Mad Money

Cramer’s Silver-Bullet Stock

It would be hard to fight a war without bullets. So with defense spending on the rise and the conflict in Iraq continuing, Alliant Tech’s business should do quite well. Because if there’s a projectile that the U.S. can launch at an enemy, there’s a good chance Alliant makes it.

Alliant manufactures M16 ammunition, tank rounds – you name it. Alliant is also in the “mission systems” business, which covers missiles, tank and artillery ammo, aircraft components and missile warning systems, and it makes launch systems for NASA shuttles and ballistic missiles.

This company is positioned well for what Cramer sees as a coming bull market in defense. But he likes it for two other reasons: It’s cheap based on earnings, and it’s a purer defense play. These are his criteria for finding the right stocks to buy in his new seventh wild bull market: the defense sector.

Eighty-six percent of Alliant’s sales come from defense. With an 11% long-term growth rate and a 14.4 multiple, the company trades at 1.3 times its growth rate.

“I have to believe that with these new arms deals and the increases military spending, ATK’s numbers have to come up,” Cramer said.

In the last year, Alliant has bought back more than 10% of the company. “Some would say it’s virtually taking itself private,” Cramer said. Between this and the increased orders, Cramer figures there could be an upside surprise in earnings at the report Thursday.

Speaking of that report, Cramer advises caution. He recommends putting on half a position before the call and half after just in case. If the stock runs after the report, investors are in early. If it dips a bit, they get a better entry point.

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