Medco Health Solutions may have found its bottom, Cramer said during Tuesday’s Mad Money. He thinks the stock should go “much, much higher” from here.

With Medco

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[MHS  Loading...      ()   ] down 28% year-to-date, compared to an 8% increase for Express Scripts

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[ESRX  Loading...      ()   ] and just a 10% loss for CVS Caremark

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[CVS  Loading...      ()   ], Cramer better have a strong case to make for the stock. But he thinks he does, namely because it’s so cheap right now.

Even though the pharmacy-benefits manager (PBM) is expected to grow earnings at an 18% to 20% rate in 2010, and 15% to 17% over the next three years, the stock fetches just an 11.7 price-to-earnings multiple. Remember, Cramer’s definition of cheap is any company trading at one times its growth rate. So Medco trading so far below that makes this one a steal.

Of course, this begs the question: If Medco is so great, then why has it fallen so far this year?

“Because Wall Street just doesn’t understand how the company really makes its money,” Cramer said.

Instead of seeing MHS as the proprietary play that it is, analysts and investors consider this a commodity business. They ignore Medco’s ability to deliver low-cost drugs to its clients—health-care plans and self-insured employers—and keep overall medical claims down. They also overlook how Medco is a top-to-bottom provider of extensive clinical expertise whose recent acquisitions help to further differentiate the company from the competition. Example: Medco will deliver diabetes drugs, supply diabetic medical supplies and deliver an electronic diary system that patients can use to monitor their food intake, which is crucial for maintaining healthy blood-sugar levels.

Investors seem worried about Medco losing its big contracts, too. But Cramer isn’t, not when the company enjoys a 99% retention rate on existing contracts. All of the big PBMs have dispelled another myth about this business as well, that pricing pressure will hurt companies like Medco. They don’t see it, though. And while 2011 should be slow for generics, a high-margin business for MHS, the pace of patent expirations should pick up again in 2012. And it’s worth noting that $90 billion worth of branded drugs are going generic between this year and 2014.

Cramer called this move to generics from branded drugs “one of the great secular trends of the era,” and it, too, is another reason he likes this stock so much. That and, of course, because it’s so cheap. In fact, Medco has traded below 13 times earnings only three times since it was spun off from Merck in 2002. Each time was a buying opportunity, the Mad Money host said, and this time should be, too.

“This one's so cheap that I see it as a screaming buy,” Cramer said, “and I believe that a year from now we will be shocked that this stock ever traded as low as $45 a share.”

When this story published, Cramer’s charitable trust owned Medco Health Solutions.

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