Cramer's Mad Money - The Top Dow Stock for 2011 (1/3/11)

Includes: AA, AXP, CRM, IBM, INTC, RHT
by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday January 3.

Three Dow Leaders: American Express (NYSE:AXP), Intel (NASDAQ:INTC), Alcoa (NYSE:AA)

In keeping with his New Year tradition, Cramer revealed his price target for the Dow in general and listed his top Dow picks. He thinks 2011 will be a happy new year for the Dow, which he thinks will see a 15% increase to 13,365. Cramer then discussed his favorite three Dow stocks.

American Express (AXP) occupies the number 3 position. He predicts AXP will rise 40% to $60 by the end of 2011 on an improved situation for financials, the return of consumer confidence and overseas growth. While he thinks 2011 will be "the year for the banks," AXP is a good pick for investors who are a bit nervous about buying banks, and is a strong growth stock, unlike many other financials. The company reported a 17% increase in revenues year over year with lower credit costs and declining delinquencies. While the company is performing well, the stock is still "misunderstood and underestimated," mainly over worries of government regulations which have been passed already and mainly impacted debit cards (American Express has no debit card exposure.) American Express sells at a cheap 15 multiple and has double digit growth.

Intel (INTC) is Cramer's second pick, even though the company is "hated" by The Street. Intel chips are everywhere, from PCs to tablets to servers. Piper Jaffray's downgrade of the stock "reads like a spoof" and is "so last year," with its worries over the death of the PC and and sentiment that Intel is lagging in smartphone technology--Intel is actually very involved in the mobile internet tsunami. With growing concerns about internet security, there is no reason for the continued cynicism over Intel's acquisition of McAfee, particularly since it can now install security features directly onto chips and charge more money for them. With a 3% yield, generous buyback and a clean balance sheet, Intel should see a 44% increase in 2011 to $30. Cramer would buy some before the quarter and more after Intel reports.

Cramer's top Dow pick might not even be in the Dow by 2012, simply because it is a great takeover target. With the worldwide demand for aluminum roaring, Alcoa (AA) has a great year ahead of it. Given the raging bull markets of aerospace, autos and trucks, and increase in infrastructure projects at home and abroad, Alcoa's picture is looking very bullish. The company raised its consumption forecast by 13%, and it is now well-run, with lower debt and strong cash flow. Cramer said it is hard to imagine that Alcoa will remain independent, and there are "two ways to win" with the stock, with its strong fundamentals and its ability to be taken over at a premium. Cramer predicts a 42% gain for Alcoa and would buy some stock ahead of the quarter and more after it reports.

CEO Jim Whitehurst, Red Hat (NYSE:RHT), IBM (NYSE:IBM), (NYSE:CRM)

Cramer said Red Hat (RHT), is his "favorite disruptive tech play" and is the leading provider of Linux, which competes directly with Windows. A full 70% of Fortune 500 companies use Red Hat's technology. The company is up 13% since its earnings beat, but the stock got "pounded" on guidance that was merely "in line." Given its high multiple and recent run, a pullback was expected.

Jim Whitehurst discussed Red Hat's development of cloud computing, how cloud couldn't even exist without Linux and open source, and companies like IBM (IBM) and Salesforce (CRM), which seem to be competing against Red Hat are actually dependent on Red Hat's technology. The company does not have to raise prices, since it is constantly expanding its positions within key companies. Cramer says Red Hat is still one of his top tech picks.


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