Speculating on LSB Industries

It wouldn’t be a Friday on Mad Money without a speculation pick. This week Cramer highlighted LSB Industries.

LSB is a mix of two different businesses: climate controls and chemicals. They don’t necessarily have anything to do with each other, but Cramer said he likes them both for their exposure to energy efficiency and agriculture.

Climate control might actually be sexier than people think, according to Cramer, especially after Monday’s Ingersoll-Rand-Trane deal. Trane’s stock is up about $9 since close of trading Friday, Dec. 14, and Cramer said he thinks there’s a chance LXU could become Trane part 2.

LSB also makes geothermal heat pumps, an energy efficiency technology that uses the earth’s energy rather than the hot and cold water that regular pumps use. LSB’s products also use less fossil fuels and emit fewer greenhouse gases. So if any type of energy-efficiency legislation is passed, it could go straight to LSB’s bottom line, Cramer said.

Earnings visibility has been the theme on Mad Money this week, and LSB has no shortage of that, namely in its chemicals business. LSB has locked in profits thanks to two deals with Bayer and Orica that should run into 2009 and 2010. Cramer admitted that LSB is competing with Potash and Mosaic on the agriculture side, but he said there’s plenty of room for LSB.

To figure out how much LSB is really worth with these two businesses, Cramer compared each to peers in the industry: Water Furnace International for climate controls and CF Industries and Terra Industries for chemicals. He figures that, as long as the end markets stay strong, LSB deserves to trade at the same multiples as these companies. That means this $23 stock could be worth just under $31.

LSB is speculative because 95% of its business is in the U.S. The company has said that the weak economy hasn’t hurt business yet, but LSB did say that near-term growth is going to flatten out.

Also, unless the climate control business gets some legislative mandates, “it’s going to languish at best,” Cramer said. If those mandates happen, “this stock could be a real winner,” but there’s no guarantee that’s going to happen.

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