(Click for video linked to a searchable transcript of this Mad Money segment)
If you're looking for opportunity, Jim Cramer has a stock idea for you. He thinks earnings confused the Street and, in turn, pros sold this stock far too aggressively, making it a real bargain at current levels.
The stock is Rite Aid, a company Cramer has cited many times on "Mad Money" as an exciting turnaround story. But in the near-term he's also bullish because the Street seems to think
Cramer, however, has parsed through the results and sees developments quite differently,
"The reason management had to cut numbers was because of an unforeseen issue with a wholesale drug supplier," Cramer explained. "Basically Rite Aid expected to get cheaper drugs from these guys, but there was a delay, so the cost savings from this deal had be pushed back until a later date. The earnings didn't disappear, they just moved to a different quarter."
That alone, Cramer says, is reason enough to own Rite Aid. However that's not the only reason. The turnaround, noted above, is starting to generate significant returns.
For example, "Remodeled Rite Aid stores keep delivering better numbers than the non-renovated ones. So far Rite Aid has only remodeled 30 percent of its locations, with management planning to do another 10 percent this fiscal year. I can see the remodel program boosting numbers for years to come."
"Also, the company keeps posting robust same store sales, and Rite Aid is actually generating a ton of cash—with $400 to $450 million in free cash flow expected for their fiscal 2015."
Given the turnaround and the confusion about guidance, Cramer thinks the stock is a bargain.
"Rite Aid trades at a 17 percent discount to Walgreen and CVS on an enterprise multiple basis. I don't think that discount is warranted. I believe this $7 and change stock could easily move into double-digit territory over the next year, which is why I think RAD is a terrific buy. In fact, I think the stock is an absolute steal at these levels."
Turning attention to other drugstore stocks, Cramer is hardly bearish on either CVS or Walgreen.
"Even though CVS stock has lagged the group year-to-date, I believe CVS can keep chugging slowly but steadily higher," Cramer said.
Cramer cited innovative ways in which CVS is winning shoppers and the company's Minute Clinic as two significant catalysts. Also he likes the company's strategy to grow business internationally.
"If management keeps executing, and I believe they will, then I could see this $76 stock eventually travelling to $90 and that number might be conservative," Cramer said.
Turning attention to Walgreen, although Cramer likes the company very much, he doesn't like shares at current levels. Largely he thinks the stock is priced for perfection. "Walgreen has run up 28 percent year-to-date. I simply worry at these levels upside is limited in the near-term," he said.
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Again, Cramer likes all three drugstore companies mentioned above. "I wouldn't be the least bit surprised if each of them is up substantially a few years from now. However, if you want to be a really good investor, you need to be selective and isolate catalysts. Of these three drugstores, I believe Rite Aid has the most catalysts. That makes it my favorite."
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