Cramer's Mad Money - X-Ray Marks the Spot (10/12/09)

Includes: ARST, ASEI, CHK
by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday October 12.

X-Ray Marks the Spot: American Science and Engineering (NASDAQ:ASEI)

One way to trade in a climate of economic uncertainty is to find stocks which represent a secular trend, one that does not need a strong economy for growth. Cramer gave the mobile internet revolution as one example, and thinks security is another upcoming secular trend. Regardless of the behavior of the markets, the U.S. government needs X-rays to detect drugs, bombs and other smuggled goods, and the growth of X-rays for spotting explosives alone is growing at a rate of 12% annually.

American Science and Engineering has been volatile in the past, but it has learned from its mistakes by expanding globally; now 89% of its recent bookings are from overseas. The company has plenty of cash, a $155 million backlog and a multiple of 18 compared to a 16% growth rate. Cramer says ASEI is very cheap, but "the name of the game is patience," and he would wait for a pullback before buying.

ArcSight (ARST) CEO Tom Reilly

With fears of cyberterrorism on the rise and 1,000 new hires at Homeland Security to deal with this problem, ArcSight is worth buying on this trend, even after a 42% move to $22, according to Cramer. ArcSight creates software that helps companies protect themselves and complies with ever-evolving government regulations. While the software can't defend against an attack, it can alert companies about cyber terrorism, information theft and cyber fraud early enough give the company a chance to respond. Tom Reilly says the advent of cloud computing, which allows data and applications to be stored online, provides even greater security risks and is likely to increase demand for ArcSight's software.

ArcSight beat expectations in September, is entering its strongest period of the year and expects to see a boost from the government's budget which will most likely include more spending for defense against cyber-terrorism. In addition, ArcSight has an analyst day on Tuesday. “This is a good period for owning the stock,” Cramer said.

There are no "Profits" of Doom

“The crash has occurred,” Cramer said. “It’s over – let’s move on.” Even with the Dow approaching 10,000, it is amazing that there are still people urging investors to stay out of stocks, invest in Treasurys (which Cramer calls "the most dangerous asset of all,") and passive index funds. Cramer's strategy involves buying IPOs, secondary offerings, high dividend stocks and secular plays. He says those who make bearish comments probably missed the bottom and want to justify their underperformance. He says the influential bears who advised staying away from stocks owe investors an apology for losing them money.

Chesapeake Energy (NYSE:CHK)

The big news in the energy sector is horizontal drilling, which has been called "the biggest energy innovation in an decade." Cramer thinks the government might finally see the light and prefer clean and plentiful natural gas to coal. His favorite natural gas play is Chesapeake Energy, which owns 9 of the 52 rigs which drill the famous Marcellus Shale and has 1.45 million acres in the area. Combined, Chesapeake has 46 trillion feet of unproved reserve potential, enough to supply the U.S.' energy needs for 20 years. Even if Washington doesn't give the thumbs up to natural gas, Cramer thinks the fuel will reach $6 or $7 in 2010 and Chesapeake Energy is "the single best way to play natural gas."


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