Mad Money

Cramer: Sara Lee Breakup Makes Its Stock a Buy

Investors are rotating into the cyclicals — stocks that need a healthy economy in order to grow — and out of the various stocks that thrive in a recession, “Mad Money” host Jim Cramer said Thursday.

In turn, Cramer recommends investors consider Sara Lee. He’s long wanted to recommend the stock, but it wouldn’t budge from its 52-week high. It’s pulled back over the past week and a half, though. With the stock trading at around $21.25 a share, Cramer thinks investor should buy on any weakness.

So what makes Sara Lee so attractive? The packaged food company might not be very sexy, but it is breaking up in order to unlock value for shareholders. In January 2011, the company announced it would break Sara Lee into two companies: a meat business that will retain the Sara Lee name, and a coffee and tea company that will call itself D.E. Master Blenders 1753. Cramer thinks it’s a “very smart move” that will prove to be very profitable.

“Sara Lee is a classic example of a company where the whole is worth less than the sum of its parts,” Cramer said, noting that analysis from Goldman Sachs found that Sara Lee’s meat business alone was worth $7 a share and the coffee business should be worth $16 a share. 

“Add it up and you’ve got $23. You might say that’s only about 8 percent more than the current share price of $21.25, but remember, you also have to account for the $3 special dividend,” Cramer explained. “So we’re really talking about a 22 percent profit just from Sara Lee breaking itself up.”

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