Home Gamers know that Cramer generally stays away from airlines. He did recommend Continental Airlines recently, but that’s a rarity. So you know it has to be a worthwhile airline stock if he’s going to take up a whole segment of Mad Money to share his findings with loyal viewers.
Tonight’s pick is GOL, a domestic airline in Brazil. Cramer’s liked it on and off for a while, but it’s never been as great as it is right now, he says. GOL just bought its biggest competitor, Varig, after Varig went bankrupt in typical airline fashion – the company was beleaguered by debt and just unable to staunch losses.
GOL paid less than $100 million dollars in cash, 6.1 million shares of stock and a tiny bit of debt for Varig. For that measly pittance, GOL got jets, gates and, most importantly, the end of the ruinous competition that was cutting into both companies’ margins and profits. In one fell swoop, GOL goes from being a troubled domestic carrier to the cheapest airline stock in the world, Cramer says. No more competition. No more price wars. No need to buy expensive, new airplanes.
The reduced competition means much higher prices, Cramer’s predicting, and the stock should shoot straight to $40 from its present level of $26. And, yes, the stock is up today, and normally when you see a jump of 10% Cramer would tell you to wait for a pullback, but he doesn’t expect to see any weakness for a long time – so it’s probably better to get in now. This is probably a stock you’ll want to pounce on before the momentum runs out.
Bottom Line: If you hate competition, GOL is for you.