What If Iran Goes Awry?
The stalemate over the British sailors being held captive in Iran has Cramer wondering: What if Iran goes truly awry? You might wake up one morning and see that Iran’s done something stupid, and you’re down big. So how do you prepare for the worst?
Iranian mischief is actually the single most bankable trend in the world, Cramer says, so he’s got a doomsday scenario in case things with Iran really start to make a turn for the worst. It’s called the Iran Awry portfolio, and Cramer has four plays in four different sectors that he thinks will make you money if there’s another debacle in the Middle East.
The first thing you want, Cramer says, is a drug company, because they tend to go up when geopolitical tensions rise. When people realize that higher oil prices will stick around, that almost certainly breeds a recession, he says. And when there’s a recession, investors rotate into defensive, secular growth stocks – and that means drug companies. But not just any drug companies – forget Pfizer, Merck or Bristol-Meyers Squibb, Cramer says. The only one he’s recommending for Armageddon is Abbott Labs.
Abbott Labs consistently finds itself on the 52-week high list, the one objective measure of greatness there is. It’s also consistently beating the numbers and doing so through its product pipeline, not financial engineering, Cramer says. ABT grows at 14% and sells at a paltry 16 times earnings, making it both cheap and a growth story. In fact, while Cramer is recommending Abbott for the Iran Awry portfolio, he says it’s a great drug stock worthy of anyone’s portfolio, even those optimists who don’t think the sky is falling.
Abbott got rid of its slow-growing diagnostic business by selling it to General Electric (parent company of CNBC) for $8 billion. They also got the vascular division of Guidant, the company’s best asset, Cramer says, when it was sold to Boston Scientific. Abbott also owns Humira, a drug that treats everything from Crohn’s disease to psoriasis to rheumatoid arthritis. Not enough? The company has the Xience stent, which appears to be the safest and best stent out right now. They have Biaxin, a great antibiotic, and Depakote, a great anti-psychotic drug that Cramer knows from experience. With all those products, Abbott Labs is the sleeper drug stock that Cramer recommends for doomsday – and beyond.
The Iran Awry portfolio also needs an oil stock. It has to be one that won’t get cut off by Tehran if there’s trouble, and it has to have a high yield because Middle East tension basically assures a big rush to safety in treasuries, Cramer says. Luckily, he’s picked out one that’s got everything: Kinder Morgan Energy Partners. It’s got a yield of 6.3% that the company continues to raise – and you can bet will go even higher if there is a move into treasuries.
Kinder Morgan has a big natural gas pipeline and a new one from the Gulf of Mexico, where the natural gas hub is. And the distribution business for natural gas will be boosted by Iran if they pull a stunt. KMP isn’t a stupid oil company, either. It pumps carbon dioxide, and it also has its hand in transporting ethanol. But the biggest reason why Cramer’s behind this stock is because it is a true distributor of profits - a $3.44 a share dividend this year and perhaps as much as $3.61 by 2010, he says, and they increased distribution by 5.5% over last year.
Kinder Morgan Energy Partners has the yield; it’s got the nat gas distribution and the built-in growth from new pipelines and initiatives. It even seems the company was created for a possible crisis with Iran, Cramer says. And even though a related company – Kinder Morgan – is going private, he doesn’t think it will hurt KMP at all.
Bottom Line: If Iran continues to stir the pot, you want to be prepared. Cramer’s first two buys for the Iran Awry portfolio are Abbott Labs and Kinder Morgan Energy Partners.
Questions? Comments? firstname.lastname@example.org