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How to Play Facebook Before the IPO

Published: Friday, 3 Feb 2012 | 6:52 PM ET

Text Size

By: Drew Sandholm
Producer

The best way to bet on Facebook is to simply wait for its initial public offering and try to get a piece of the deal, Cramer said Friday. For those who can’t wait until May, though, the “Mad Money” host has endorsed just one “non-Facebook play on the Facebook deal” – Morgan Stanley, the lead underwriter on the Facebook IPO.

The Facebook IPO is just one example of what Morgan Stanley [MS Loading... () ] is doing right lately, Cramer said. The New York-based financial holding company has been the lead underwriter on other notable IPOs recently, including Groupon [GRPN Loading... () ], LinkedIn [LNKD Loading... () ] and Zynga [ZNGA Loading... () ]. It commanded a 20 percent market share of Internet IPOs on U.S. exchanges and also led among all U.S. deals with 13 percent share.

More importantly, good news matters to the stock, Cramer continued. Brokers were left for dead last year, as investors were concerned about Europe’s sovereign debt crisis. The short-sellers tried killing MS, in particular, on rumors the company had massive exposure to Europe. All of it proved to be untrue, though and MS rallied on news of the Facebook IPO.

Morgan Stanley came into 2012 without many of the legacy issues that had been dragging it down for years. It raised a lot of money overseas when it was in trouble and is now well-capitalized with a strong balance sheet. It has been taking write downs, thereby improving its book value (the company’s net asset value, the accounting value of the firm if you were to liquidate everything tomorrow). Before the write-downs, Cramer said it was hard to say what Morgan Stanley’s rael book value should have been because the actual numbers were a joke, but now they are the real deal.

Morgan Stanley’s stock is now trading at a 35 percent discount to its tangible book value, making it very cheap in Cramer’s mind. He thinks there is a lot of room to run, too, because the broker has made a lot of improvements.