Mad Money

Playing the Fringe

When Cramer was running his hedge fund, he used to take advantage of strong cycles by purchasing more than just the obvious stocks in the sector. If aerospace were surging, he’d buy Allegheny Tech and Honeywell in addition to Boeing because ATI and HON had just enough exposure to make a profit. Now, with the rails business enjoying a bull run, he’s suggesting Home Gamers follow the same strategy.

Cramer says a railroad company flush with cash buys equipment, so he’s expecting Koppers, maker of railroad ties and rail splitters, to see some growth in sales. He actually recommended the stock on March 22, 2006, and it’s up 46% since then. Koppers is the largest supplier of railroad ties in North America, but interestingly enough its main business is chemicals. Cramer likes these types of impure plays because KOP will most likely fly under the radar of Wall Street until it reports a strong number because of the rails business, then he thinks everyone will want in.

Even with softer exposure to the rails biz, Koppers still seems to be in a good position. Cramer quotes some statistics from the Railway Tie Association, saying that 21 million ties will be sold this year. Not bad, considering the 10-year average is 16.8 million. There has also been a production reduction to manage the demand. Anyone who has taken Econ 101 should understand what that means: higher prices.

On the chemicals side, Koppers makes carbon pitch and furnace coke, which are used in aluminum and steel, respectively. KOP also started a joint venture in China that expands its coal tar production capacity there and lets the company service the aluminum business in China, the Middle East, Australia and India.

Bottom Line: If you want a subtle way to try to make some money off the railroad boom, then Cramer recommends Koppers.

Questions? Comments?