Cramer doing the Lightning Round is a feat no less amazing than Rodney Dangerfield’s “Triple Lindy” dive in Back to School, but even the Great One gets stumped every once in a while. Case in point: Sara’s question about water stocks when Mad Money was at UT Austin’s McCombs School of Business on Tuesday.
Well, today Cramer has a play for that market – Pico Holdings. Pico’s a diversified holding company with four operating segments, the largest one being water resource and water storage. It sells water to utilities, cities, developers, industrial clients, and it stores and builds up infrastructure for resale. Don’t be confused: PICO is not a water utility, and it doesn’t plan on entering the heavily regulated water utility market.
Pico does two things that Cramer loves: First, it buys up water rights in the desert and then sells that water, most likely at a great premium, to growing but dehydrated towns in places like Arizona and New Mexico. Second, Pico plans to send water through a 35-mile pipeline to the parched northern valleys of Reno, Nev. Oil pipelines have been extremely profitable for the oil companies, so when water prices start to rise, Cramer predicts this pipeline could do the same for Pico.
The company is using money raised in a recent secondary offering to buy up more water rights - another great move as far as Cramer is concerned. If you caught the show yesterday, you’d know that buying a stock immediately after a secondary has tended to be a winning strategy – Pico’s already up six points since then.
Usually on Mad Money, speculative stocks are saved for Fridays so investors have the weekend to think things over, but we’re giving you one a day early this week. That doesn't mean the rules of the game don’t change – do your homework and use limit orders if you’re going to buy. There’s no question that Pico is a risky play, so keep your wits about you if you’re going to play the game.
Bottom Line: If you’re willing to take the risk, and you don’t mind going with a stock that’s not a pure play – Pico has real estate and insurance exposure – this company could be a great way to profit off the scarcity of water.