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The 'Next Raging Bull Market'?

Tuesday, 3 Aug 2010 | 8:04 PM ET

The "next raging bull market," Cramer said Tuesday, could be companies dealing in energy conservation.

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"With the price of energy increasing, governments around the world are pushing to incentivize energy efficiency," he noted. "While businesses are trying to cut costs by lowering their electric bills, the energy conservation biz is making more money than ever."

One of the most important components of the megatrend going forward, Cramer said, is the smart power grid. By using digital technology to deliver electricity, smart grids save energy, cut costs and increase reliability. Moreover, a smart grid could turn off the air conditioning at an office in the middle of the night. Smart grids better monitor the flow of energy, so utilities can manage their networks more efficiently. In the US, the switch to smart grids is already happening with $3.9 billion of stimulus dedicated to modernizing the electric grid. Some analysts estimate that investments in the smart grid could exceed $45 billion in the US over the next five years and up to $200 billion in the global marketplace by 2015.

There are two ways to profit off the smart grid, Cramer said: smart meters and demand response. The former allow utilities to remotely collect energy usage data more frequently. Cramer doesn't recommend any pure plays on smart meters right now, but does like Skyworks Solutions and Cirrus Logic . He has previously recommended these semiconductor stocks as a derivative play to Apple, but noted that they also have a lot of smart meter exposure. Cirrus, for example, gets 30% of its sales from energy products, including power meters. Its revenues from energy continue to grow by 119% year-over-year. Meanwhile, Skyworks has a linear products segment that accounts for up to 25% of its sales and a fifth of that comes from smart meter reading technology. Both CRUS and SWKS sell chips to multiple smart meter companies, so they're not tied down to any one company.

But the "real money," Cramer said, is in the demand response business. These companies help utilities respond to excess demand by finding ways to reduce it. Utilities pay these companies a fixed fee to be on call to reduce demand for electricity when the grid is under stress. When power actually need to be trimmed, these companies get an additional payment. The demand response companies are able to reduce demand in non-critical areas by making contracts that pay building managers to cut back on energy use during peak times.

EnerNOC is the largest third-party demand response company and Cramer's fave in this space. Cramer said the company has a lot of room for growth. After it reports earnings, he recommends buying this stock on any kind of pullback.

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