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Cramer's Down on Darden

Friday, 4 Jan 2008 | 8:02 PM ET

Cramer may love the unlimited salad bowl at the Olive Garden, but parent company Darden leaves a bad taste in his mouth.

Cramer's Food Awakening
Mad Money host Jim Cramer helps you stay in the game during this bear market.

As cheap as Darden looks to some on the Street, it’s only going to get cheaper, Cramer said. The stock should continue its downward tumble – even more than the 11-point drop since its December second-quarter earnings miss – thanks to sky-high corn prices, a business levered to a lagging U.S. economy and failed brand concepts like Bahama Breeze and Smokey Bones.

So Cramer warned against falling prey to the “it's just too cheap” fallacy. Darden’s down, and there’s no reason for it to regain its losses, he said. In fact, after that missed quarter, he seems to think downgrades and estimate cuts are on the way.

And while it might not be an obvious connection, Darden’s a victim of the ethanol craze, too, Cramer contends. Cheap grain’s essential to the restaurant-chain owner – which also runs Red Lobster and Longhorn Steakhouse – and ethanol is the reason the commodity’s so expensive. The kicker is that the alternative fuel’s “never going to solve our energy crisis,” he said, pointing out that ethanol only produces 30% more energy than producing it consumes.

The ag complex may love “our idiotic, ill-fated love affair with ethanol,” Cramer said, but it’s killing Darden. So as much as he likes the management – and the food at Olive Garden – the stock’s just not cheap enough to buy.

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