Cramer during Monday’s Mad Money recommended Johnson Controls, but for today’s show he wanted a purer play on the industry. He found three that were worth consideration–Magna International , Lear and Dana Holdings –and he likes them in that order. Here’s why:
Magna reached $71.50 during its last big rally, and one of Cramer’s favorite technical analysts thinks a similar move is on its way. If so, MGA offers another $12 or so of upside. And this name has been pushing higher on increased volume, which in the world of chartology is a sign of legitimacy. The more buying and selling there is, the more the technicians believe the move. Cramer’s guy recommended two possible entry points: $57.42, where the potential upside is twice the size of the potential downside, and $55.70, where the risk-reward ration is three to one in favor of upside.
Lear’s a bit trickier than Magna. This company reentered the market on Nov. 9 after emerging from bankruptcy. Still, the chart looks good, Cramer said, again pointing to the large volume of shares trading. His favored chartist said that LEA could reach $78 given that the $71 stock’s trading range is about $8. Investors who want to buy in should do so between $70 and $71.
Dana Holdings, however, is a far more speculative pick. The stock has been rising on declining volume, and that means the move most likely can’t be trusted, especially given how much the stock has run since last March – 4,804%. As a result, a viable entry point doesn’t exist right now to buy DAN.
In terms of fundamentals, Cramer likes Magna’s diversified business, strong balance sheet and wide margins. The company deals in everything from interior and seating to exterior and electronic parts, in addition to offering vehicle engineering and assembly services. There’s more cash than debt in the coffers, and 2010 margins are supposed to come in at 12.4%. Also, MGA trades at a big discount to its peers, even though it’s the only one that didn’t require restructuring.
As for Lear, this seating and electronics maker emerged from bankruptcy with one of the strongest capital structures in the business, Cramer said. And, like Magna, the company holds more cash than debt. These improvements are evident in the stock’s 11% jump since Cramer’s Nov. 20 recommendation. While he prefers MGA to LEA, there’s no doubt this is a much-improved business.
Lastly, there’s Dana, which is still restructuring after coming out of bankruptcy last January–not a good time to do so. The company, maker axles, drive-shafts, heat shields, engine sealing systems and cooling and heat-transfer products, may have made strides to clear the debt on its balance sheet, but it still fall far behind Magna and Lear. And again, there’s that 4,804% run since March. Cramer said he thinks DAN could go higher, but the stock is his least favorite of these three.
What’s the bottom line? Magna is the best, with Lear in second and then Dana Holdings in a distant, speculative third. But investors shouldn’t jump on these stocks right away.
“I say let the correction take them down to levels you like,” Cramer said, “and then buy Magna, secondly Lear, and then only last would I buy Dana, perhaps under $10.”
Cramer's charitable trust owns Johnson Controls.
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