Cramer's 12 Stocks to Play the Recovery

Cramer’s charitable trust owns Emerson Electric, Hewlett-Packard, Home Depot, JPMorgan Chase, PPG Industries, VF Corp. and Visa. Believe it or not, the economy will recover. Cramer’s good news, which he shares in his new book, Getting Back to Even, is that “sooner is actually a whole lot more likely than later.”If that’s the case, then investors should know how to play it. Luckily for them, Cramer pulled together 12 stocks that he thinks will most benefit from an economic rebound. Check out the slide show to find out which market bellwethers made the cut.Note: Do your homework before buying these stocks! And read Getting Back to Even for Cramer’s full analysis of them and where he thinks the economy will go from here.Posted 19 Oct 2009

The machinery business will “snap back the hardest and make you the most money when things get better,” Cramer says in Getting Back to Even. That’s why investors should consider buying Caterpillar, “the largest and best manufacturer of construction equipment around the world.” The stock may look expensive now because of its price-to-earnings multiple, but CAT will become “very cheap” once the economy turns and those earnings increase.

Money managers view 3M as “the ideal proxy for any rebound,” Cramer says. And it will be the first thing they buy when the recovery is at hand. “You want to be in it ahead of the stampede of big-money investors.” In the meantime, enjoy the dividend payout.

When big corporations want to build new plants and install better equipment or expand in general – both logical outgrowths of an economic rebound – “you can bet that Emerson Electric will get a ton of business,” Cramer says. This firm makes parts and tools for other businesses, and 75% of its operations are tied to infrastructure. So every time you hear the word stimulus, expect Emerson’s bottom line to benefit.

As the economy gradually recovers, Cramer says, railcar traffic will increase. After all, this mode of transport has proved itself the best for bringing goods to market. Union Pacific, the biggest US railroad company, which has great exposure to Chinese demand, is the best way to play the trend. The stock’s cheap, too, and it “should be able to work its way higher for several years to come.”

When you’re putting together a list of stocks to take advantage of the recovery, Cramer says, you need at least one chemical company. He likes PPG Industries because of its diversified exposure to end markets around the world such as manufacturing, construction, automotive and consumer products. CEO Charles Bunch told Mad Money that his firm should recover in 2010, so the time to start buying PPG is now.

Higher oil and gas prices will be a part any rebound, Cramer says, “and we should cash in on the move before it happens.” ConocoPhillips, which is levered to both, is “the most balanced way to profit from the coming energy recovery.” The best part? During the writing of Getting Back to Even, COP traded at just four times cash flow, a historic low, and a 25% discount to peers Chevron and Exxon. Cramer expects Conoco to close that gap – and then some.

“I believe China will be the country that leads the rest of the world into the coming recovery,” Cramer says. Why? Because the Middle Kingdom quickly pushed through a stimulus package that focused on infrastructure, and it didn’t take long to see the positive effects. Investors who want to play Chinese spending should buy BHP Billiton, the world’s largest diversified resources company. China can’t build its bridges and tunnels without the metals and minerals mined by BHP, and the stock is a great hedge against inflation.

Tech stocks are about as sexy as it gets, especially when the market’s revving back up. And mutual-fund managers can’t help themselves when this sector starts to turn. “For that reason alone, you need a tech stock as a recovery play,” Cramer says, “a stock like Hewlett-Packard, because you do not want to miss out on the kind of move that heavy mutual-fund buying can create.” That’s not the only reason he likes this stock, though. With both corporate and consumer spending picking up, business should start booming for HP.

“Housing is the linchpin of the recovery here in America,” Cramer says, and he thinks the market “has finally bottomed.” While money managers might pile into the homebuilder stocks, Cramer would rather see investors buy Home Depot. A crucial internal restructuring has turned this company around, and it’s put HD in position to “kick Lowe’s butt.” This is another stock with a great dividend that pays you to wait for the recovery.

Remember all those 2008-’09 recession-era promises to cut spending and save more? Well, Americans may improve in this area, but let’s face it: When we finally have access to more money, we’re going to spend it. That’s why a retail stock will be an important part of any recovery portfolio. Cramer’s favorite right now? VF Corp. The company owns “some of the best-known, highest-quality brands” – Wrangler, North Face and Vans, among others – he says, it has “the best strategy in the business,” and the management team is “visionary.”

Cramer can think of only two financial companies that not only survived but thrived as a result of the credit crisis: Goldman Sachs and JPMorgan Chase. He recommends buying JPM as a recovery play, though, because it’s cheaper and he expects the stock “to increase over time” thanks to a number of strong diversified businesses. “I have no doubt that once a recovery gets under way,” Cramer says, “JPMorgan’s share price will reflect what we already know – that is has become one of the strongest banks in the world.”

Visa isn’t a pure play on the recovery, but that’s exactly the reason that Cramer recommends it: This company generate profits even if the turn takes awhile. If the economy picks up and consumers start spending, Visa will make money on the increased number of debit and credit transactions. If not, the company will benefit from the switch to plastic cards from paper money, something that’s taking place independent of the business cycle. “Either way it works,” Cramer says.

© 2009 CNBC.com