Is Motorola Worth the Risk?

After years of existence as a dog of a stock, Motorola finally looks worthy of owning. Though only as a speculative bet on the company’s rebound, Cramer said Friday.

He’s most excited about the company’s plan to split into two separate businesses early in 2011. Motorola will take its well-known mobile phone segment, as well as its home and networks division, and spin it off into Motorola Mobility. The rest of the company, which includes everything from two-way radios and barcode scanners to wireless and network security products and more, will remain as Motorola.

Cramer’s play? Buy some MOT now, especially after the unwarranted hit it took after Cisco’s terrible quarter, and pick up more on any pullbacks until Motorola Mobility comes public. He’s bullish on the new company will be totally debt free and hold $3.5 billion in cash on its balance sheet, and its two businesses are either surging or ready to rev up.

Google’s Android operating system has breathed new life into in Motorola once lackluster handsets, as the original Droid phone that came out last year will be followed by 22 new versions this year alone. And Android is the only OS taking share right now, Cramer said, expanding to 20 percent of the smartphone market in August from 13 percent in May.

Hence Motorola’s handset division reporting its first operating profit in three and a half years in the third quarter. The projection going forward for these higher-priced, higher-margin smartphones is for them to reach 51% of MOT’s handset shipments in 2011, up from 36 percent in 2010, according to research from Wells Fargo. Now Cramer’s thinking the division will easily beat the Street’s earnings estimates.

The home and network segment, which includes set-top cable boxes and other entertainment gear, hasn’t seen this kind of growth yet—sequential sales have been flat for three straight quarters—but Motorola is predicting an increase in the fourth quarter. And Cramer likes the way MOT’s handsets have the ability to interact with its home entertainment gear, a smart reason why these two divisions were kept together to create the new company.

There’s an international play here as well, as MOT has plans and potential to grow in China, Latin America and Europe.

Motorola’s rebound has started, with its latest third-quarter earnings report coming in ahead of expectations thanks to strong handset shipments and higher pricing. There are worries here, too, though. The company’s largest partner, Verizon , will start selling Apple’s iPhone just as Motorola Mobility is being formed. And some people worry about the long-term secular decline of cable and the commoditization of the cell-phone business. But Cramer thinks, with the stock at just $8, that these negatives are baked in while the positives are not.

“Motorola’s taking share and taking names,” Cramer said. Now the stock is “too cheap to resist.”

When this story published, Cramer's charitable trust owned Apple.

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