4 Derivative Plays on General Motors
Web Editor, "Mad Money"
OK, you should know by now what to do with General Motors in the aftermarket. But for those who either don’t want, or couldn’t get at the right price, this stock at all, Cramer has some derivative plays worth consideration.
First, and most obvious, is Ford . Cramer’s been touting this stock for a long while, and he thinks GM’s IPO will make letter F all the more attractive.
How could it not? While GM is stronger in the emerging markets and now holds a better balance sheet, Ford is by far the top company here.
Ford’s balance sheet ain’t that shabby either, and the company plans to be net-debt neutral by the end of this year and net-cash positive in 2011. That translates into better financing for this company, with in turn translates into higher profits overall.
Not to mention, Ford literally pulled itself up by its boot straps, foregoing bailout money in favor of a hard-won turnaround that was a product of smart cost cutting and even smarter management. Now the company is set, like GM, to capitalize on the rebounding US auto market.
Cramer thinks investors will recognize this as GM hits the market, and the one-to-one comparisons will commence. Once the big money realizes how strong Ford really is, he predicts the share price will rise accordingly.
Ford isn’t the only play on GM, though. Cramer also likes some of the auto-parts makers. For a speculative bet, he recommended American Axle , which just reported a strong quarter and caught an upgrade from J.P. Morgan on Wednesday. AXL gets 80 percent of its sales from General Motors.
Then there’s Lear , a seat maker that earngs 15 percent of its revenues from GM. Cramer likes this one on a pullback to the low $80s.
And Cramer fave Johnson Controls. The company is also a good investment on the heating, ventilation and air-conditioning business, and it just pushed through a 23-percent dividend boost.
“Is that not exactly the kind of thing I like to see in a stock?” Cramer asked.
When this story published, Cramer's charitable trust owned Johnson Controls.
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