×

Fast Food, Fast Profits?

Sometimes a sector’s worst stock is worth some speculation, Cramer told viewers on Friday, but only if the fundamentals are improving. Rather than being outright dogs, these companies are merely lagging the rest of the group. For that reason, they often hold the most upside potential.

Cramer thinks he found one such stock in CKE Restaurants . Investors might better recognize CKE by its brands: Carl Jr.’s, Hardee’s, Green Burrito and Red Burrito. The stock may have fallen to the single digits from the low $20s, and Cramer may prefer McDonald’s to these other fast-food joints, but CKE is in the middle of a turnaround that should, along with a few other factors, propel this stock higher.

CKE’s operating margins – the percentage of every dollar of sales that is left over as profit before a company pays debt interest or taxes – jumped to 5.7% in 2008 from 3.2% in 2003, with 71% of the company’s 3,116 locations franchised. Also, average unit volumes at Hardee’s grew by 26% in five years. While it’s true that these figures rank dead last when compared with the rest of the fast-food group, with Sonic, Burger King and even Jack in the Box all doing better, many of the factors that so hurt CKE are about to lift it back up.

Overexposure to California may have hurt CKE during the downturn, as high unemployment and tough economy lightened Western wallets, but signs of a turn there should turn that overexposure to an advantage. There are also CKE’s same-store sales, which started weakening significantly last September and have stayed weak since. This will make for easy “compares” next quarter, meaning this year’s results should beat last year’s numbers. It may not amount to genuine improvement, Cramer said, but Wall Street’s money managers don’t care – and neither should you. That beat will probably add a few points to the share price.

CKE also benefits from the same macroeconomic factors boosting all restaurants right now. Lower gas prices free up more money for consumers to spend on dining out. The downturn shuttered a number of competitors, offering CKE the chance to take market share. And there’s still tremendous potential for this company to grow both inside and outside the U.S. Fun fact: There are just 17 Carl Jr.’s in Texas. Compare with that 425 Burger Kings, 584 Jack-In-The-Boxes, 398 Arby’s and 440 Taco Bells.

Lastly, CKE’s dividend yield of 3% is an added bonus. Investors are being paid to wait for that turnaround. So there’s even some downside protection here for those who decide to take the risk.

Call Cramer: 1-800-743-CBNC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com