Cramer's 'Mad Money' Recap: Merger Monday Is Back

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NEW YORK ( TheStreet) -- Merger Mondays are back, Jim Cramer told "Mad Money" viewers Monday, and that's a validation to all those investors who've felt as he has, that stocks remain undervalued.

Why are mergers important? Cramer said it's because mergers are awe-inspiring, making some shareholders instantly richer, while at the same time making the short-sellers rethink their positions. That makes mergers, like the market saw today, great news for every investor. Mergers may have seemed lost over the past few years, said Cramer, but today may be the start of a new trend.

Cramer said the Omnicom ( OMC) merger with Publicis ( PUBGY) makes a ton of sense, as the new ad giant will have the wherewithal to stand up to the new kings of advertising, mainly Facebook ( FB) and Google ( GOOG). Two old-school ad giants cannot stem the tide of ad dollars flowing into these new mediums, he said, but it can certainly level the playing field.

Then there's the Perrigo ( PRGO) acquisition of Elan ( ELN). Cramer said this deal appears to only allow Perrigo to get lower tax rates by merging with the Irish-based Elan, but in the end, higher earnings no matter how they're derived, will be a win for Perrigo shareholders.

Finally, Cramer said the merger of Hudson's Bay with Saks Fifth Avenue ( SKS) is the most logical of the day. He noted that as Saks continues to close many of its lesser performing stores, those locations would be a perfect fit for its upscale, but not quite as upscale as Saks, Lord & Taylor stores. Cramer called the deal a big win for Saks shareholders that had an $11 stock last week but now own a $16 stock this week.

Executive Decision: Tom Quinlan

In the "Executive Decision" segment, Cramer spoke with Tom Quinlan, president and CEO of R.R. Donnelley & Sons ( RRD), a stock that's popped 25% since Cramer first recommended the company as a turnaround story a little over a month ago. Shares of Donnelley currently have a 6.5% dividend yield.

Quinlan explained that the 150-year-old Donnelley is most known for its phone book and catalog printing business, but over the past 13 years the company has moved well beyond catalogs, which now account for less than 30% of revenue. Donnelley is providing services such as quarterly financial reports for companies and mutual funds as well as printing boxes and insert materials for products and even printing RFID tags for inventory management systems.

Quinlan said that many companies still want to communicate with their customers through every channel possible, which makes catalogs and other printed inserts and fliers a valuable business. He noted that 100% of the Fortune 100 companies use Donnelley services in one form or another and the company has 60,000 customers around the globe in 37 countries.

The new Donnelley is not only offering printing, noted Quinlan, but helping companies manage and distribute content to its customers, shareholders, prospects and beyond.

Cramer once again recommended R.R. Donnelley as a terrific turnaround story that's offering a spectacular dividend along with growth for investors.

Hot Starbucks

With Starbucks ( SBUX) posting quarterly earnings that stunned even the company's CEO, Howard Schultz, Cramer said it's time to take a deeper look into what components combined to make up such a remarkable quarter.

Cramer likened Starbucks growth to a flywheel. He said the company puts that wheel into motion with things like growth and innovation and, once spinning, the flywheel is practically unstoppable.

Cramer said there was no bellyaching on Starbucks' conference call. Unlike McDonald's ( MCD) and many others this quarter, company management did not blame the macroeconomic environment for any of its shortcomings, probably because there weren't any.

Starbucks was able to deliver two things that Wall Street craves -- revenue growth and gross margin expansion. The company posted 13% year-over-year revenue growth and a full 150 basis points of increased margins. Additionally, Starbucks was able to execute on its plans to turn around its international operations and posted a 2% increase in same-store sales overseas.

Starbucks is about a lot more than just the numbers, however, noted Cramer, as its brewing up new revenue streams thanks to its acquisition of Teavana and others, which gives the company new opportunities in teas, baked goods, healthy drinks and even items like the red-hot Greek yogurt category.

Is Starbucks sitting still? Not a chance, said Cramer. It continues to innovate with technology, introducing wireless charging stations to many of its stores, along with its already popular mobile and social strategy that keeps loyal members coming back for more day after day.

Lightning Round

In the Lightning Round, Cramer was bullish on American Electric Power ( AEP), Cabela's ( CAB), Kroger ( KR), Royal Bank ( RBS), Limited Brands ( LTD) and Micron Technology ( MU).

Cramer was bearish on AES Corp ( AES), Smith & Wesson ( SWHC), Roundy's Supermarket ( RNDY), Silver Wheaton ( SLW), Quanta Services ( PWR) and Solar Capital ( SLRC).

Executive Decision: Dennis Gallagher

In his second "Executive Decision" segment, Cramer sat down with Dennis Gallagher, chairman and CEO of Student Transportation ( STB), the Canadian school bus operator that helps transport over one million students to schools each and every day. Student Transportation currently offers an 8.5% dividend yield.

Gallagher said student transportation is a $24 billion-a-year business, yet nearly 66% of that business is currently owned by municipalities and local governments, leaving lots of room for privatization. He said Student Transportation now has a national footprint, thanks to its 9,500 buses and 130 terminals, and is now poised for growth and expansion.

Among the factors in favor of the company are financing terms that allow Student Transportation to have access to capital for just 2%. The company also participates in municipal financing, where governments fund new purchases with low-rate bonds.

Student Transportation is taking full advantage of the U.S. natural gas revolution. Gallagher said that company no longer needs to pay $3.65 a gallon for diesel and can instead pay just $1.60 for the natural gas equivalent, not counting a 50-cent-a-gallon government subsidy. Those lower costs provide an immediate return for investing in natural gas vehicles.

Cramer said that while Student Transportation is a small, speculative stock and one that could have tax implications due to its Canadian origins, he still feels the company has a lot to offer investors.

No Huddle Offense

In his "No Huddle Offense" segment, Cramer pondered whether investors have been duped by the homebuilders, which, after endless denials that higher interest rates would significantly impact upon their sales, saw higher interest rates significantly impact upon their sales.

Were the homebuilders just overly optimistic? Apparently so, as it appears that home sales were stopped in their tracks after rates spiked, causing volumes to slow at companies like D.R. Horton ( DHI) and cancellations to spike from 19% to 24% in the quarter just reported.

While Horton management characterized growth as "good, but slower than before," Cramer said that no investor will continue holding these momentum names now that growth has hiccuped. He said management indicated growth may not pick up again until the spring buying season kicks off in January, and that's just too long for anyone to wait.

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

-- 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 FB.

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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