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Cramer says buy GM into ‘teeth of recall’

(Click for video linked to a searchable transcript of this Mad Money segment)

Shrewd investors will often say the best time to buy a stock is when it seems like you should sell. And Jim Cramer fully understands the knee-jerk reaction to sell GM.

The automaker now faces dozens of lawsuits over a faulty ignition switch that has led to the recall of some 2.6 million vehicles.

And yet Cramer says, "I think this is one of those crucial moments where you have to be a buyer, not a seller."

Before we go any further, Cramer knows that people have lost their lives because of the faulty ignition and the loss of life is something that could never be quantified. However, Cramer also says as an investor, it's important to view GM stock through the lens of Wall Street pros, and he believes pros are about to become buyers.

The first 2013 Cadillac ATS rolls off the assembly line at the General Motors Lansing Grand River Assembly Plant July 26, 2012 in Lansing, Michigan.
Getty Images
The first 2013 Cadillac ATS rolls off the assembly line at the General Motors Lansing Grand River Assembly Plant July 26, 2012 in Lansing, Michigan.

First, Cramer says, GM has a lot going for it. And as concerning as the recall may be, he believes the Street will view issue as finite. "It's not like the big asbestos lawsuits where you'd have new claimants popping up year after year," he said.

Also, Cramer sees a slew of positive catalysts that he believes will quickly capture the attention of pros.

"GM's April sales increased by 6.9 percent year over year, much better than the 4.7 percent gain the analysts were expecting," the "Mad Money" host said. "Meanwhile, the company has been aggressive about cutting costs. On top of that, GM has rolled out 17 new products, nine of which are trucks and SUVs. These are higher-margin products and the launch costs are already in the rear-view mirror."

Looking at the catalysts and how steep the decline has been already, Cramer says it shouldn't take long before money managers view the stock as cheap.

"At this point, General Motors has already lost $5.5 billion in market capitalization, as its stock has fallen from the low $40s to $34 and change right now. Now, so far, the recall has cost the company just $1.3 billion. When all is said and done, that number will go higher, but even if this recall ends up costing them $2.5 billion all told after fines and litigation expenses, and I think $2.5 billion is a stretch, then that means the stock has already been punished more than enough."

If GM earns $5 per share next year, something Cramer thinks is very possible, then, "this stock is currently trading at less than 7 times 2015 earnings estimates. That's just absurdly cheap," Cramer said.

Therefore, Cramer thinks now is the time to buy, ahead of money pros.

And he thinks history supports his outlook.

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Studying other companies that have faced serious headwinds and the Street's reaction, Cramer has found that time and again, "when companies make big, expensive mistakes that generate tons of horrible headlines, it really doesn't take that long for the market to process the information and thus for the stock to bottom."

Cramer believes the price action in BP after the Gulf spill provides somewhat of a road map for investors.

"BP's stock got cut in half almost immediately, falling quickly from $60 down to $30, and it's been working its way higher pretty much ever since. The lesson of BP is that you need to buy right into the teeth of the controversy. That's right, I'm telling you to buy General Motors right into the teeth of this recall controversy. And, yes, I have put my charitable trust money where my mouth is, because we own this stock for the trust."

*Disclosure: On Monday May 5, Jim Cramer owned shares of GM on behalf of his charitable trust.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

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