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When the Better Company Isn't the Better Stock

"The best company in an industry doesn't always have the best stock," Cramer said Monday. "There are times when it pays to bet on the underdog, specifically, when the underdog's improving faster than the top dog."

Consider Lowe's and Home Depot , for example, which are the leading players in the home improvement business. Home Depot has been taking share and beating Lowe's on nearly every metric for years, Cramer said. But Lowe's has really started to turn things around, so he thinks it's a terrific buy right now.

The "Mad Money" host typically prefers "best of breed" names, but he said Lowe's is an excellent company. It recently executed a restructuring program, which should improve margins and bring higher earnings. He's optimistic because Home Depot implemented a similar plan a few years ago. Home Depot's restructuring plan went into place just before the economic downturn began in 2008, so it's seeing better results as the economy improves.

Cramer thinks Lowe's might have more opportunity than Home Depot, though. He said Home Depot's restructuring is already known and reflected in the share price. Being as Lowe's has only started its restructuring, management have the chance to cut store growth, reduce labor costs, further the efficiency of its supply chain and improve its product offerings.

Admittedly, Lowe's can't do much about demand because it's dependent on the state of the economy, but Cramer said it can control costs. Home Depot has done a great job of controlling costs, bringing its expense per square foot down by 8 percent since 2007 versus Lowe's 4 percent decline. Labor costs are also lower at Home Depot because only 59 percent of staff are full-time, whereas Lowe's gives 69 percent of its staff full-time employment.

Overall, Cramer thinks both Lowe's and Home Depot will do well once the economy fully recovers and while the latter is doing better right now, he'd rather own Lowe's. He thinks it's a cheaper stock with more room to improve.

When this story was published, Cramer's charitable trust owned Lowe's.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

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