Breaking Watsco Out of the Sell Block

Cramer has kept things interesting on Mad Money by expanding Sell Block to include not just stocks that should be sold but also the reversal of misguided analyst sell calls. The latest example? Watsco .

On Wednesday, Piper Jaffray downgraded Watsco, the largest distributor of heating, ventilation and air-conditioning equipment in the U.S., to neutral from buy. Apparently, the analyst doesn’t believe housing will bottom this summer, as Cramer does. As a result, he doubts that Watsco warrants such a high valuation.

Cramer shot down that reasoning, though, saying that a housing turn is imminent. Just ask fellow believer Toll Brothers CEO Robert Toll, a man who’s anything but a perma-bull on his industry. If the housing sector bottoms, then, if anything, Watsco’ earnings estimates are too low. That means a better-than-expected quarter in the second half of 2009 could send that stock higher.

Watsco is a play both on a housing recovery and President Obama’s stimulus package, which allotted money for energy-efficient home products such as heating and air-conditioning systems. And the Clean Air Act encourages the replacement of old HVAC systems with new, driving even more business for Watsco.

There’s even a 4.4% dividend yield here that pays investors to wait. What would investors be waiting for? Well, aside of the housing bottom, there’s also Watsco’s move back to its $61, a peak reached in late September 2008 just before the market tanked. Cramer thinks WSO could work its way back up as long as the aforementioned pieces fall into place.

Another thing to keep in mind, too, is that analysts report for mutual and hedge funds, not retailer investors. So viewers should also keep that in mind when hear of a company’s upgrade or downgrade.

Watsco doesn’t belong in the Sell Block, Cramer said. This stock is a buy.

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