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Adobe: A Cheap Stock With Profit Potential

Friday, 27 Jul 2007 | 7:50 PM ET

All week Cramer has been recommending tech stocks on the strength of the coming fall bull market season. But they’re a great play on this volatile market because tech is far removed from the troubled banks, brokers and homebuilders.

Time 4 Tech: Adobe
It's time to buy tech, and Mad Money host Jim Cramer takes a look at Adobe.

Now that’s not to say that tech didn’t get hit Thursday like almost every other stock, but Cramer said investors should be pouring money into the sector once things settle down.

Software company Adobe Systems if down four points from its high of $40. That’s a nice discount on a stock that Cramer thinks should see a jump in the third and fourth quarters.

The sales from Adobe’s premier photography/graphics/web software package Creative Suite 3 should register in Q3 and Q4. Q3 has been historically slow, but Cramer thinks CS3 should help the company beat Street expectations.

After Cramer did some research, he realized the stock is cheap too. Adobe had been trading at a price-to-earnings ratio of 40 times earnings, but now is at 30 times earnings, which is historically low.

Another reason there’s a chance Adobe sees a jump in price in the fourth quarter is that since June 2003 the share price has tended to go up from Q2 to Q4. Some times there has even been a multiple expansion. The multiple seems to expand in the fourth quarter relative to the third, Cramer said, and a higher multiple equals a higher share price.

Bottom Line: Cramer thinks the time is right to buy Adobe.

Questions for Cramer? madmoney@cnbc.com

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