A Price Target for Tyco

J.P. Morgan’s downgrade of Tyco on Tuesday should push that stock closer to Cramer’s recommended buy-in level, he said during today’s Mad Money.

Tyco’s another name from his list of stocks that reported fabulous earnings beats last quarter, stocks investors should want for just that reason. The only problem is that these companies are all up in price as a result, so he’s giving viewers what he thinks is the best entry point for each of his picks. (Read about Cramer’s first pick this week, Jones Apparel.)

Tyco finally seems to be benefiting from breaking itself up into a number of different businesses, including number-one electronic security firm ADT (which also makes fire-fighting and protection equipment) and a strong flow-control company. Cramer credits higher margins than expected from flow control as a major reason for Tyco’s beat – a 31% upside surprise.

Flow control’s big business. It’s an integral part any water use, natural gas monitoring, oil drilling and industrial and mining processes. And Tyco makes the valves, pipes, fittings, automation and other products that makes those processes happen. Still a doubter? Just look at how flow-control peer Flowserve has been doing. That company’s up 66% in the past year.

Cramer did admit that there was some weakness in the quarter coming from ADT, but he blamed it on a necessary exit from an unprofitable contract, and a trend in clients switching from client to pay-as-you-go service. Since ADT is not a cyclical business, he’s fully expecting this part of Tyco to find its footing soon enough.

Tyco also has the buyback Cramer likes so much -- $1 billion worth, or about 5% of shares outstanding.

But as good as this stock looks, it’s important to only buy in at the right price, Cramer said. He said investors shouldn’t pay any more than $42 for TYC.

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