Cramer's Mad Money - One Word: Plastics (1/8/10)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Friday January 8.

One Word: Plastics - PolyOne (NYSE:POL)

No group in the economy – not the metals, not the papers, not the steels, not the autos – can have such stunning rebounds as the chemical companies when things get better,” Cramer said Friday. “Chemical companies soar.” He expects to see a dramatic move from PolyOne, which recently made a shrewd move from commodity plastics to specialty plastics and should rebound along with housing and the auto sector.

PolyOne makes formulation technology for processing 3,500 different types of plastic resins. The company's focus on higher quality products is leading to higher margins and lower costs. The speculative pick is a recovery story, since 30% of its revenues are from plastic automotive wire covering and it is also levered to the booming appliances industry. At $8, PolyOne is too good an opportunity to pass up.

Good as Gold in 2010: SPDR GLD (NYSEARCA:GLD), Freeport McMoRan (NYSE:FCX), Eldorado (NYSE:EGO), Market Vectors Junior Gold Fund (NYSEARCA:GDXJ)

The price of gold has risen for the ninth consecutive year, and Cramer thinks the yellow metal is going to go higher. There are many reasons to still believe in gold. It is the ideal investment when the economy is slow and yet, when recovery revs up and inflation looms, gold also provides protection. Stimulus programs adopted by the U.S. and European peers have necessitated printing more currency; the devaluation of major currencies has increased demand for gold. As the middle class grows in emerging markets, gold jewelry becomes a popular status symbol.

Cramer is bullish on some gold stocks; While Freeport McMoRan (FCX) is not a pure play on the yellow metal, it is a strong company which just reported a monster quarter and reinstated its dividend. He also likes El Dorado (EGO), up 42% since August. El Dorado is one of the lowest cost gold producers in the industry and 60% of its production is in China. While speculative gold stocks may be tempting, Cramer thinks most of them are unsafe. Those who want exposure to smaller miners should consider buying Market Vectors Junior Gold Fund (GDXJ).

Cramer likes gold stocks, but he thinks bullion is best. However, those buying bullion also need to pay a depository bank if they are unable to store the metal safely themselves. The second best way to buy gold is SPDR Gold Shares ETF (SPDR).

Game Plan: Alcoa (NYSE:AA), KB Homes (NYSE:KBH), Intel (NASDAQ:INTC), Microsoft (NASDAQ:MSFT), JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC)

On Monday after the close, Cramer would pay close attention to Alcoa's (AA) earnings, which will set the tone for the earnings season. Cramer thinks individual commodity stocks will matter more than the movement of the sector as a whole and expects good numbers from Alcoa because he sees an increased demand for aluminum. Since this material is used in autos, construction and housing, good numbers for Alcoa means good news for the larger market.

Cramer is looking forward to a poor number from KBH Homes (KBH) on Tuesday, because a lackluster quarter will mean that fewer homes are going to be built, and shrinking inventory is good news for the housing sector. On anticipated bad news from KBH, Cramer would buy Bank of America (BAC) and Wells Fargo (WFC) the nation's largest homeowners.

While not everyone is expecting great results from Intel (INTC), the mobile internet tsunami and Microsoft's (MSFT) Windows 7 have benefited the company. Cramer would buy the stock at around $21 ahead of its earnings on Thursday.

JPMorgan Chase (JPM) reports Friday, and Cramer thinks it will be interesting to see how the bank is faring now that it has no competition from Bear Stearns and Lehman Brothers and since it has paid off TARP. He expects to hear that loan defaults are peaking and the credit situation has improved.


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