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Cramer’s Trend Watch: Store Brands

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As the economy stalled, many people opted to buy less expensive store brands. That was particularly beneficial to Perrigo, a top maker of store branded drugs.

Over the past 5 years shares have gained about 250%.

However, economic data continues to suggest the economy is getting stronger and stronger. (The latest jobless claims data showed the number of Americans filing new claims for unemployment benefits dropped to its lowest level in nearly 5-1/2 years last week.)

As the economy bounces back, will store branded drugs fall out of favor as consumer opt for more expensive but more familiar name brands?

Steve Hockstein | Bloomberg | Getty Images

Jim Cramer doesn't think so.

"I have a suspicion that the Great Recession changed the way people think," he said. That is, Cramer believes people have generally become more frugal and are less likely to overpay for anything.

"And during the past 5 years I think a growing number of people have come to understand that generic store brands are the same darned stuff yet these products cost a whole lot less," Cramer said. "Therefore, I believe the boom in private label is here to say."

During an interview on Mad Money, Perrigo chairman and CEO Joe Papa told Cramer that the numbers confirm his thesis. "Once a person tries a store brand product 91% of the time they will stay with store brand," he explained. "Consumers have realized we meet the same requirements as the national brands yet we give them a 20-30% discount."

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But just because the trend may have legs doesn't mean Cramer advocates pulling the trigger today.

Looking at Perrigo, shares are currently about 3 points off their highs. In circumstances such as these the Mad Money host recommends watching for a pullback, picking an entry point and then pulling the trigger strategically.

Back in November Cramer advocated the same theme as ConAgra sealed a deal to buy Ralcorp. At that time he said, "Private label is one of these trends that cannot be denied—consumers love it because it's cheaper, and stores love it because private label products actually carry higher margins for them. It's win-win."

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