Mad Money

Airgas Better Off on Its Own


Even some of Cramer’s strictest rules were meant to be broken. Like his maxim that any company getting a takeover bid should be sold. The thinking here is that by then, after the initial pop that follows the announcement, the money has been made. But there are occasions where investors want to hold onto a stock despite a tendered offer.

Cramer's Sell Block

Qwest Communications falls into the first camp. CenturyLink, formerly CenturyTel, made a bid on the company back on April 22, and Cramer now thinks the upside in Q is tapped. At most, he said, there’s about another 25 cents left to gain, but who would want to hold Qwest until the deal closes sometime in the first half of 2011 for a mere quarter a share? Even if you are a Qwest shareholder and you want to collect the 0.1664 shares of CTL for every one share of Q you own, you’ll still have to worry about integration issues once the deal is done. In this space, there are better plays, like AT&T or Vodafone . So consider those instead.

Airgas , though, is a different story. The largest packaged-gas business in the US has been fending off hostile takeover bids from Air Products , first at $60 a share and then at $63.50. But Cramer said ARG could reach as high as $80 on its own, which makes those other offers a touch low, to say the least. And it also means that investors can hold onto Airgas for the time being on the assumption that still more gains are to come.

How does Cramer know? Well, on Wednesday, Airgas reported its second-best quarterly earnings in company history, with operating margins near record levels even though revenues have yet to return to pre-recession levels. Airgas also raised its full-year guidance for 2011 and upped its dividend by 14% to boot. And this company has far outperformed Air Products when it comes to overall gains: 2,020%, including dividends, versus 885%, respectively, over the past 20 years. Only in this past year has APD outdone ARG – up 55% versus just 22%, respectively – and Air Products is trying to take advantage of that short-term underperformance.

But the company’s offer is just too low, especially if you believe as Cramer does that Airgas’ $4.20 earnings estimation for 2012 is conservative. That’s why he thinks ARG can reach $80 on its own.

“In other words, the takeover bid from Air Products is actually holding down Airgas’ current value,” Cramer said, “and the stock could be even higher without it. Air Products is stealing our upside in Airgas, and you shouldn't let them get away with it!”

Quick Hits

Netflix dropped $16 today after a better-than-expected quarter just wasn’t good enough for analyst. But Cramer said the driver behind this story – subscriber growth – is still intact. He recommended buying, not selling, this stock.

Also, returning to the two IPOs that Cramer recommended earlier in the week, it’s time to take profits on Green Dot. The stock opened 20% higher from its $36 pricing and then enjoyed a big first-day pop just like he’d predicted. Investors should cash out now. Then Ameresco, which priced below its expected range at $10 and popped just slightly at the open – 2.5% – and closing up just 2% for the day. Cramer thinks investors can still hold on to this one.

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