When an analyst from a large brokerage house initiates coverage on a stock with a 'buy,' it tends to soar. So wouldn't it be nice to know which stocks the analysts plan to recommend?
Cramer on Thursday admitted that getting inside an analyst's head isn't possible. Investors can, however, get into a stock before the Wall Street hype sets in. He calls that the "quiet period" and explained how to play it. After a company goes public, for instance, analysts typically initiate coverage on the stock with a 'buy' after the "quiet period" ends.
Take General Motors , for example. Its initial public offering priced the stock at $33 a share on Nov. 17. The stock began trading at $35 and then hovered around that level for the next month and a half. When the "quiet period" ended, several analysts initiated coverage on GM with a 'buy.' It happened first on Dec. 28 and then on Jan. 3. As a result, the stock popped roughly 12 percent in a week's time and largely due to the analysts.
"And remember, this is General Motors we’re talking about," Cramer said. "One of the biggest household names in America and it still went up 12 percent even though I guarantee you everybody who bought it already knew about the stock of GM.
"So just imagine how much bigger this kind of move could be when the Wall Street promotion machine kicks into high gear behind a stock that nobody's really ever heard of."
First Republic Bank , for example, went public to little fanfare on Dec. 8. When its "quiet period" ends next week, Cramer thinks analysts will start initiating coverage and so now is the time to buy.
Expectations of analyst attention is only one of the reasons Cramer likes FRC. In addition to its wealth management business, the San Francisco-based financial institution primarily lends to high net worth and business customers in California, New York and Nevada. It has $19 billion in deposits, $22 billion in total loans and more than $17 billion in wealth management assets.
Cramer likes that First Republic is a conservative bank. Unlike other banks, he said it largely steered clear of the subprime mortgage crisis. Over the last three years, it has grown total loans by 25 percent and deposits by 22 percent.
Its stock, Cramer noted, trades at twice its book value — a slight discount to similar banks, yet less-safe banks, like Bank of New York and Northern Trust . It trades at a greater discount to State Street , which trades at 2.3 times book value and struggled through the Great Recession.
"First Republic is a terrific bank with a super-safe portfolio of loans that’s growing deposits, growing its wealth management biz and taking share among the wealthy," Cramer said. "I think we’ll soon see many analysts initiate coverage on this one, with buy recommendations galore, something that should send the stock soaring deservedly higher."
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