Mad Money

The Worst House in a Good Neighborhood


The market got absolutely slaughtered Friday. You could say it was because of the weak jobs number, but Cramer doesn’t think that’s the half of it. He believes the market tanked because the Fed didn’t listen when he called for a rate cut.

But thanks to this abysmal jobs number – the Street expected 100,000 new jobs, instead we lost 4,000 – the Fed is now listening, Cramer said. “They now know we could be staring at a recession.”

So with the market down big, Cramer looked into the garbage pile of stocks being thrown out and found a nice, Southern California hometown stock with the one thing he wants most: growth.

Cramer’s ideal growth stock for this environment is Northrop Grumman , the big defense contractor based right next door to USC in Burbank.

Northrop gets no love because, as Cramer put it, it’s the “worst house in a good neighborhood.” There are 20 holds on NOC with one buy even though the analysts love the defense contractors. They have to have some sells on their lists, and NOC gets relegated to a sell, Cramer said, because it’s not as good as competitors like Raytheon , General Dynamics or Lockheed Martin .

Who cares?

Northrop Grumman has the growth – 13%, maybe accelerating to 14% - and it’s so cheap that it has to go higher, Cramer said. The company instituted a buyback that effectively puts a floor under the current stock price of $77. Northop “lives there,” he said. “They own that price.”

Northrop Grumman Story

Northrop Grumman is a huge defense company – missiles, defense IT, military aviation war ships, the whole nine – yet the stock trades like a homebuilder, Cramer said. It’s almost like people are valuing NOC as though it uses its profits from selling ballistic missiles to issue mortgages. But Cramer thinks this stock is flying under the radar, so to speak. It’s undervalued with accelerating growth and an incredibly strong business. Sure, NOC happens to be a merchant of death, but if you go to USC or live in L.A., at least you’re buying local.

Bottom Line: The Fed is getting its own education after the terrible jobs number shed some light on the real problems out there facing real people. Cramer thinks the Fed will blink and cut rates, and right now Northrop Grumman has just what you need.

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