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Money Has No Morals

On Mad Money, Cramer reserves the right to profit from anything, no matter how heinous. He has no moral compunctions about profiting off the misery and misfortune of others. That’s why as the subprime lending problem blocks the working class from getting the loans they need, he’s going to buy into the only cash flow options they have left: pawnbrokers and loan sharks.

Cramer likes Cash America International as his pawnshop play and Advance America, Cash Advance Centers on the payday cash-advance side. These are small denomination, short-term, unsecured loans that usually come due on the debtor’s next payday. The target market is usually underbanked, middle-class workers. These payday cash advances have interest rates that would make the mob, heck they’d make credit-card companies feel guilty, with annual percentage rates around 390%. Even though the rates are high, taking out one of these loans is better than bouncing a check or being late on a credit card, or missing a utility bill. But there’s no doubt they take advantage of the working class.

AEA has 2,900 cash-advance centers in 36 states, and they’re growing. But the government has been trying to regulate both the number of advances an individual can get and the fees charged – some states are trying to eliminate this kind of lending all together – but Cramer doubts that will happen. If payday cash-advance lending is cut out, the working class will have nowhere else to go to borrow money – except pawnbrokers.

AEA has a 13.5 multiple on 2007 earnings estimates, with a 13.5% long-term growth rate, which Cramer considers cheap, especially because the poor have nowhere else to go for loans.

On the less risky side, there’s Cash American International, the largest player in pawn lending. These types of loans are short-term and secured and collateralized with real assets like jewelry. The rates aren’t as high, but the pawnshop has the collateral. Another great thing about this stock is that Cash America recently bought an online provider of cash advances called CASHNet.

Bottom Line: Where others see misery or crisis, Cramer sees opportunity. The best ways to play subprime are AEA and CSH.

Questions? Comments? madmoney@cnbc.com

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