Cramer’s Bid for Sotheby’s

Cramer offered up an inflation play tonight, Sotheby’s. Actually, BID is levered to inflation – the more the better. It falls into that category of stocks investors want to buy when inflation is on the rise: gold, art, collectibles. It also shares a duopoly in the auction world with Christies, and we love duopolies here at Mad Money.

Cramer first recommended this stock at $24, back on March 15 of last year. Since then BID has doubled. Just in the last four weeks, it’s up 31%.

Buying Sotheby’s now is a play on the coming auctions in May, which is always the best month for that market. This year is slated to be even better than 2006, with Cezanne, Picasso, Matisse and Modigliano all on the block. Cramer recommends buying BID next week and selling it going into the auctions on May 8. You should always sell into the peak of the excitement, he says.

Maybe this seems too obvious. How could anyone make money if the rise in Sotheby’s stock each year is as predictable as Cramer is making it? Wouldn’t these auctions already be priced into the stock? Yes, they would, but this isn’t a sane and sensible market. The analysts that cover BID have been wrong about the stock all the way up, Cramer says, and they’re still underestimating the strength of the current auction cycle.

For Sotheby’s, Cramer’s willing to break one of his long-standing rules: You can buy this stock as a both a trade and an investment. For the short term, you might be able to make some money from the May bump. On the long side, Sotheby’s is a play on the growing billionaire society that loves to show off its money through paying $18 million on a master impressionist painting. That’s the great secular trend behind BID.

Cramer says the only consistent information coming from the analysts that cover BID is that they usually underestimate the company’s earnings potential. Sotheby’s has earnings growth of 23% this year, and Cramer thinks the numbers are still too low. Sotheby’s has huge incremental margins of about 80%, Cramer says, so if it makes more money then he expects, it goes straight to the bottom line.

Cramer’s bottom line? For a great conspicuous consumption investment, or one of the best ways to play inflation, or the great May auction trade, Cramer recommends Sotheby’s. It’s already up 100% from where he got behind it a year ago. Let’s see how much higher it can go.

Questions? Comments?