Cramer's Mad Money - 4 Derivative Plays on GM's IPO (11/17/10)

Includes: AXL, CLNE, F, GM, JCI, LEA
by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday November 17.

Derivative Plays on GM (NYSE:GM), Ford (NYSE:F), American Axle (NYSE:AXL), Johnson Controls (NYSE:JCI), Lear (NYSE:LEA)

The biggest news on The Street is GM's (GM) IPO. Unfortunately Big Money snapped up most of the shares, but there may be a few retail investors lucky enough to be able to grab some shares under $35 after hours. For everyone else, there are derivative plays on GM.

The first and most obvious pick is Ford (F), which Cramer thinks is the better company of the two. When institutional investors make comparisons between Ford and GM, the former company will benefit. Ford is cleaning up its balance sheet and plans on being debt neutral and cash positive by 2011. Ford didn't file for bankruptcy, but recovered due to "old fashioned hard work and brilliant management."

American Axle (AXL) is a good play on GM, from which it derives 80% of its sales. The stock has a growing backlog, earned an upgrade from JP Morgan, and has been on a tear.

Lear (LEA) makes seats for cars and earns 15% of its revenue from GM. The company came out of bankruptcy a year ago and has dramatically improved its balance sheet. Johnson Controls (JCI) has significant exposure to all of the Big Three automakers and has boosted its dividend 23%.

CEO Interview: Andrew Littlefair Clean Energy Fuels (NASDAQ:CLNE)

Cramer has long been on a natural gas crusade, but the President has barely mentioned the alternative fuel by name. GM is concentrating on battery-operated cars instead, but there might be increases in the number of natural gas fueled buses and trucks on the road. A manager of natural gas fueling stations, Clean Energy will be a major beneficiary if the fuel gains in popularity.

Andrew Littlefair is looking forward to the passage of the natural gas bill, which he expects to receive bipartisan support. He notes the irony of the fact that GM has 14 makes of natural gas vehicles, but none are available in the U.S. where natural gas is plentiful. However, Littlefair says the company is focusing on larger vehicles and has just made a deal that will have all 2,400 buses operating in L.A. running on natural gas. The company's backlog of orders has doubled in the last six months. Cramer is bullish on Clean Energy Fuels.

What is Good for GM Is Good for BRIC

Everyone is talking about the GM (GM) IPO, since it is "the one bright spot that even the bears cannot deny." Cramer says the IPO is "the best-timed IPO I have ever is a strike while the iron is red hot deal at the perfect moment where GM's future is looking considerably better." The company has a pristine balance sheet and worldwide growth, with two-thirds of its sales from the rest of the world. GM is the leading brand in BRIC countries, and in China alone, market share has increased from 3% to 13%; "What is good for GM is good for BRIC."

The company has adopted a brand new business model, is getting rid of excess brands that were not working, and is completely revamping its production to cut costs. Its lower inventories increase the profitability per car. The company has enormous operating leverage, which means the company's margins will get bigger as it sells more and more cars.

Cramer would buy the stock under $35 in aftermarket. Under $34 would be a "steal." He predicts the stock will reach $40 next year, and perhaps hit the mid $40s.


Jim Cramer was up 31% in 2009. Click here now to sign up for Jim's Action Alerts PLUS and trade alongside him. Special discount for Seeking Alpha users.

Get Cramer's Picks by email - it's free and takes only a few seconds to sign up.