cramer said that he's got a new hypothetical suitor that should consider buying Netflix ( NFLX) -- Microsoft ( MSFT).

Cramer said his previous pick for Netflix buyer was Apple ( AAPL), a stock he owns for his charitable trust, Action Alerts PLUS. But Apple, he said, is too arrogant to make such a purchase and would rather do streaming media itself.

But Microsoft has no qualms about acquiring fans, noted Cramer, and a Netflix and Xbox combination would be a powerful one that would allow Microsoft to own the living room entertainment experience.

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

To email Scott about this article, click here: Scott Rutt

Follow Scott on Twitter @ScottRutt or get updates on Facebook, ScottRuttDC

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

Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for, Inc., and CNBC, and a director and co-founder of All opinions expressed by Mr. Cramer on "Mad Money" are his own and do not reflect the opinions of 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, 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 is related to the specific opinions expressed by him on "Mad Money."

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