Cramer’s ‘Benefit of the Doubt’ Club

Last night, Cramer started a new series for this week – the “Benefit of the Doubt” list, the BOD club. It’s a metric for judging retail stocks that have recently missed a quarter or not hit their monthly same-store sales. The idea is that if the company’s CEO can be trusted to right the ship in time for the next report, then investors might buy in while the stock is down in anticipation of it climbing again. The key is to know whom to trust.

Luckily, Cramer has come up with a list of CEOs for you to watch. Last night he started with Mackey McDonald at VF Corp., and tonight he’s adding Mike Ullman of JC Penney and Terry Lundgren of Federated Department Stores.

On Feb. 22, JCP reported a quarter that Ullman wasn’t happy with – expenses were too high and the merchandise was wrong – but he promised the company would be back on track come March. Of course, no one believed him and the stock dropped to $77 and change. But if investors had bought in at $77 instead of selling, they’d be up a solid four points. March came and the numbers are up as promised. Turns out those higher expenses came from new store openings, and those stores are looking better than ever. Cramer says JCP should be heading for new heights.

As for Terry Lundgren of FD, Cramer admits he didn’t give the CEO the benefit of the doubt. Back in November, Lundgren was on Mad Money to explain a big miss for the quarter, caused by the recently acquired and out-of-shape May. He promised a solid 2007, but after the stock nosedived in December, Cramer turned his back. Now, three months and nine points later, he’s eating crow.

Bottom Line: If you want to try to win in retail, don’t repeat Cramer’s mistakes. Give guys like Terry Lundgren of Federated and Mike Ullman at JC Penney the benefit of the doubt, and they shouldn't disappoint.

Questions? Comments?