Cramer Revved Up by Spartan Motor
Yesterday, at Mad Money’s Back to School Tour event at the Kelley School of Business at Indiana University, M.B.A. students involved in the school’s Reese Fund got a chance to pitch their stock ideas to Cramer. There was one in particular that stayed with the 63-year-old - over-surgeried to look 53 - former hedge fund manager, one that he couldn’t resist researching and presenting to the rest of you Home Gamers on today’s show.
Student Daniel Jacome’s stock was Spartan Motor, maker of chassis and emergency vehicles, for three key reasons, all of which make sense to Cramer now: The company has great exposure to municipalities’ need for new fleets of fire trucks and the like; it makes the chassis for a successful roadside-bomb-resistant military vehicle, and it’s starting to get big orders for it; and it’s profiting off baby boomers’ desires to hit the open road in RVs.
Cramer will admit he didn’t think the emergency vehicle play was that great an idea until he crunched the numbers. Nationwide, 54% of them are over 15 years old, and a third are over 20. These old vehicles are a big safety concern, so a surefire way of extracting money from local governments is by selling them a product that prevents lawsuits. Enter Spartan.
As a defense play, it doesn’t matter whether the U.S. leaves Iraq in 2008 or not. Spartan is levered to the hot Mine Resistant Ambush Protected (MRAP) vehicle market. It makes the chassis for these MRAPs. The company recently got two big orders – for $23.4 million and $16.4 million, respectively – and just 3% of those orders have come through. This is a great business for Spartan, and it’s the reason the military division has the most growth. Cramer says the company is a natural acquisition target for any of the larger military contractors that assemble the finished product.
Spartan also makes the chassis for a number of the top manufacturers of RVs, and with one in 12 baby boomers owning one, that equals profits for the company. Even if the RV division doesn’t quite hit the mark, Cramer still doesn’t see that causing any problems. Spartan lost its arrangement with Fleetwood and the stock didn’t skip a beat.
Last year, Spartan’s net income was up 102%, and it blew away the numbers last quarter, Cramer says. The balance sheet looks good, and the stock trades at 18 times forward earnings and is growing at 35%.
Bottom Line: This is quality work on a quality stock from a quality business school with a wired contingent of traders and investors, Cramer says. He’s going with Jacome, he’s going with IU, and he’s going with Spartan. If you plan to do the same, you might want to wait for a pullback before you buy in.
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