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Cramer’s Latest Bull Market
The constant search for new bull markets sends Cramer to some rather unique places. The latest? Companies that emerged from a bankruptcy caused by asbestos claims.
Believe it or not, this select group has delivered great returns about seven to 10 months after getting back on their feet. Armstrong World Industries [AWI
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], Owens Corning [OC
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], Kaiser Aluminum [KALU
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] and USG [USG
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] for the most part saw a big jump in share price, with the first three adding 44%, 32%, and 112%, respectively, from bankruptcy to peak. Only USG lagged, climbing just 8%.
That’s why Cramer likes W.R. Grace & Co. [GRA
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], which he thinks is the next company to benefit from the trend. He recommended the stock during the July 6 Lightning Round, but realized GRA's full potential after some follow-up research. An asbestos lawsuit forced W.R. Grace into bankruptcy, but those claims were settled in April. Now, with a reorganization in place and emergence imminent, investors should buy the stock before Wall Street catches on.
W.R. Grace operates in two areas, specialty chemicals and construction products. The former deals largely with catalysts, which are used by refineries to reduce sulfur emissions and remove impurities. Any increase in the economy, and the resultant bump in oil demand, would help the company, but investors don’t need to wait for that. Catalysts fight global warming, an Obama-blessed pursuit, and that means GRA works right now.
Admittedly, the construction products side of the W.R. Grace is less attractive, at least for the time being. There’s no need for the company’s concrete and cement additives or specialty coatings, used to protect against water and fire damage, given the decreased building here in the States. But it’s important to note that 48% of this division’s sales come from overseas. Also, all of W.R. Grace’s businesses generate double-digit operating margins and hold significant market share. Add in about $100 million a year in free cash flow and 67% of total sales earned outside the US and you have plenty of reasons to own this stock.
The post-bankruptcy reorg will allow the current stock to continue trading, and the only expected dilution will come from 10 million new warrants, which can be converted into stock once the share price reaches $17. That’s about 50% higher than GRA’s Monday close. The warrants expire a year from the reorg’s start date, something Cramer expects between August and September. He would typically urge investors to wait for the dilution to come and go, but if it won’t happen unless the stock jumps, there’s no need.
There are some caveats here, though. While Cramer wants viewers to buy GRA before the big money managers do, he doesn’t want them rushing into the stock. There is little research on W.R. Grace, it doesn’t trade much, and there’s no short-term catalyst. This is a play on an improving economy. If you’re in the bullish camp in this debate, then speculate with GRA. Just be sure to wait a week or more for a pullback, use limit orders and buy in increments. Only one analyst follows the stock, but if you play it right, there’s a great chance for profits as the coverage increases.
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