The underperformance caught the attention of Jeff Smith of activist hedge fund Starboard Value. Starboard took a 3.7 percent stake in Advance Auto Parts and planned to unlock value. Fifteen months later, Cramer saw signs of progress, with AAP as the best performer of the group.
One of Cramer's rules is that he never recommends a stock on a takeover basis unless he likes the fundamentals. In its open letter to the company's management, Starboard pointed out that AAP's operating margins were 800 to 900 basis points behind AutoZone and O'Reilly, and they wanted management to close the gap with a series of operational improvements.
At the time, the stock was at $170 and Starboard argued that AAP could travel to $350 or even $400 if it could boost margins and improve execution. The company replaced one-third of its board of directors and added an extra seat for Smith.
Unfortunately, these announcements hit at the same time the company reported a subpar quarter with weak guidance, and that weakness overshadowed the changes.
All through last year, Starboard worked with AAP to institute a better leadership team, and hired 30-year PepsiCo veteran Thomas Greco as the new CEO and appointing Smith as chairman of the board. This gave Starboard more influence over the business.
"It has worked so well that I think all sorts of acquirers could be salivating over this company at these levels," Cramer said.
Given that there are just three major auto parts retailers out there, AAP is a natural target, Cramer said. Whoever acquired them would instantly become the largest player in the space.
AAP's fundamentals seem to have changed, too. If it can continue to put up better numbers than Cramer is confident it will become a growth property again. It also has a clean balance sheet with just $1.05 billion in debt.
More importantly, Cramer is convinced that this could be a motivated seller situation as Starboard's position in AAP is likely only to be up slightly. Given that the position represents 11.5 percent of the fund's portfolio, he thinks Starboard would agree to arrange a sale and pick up a gain.
While AutoZone and O'Reilly seem like natural acquirers, Cramer thinks O'Reilly is the more likely option because it is larger and has a cleaner balance sheet.
"This could be one of the most straightforward takeover stories out there," Cramer said.