Cramer's Mad Money - Home Despot Rules (1/9/09)

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Includes: APEI, APOL, CECO, COCO, DV, ESI, HD, ITT, SHAW, STRA, TAP
by: Miriam Metzinger

Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Friday January 9.

Dow Stock: Home Depot (NYSE:HD)

Although Cramer has disliked this stock (which he often refers to as “Home Despot”) in the past, partly because of failed CEO Bob Nardelli, Home Depot has made his list of the top 5 Dow stocks. The lowest mortgage rates in 50 years and the cheapest housing prices in two decades are likely to bring buyers and sellers back to the housing market -good news for Home Depot. Since Nardelli has left Home Depot to go “run Chrysler into the ground” the company’s gross margins have improved year-over-year for four consecutive quarters. If Sears can jump 11.4% in a market like this, so can Home Depot, reasoned Cramer. While he prefers Home Depot’s non-Dow competitor Lowes, the latter company lacks Home Depot’s big dividend. Cramer would wait until Home Depot drops to $22.50 and the yield is at 4%.

Low Expectations

Why did a bad unemployment number on Friday send the Dow down only 143 points instead of 500? And why did Alcoa and Intel hold steady in the face of terrible quarterly earnings? Expectations were low, Cramer observed and a lot of the bad news was already priced-in. No one expected the jobs number to be any better than it was, and Alcoa and Intel had already fallen 65% and 38% respectively last year. However, the modest declines do not indicate an upturn in the near future, unless some surprising catalyst takes the market by storm. Three months of positive employment data might encourage buying, but double-digit unemployment would have the opposite effect.

Back to School: American Public Education (NASDAQ:APEI), Apollo Group (NASDAQ:APOL), ITT Educational Services (NYSE:ESI), Devry (NYSE:DV), Strayer Education (NASDAQ:STRA), Corinthian Colleges (NASDAQ:COCO). Career Education (NASDAQ:CECO)

High unemployment numbers give many people the time to go back to school to improve their chances in the tough job market. American Public Education, associated with Military University has all classes online and offers a degree at a 60-90% discount to conventional universities and colleges. APEI has historically done well during recessions and the 5% lift for Apollo Group after better-than-expected earnings is good news for APEI. While it trades at a high multiple of 32, The Street expects 41% revenue growth and 44% earnings-per-share growth for APEI. The company’s main growth potential lies with the military; 70% do not yet have Bachelor’s degrees and only a few military schools are online. APEI’s course offerings are flexible enough for people who are going to be called up. Cramer would wait until APEI drops to $37 before buying and thinks the stock could make a move when ITT, Devry, Strayer, Corinthian and Career Education report. Cramer warned that American Public Education is a speculative stock, so he suggested doing homework before buying.

Mad Mail: Molson Coors (NYSE:TAP), Shaw Group (SGR)

Cramer agreed with a viewer that Molson Coors is a good recession stock. Even though the dividend and valuation aren’t ideal, grain and aluminum prices are low enough to make the stock a buy. Cramer also liked Shaw Group for its pipeline of orders and its management.

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