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Cramer praised Johnson & Johnson during Wednesday’s show for the company’s smart acquisitions of Mentor and Omrix. He’d like to see other cash-heavy firms follow J&J’s lead.
Massive selling caused by hedge and mutual fund redemptions have driven down stock prices enough to make strong companies such as these attractive buys. Breast-implant maker Mentor [MNT
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] and Omrix [OMRI
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], which produces surgical sealants, were trading as high as $50 and about $41, respectively, but J&J [JNJ
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] picked up each for only $31 and $25, respectively, thanks to those fund-fueled sell-offs.
There are more than just a few companies with pockets full of cash standing on the sidelines when they should be out shopping, Cramer said. So for the rest of the week he’s going to play matchmaker, coupling suitors with potential mates. First up: Pfizer [PFE
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] should buy Allergan [AGN
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].
Actually, any big pharma company with sufficient reserves could snatch up Allergan at these levels, but Cramer thinks Pfizer specifically could use a jolt in growth right now. Allergan’s a market leader in what might be called Hollywood cosmetics – not that New York, Miami or even Chicago would be exempt – having its perfectly manicured hands in everything from breast implants to Botox to stomach bands and more. And best of all AGN has been cut in half since mid January, dropping to $36 a share from $70.
Pfizer has $26 billion in its coffers, which is more than double what the company would need to buy Allergan. In return, on top of Allergan’s fabulous brands, Pfizer would inherit a 14% long-term growth yet. That easily beats the 1% growth rate Pfizer has now.
Investors looking to trade such a buy might do well if the J&J purchase of Mentor is any guide. Mentor fetched a price equal to just under 20 times earning. If Allergan earned the same, then AGN jumps to $54 a share. And even if a deal doesn’t happen, there’s potential for some heavy cost-cutting here, research firm Cowen & Co. said, which would offset any recession-related loss in sales at Allergan.
Check back Thursday for Cramer’s next two potential M&A plays.
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