Laser-Guided Speculation

Today being Speculation Friday, Cramer’s picked out a stock that he thinks is perfect for the CNBC Million Dollar Portfolio Challenge. The game is all about choosing risky stocks with huge potential upside – sometimes they are stocks you wouldn’t necessarily want to own with real money because they’re too risky, but this one is fair game either way, Cramer says. The stock is Ionatron and it’s a real hail mary play that has the potential to make you mad money in the game or out.

Ionatron is a company that - in plain English - makes lasers. The market is called directed-energy weapons and the technology is known as laser induced plasma channel. This all sounds like stuff right out of either a mediocre science fiction movie or a pretty cool video game, Cramer says, but with the military constantly looking to develop new technology for the war in Iraq, it’s a sector you might want to do some homework in.

For a while now, the military has been investing in technology that can counter improvised explosive devices. Ionatron had a contract for a remote-controlled vehicle that fired light charges at IEDs to blow them up, but about a year ago the military said they weren’t good enough. That took the stock from $14 to $5, where it sits today. Cramer’s been hearing that Ionatron is developing a portable mountable anti-IED device that could be fitted onto vehicles so, ideally, soldiers could have these things mounted on their Humvees that would blow up bombs before they got anywhere near them. It should be noted that the details are sketchy because this is a highly classified area, which is why IOTN is a speculative play. But we do know that Congress directed a new test of Ionatron’s system that finished up in the middle of the first quarter, Cramer says, and now they have the results. He’s speculating that they’ll get the contract this time around, and that could be huge for people who decided to pick this stock up when it was down.

If Ionatron does win the contract back, Cramer thinks the stock beat its previous all-time high of $14 because the shorts are all over it. The short interest right now is at 25% of the float, Cramer says, and if the company gets the contract, he doesn’t think there’s any doubt it’ll move the needle and the shorts will get squeezed.

This stock should come with a warning label, whether you’re buying it for the game or for a real portfolio. The company isn’t making money and, even though laser guns sound cool, it’s hard to commercialize the technology, Cramer says. But there’s also upside potential beyond the potential IED contract. They just announced a research and development contract with the Navy, and SAC Capital – run by Steven Cohen, one of Cramer’s favorite money managers – owns 8% of the company. Ionatron clearly has some believers.

Bottom line: Ionatron is play with a risk-reward of $9 up and maybe $1 down, Cramer says. It’s a stock he recommends for the Portfolio Challenge, and also to fill a speculation-shaped hole in a real portfolio.

Questions? Comments?