Cramer: Bankrupt Company a ‘Buy, Buy, Buy?’

(Click for video linked to a searchable transcript of this Mad Money segment)

Jim Cramer always scours the market looking for stocks poised to outperform. But rarely does a bankrupt company fill him with so much excitement.

This one "has a ton of internal catalyst that could catapult it higher," Cramer exclaimed. "I'm talking about W. R. Grace, (TICKER: GRA) a $6.3 billion specialty chemical company."

Of course Cramer recognizes that investors may find the bankruptcy issue somewhat concerning. But in this case, he says there's more than meets the eye.

"A decade ago, in 2001, W.R. Grace filed for Chapter 11 bankruptcy because asbestos claims against the company were getting out of control," Cramer explained. "Of course, the company no longer makes any asbestos related products, but they had a ton of lingering lawsuits, and the idea was that in bankruptcy, W.R. Grace could consolidate all of the claims and deal with them under one central umbrella."

The strategy worked and the company is now in the final stages of the bankruptcy process.

"W.R. Grace is expected to emerge from bankruptcy sometime in the fourth quarter and I think the stock is a buy before that happens," Cramer said.

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Here's why:

Because of the bankruptcy status, pro investors either chose to stay away or were mandated to stay away.

"Few mutual funds want to own companies that are in bankruptcy. In fact, many of them simply aren't allowed to--same goes for hedge funds that take money from pension plans. Basically, a ton of institutional investors simply are not permitted to own this stock right now."

After the company emerges from bankruptcy, that all changes. And Cramer can see all those power players scrambling to get in.

First and foremost, Cramer said the business is in great shape – that alone should attract investors. However, after examining the company's three main divisions, he believes the stock is undervalued. That should really attract investors.

"Goldman Sachs came out with a terrific piece of research a couple weeks ago looking at the value of the three business segments. Their analysis suggested that W.R. Grace's catalyst business could be worth $5.3 billion; they think the construction business could be worth about $2 billion, and they estimate the materials business to be worth just under $1.9 billion," Cramer said.

"Add them all up, subtract the $895 million in net debt on the balance sheet, add in W.R. Grace's net operating loss carry-forwards or NOLs that are worth $792 million, and you get a company that should be worth slightly more than $8 billion or $105 a share."

That's roughly 26% higher than where the stock is trading right now.

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Cramer doesn't believe it will take long for the Street to catch on. Therefore he recommends establishing a position before the company exits bankruptcy.

"WR Grace is a high-quality specialty chemicals company that's flying under the radar for the moment," Cramer said. "But after it emerges from bankruptcy, I expect it to get a lot of positive attention from Wall Street. I recommend buying now ahead of pros who are prohibited from owning it. In just a few months I suspect they too will be buying, too."

Call Cramer: 1-800-743-CNBC

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