Cramer's Top 3 Retail Stocks

When there is a lot of economic uncertainty, Cramer likes to look for turnaround stories. And the “Mad Money” host said Tuesday that he found three such stories in Kohl’s, Walgreen and AutoZone.

Each company has discovered that remodeling its stores means new customers, as well as a pick-up in business.

Cramer believes Kohl’s is the best of the bunch. The department store operator has nearly 1,100 locations and will spend $275 million this year to update a hundred of them. Once that happens, a majority of its stores will either have been opened or remodeled within the last five years.

Kohl’s is seeing its hard work pay off. After each newly remodeled store’s grand opening, it gets about a 7 percent bump in sales. What’s more, the company’s e-commerce was up 47 percent in its latest quarter, and it is upping its private label and exclusive product lines. It also has two huge catalysts coming in September when it launches its Jennifer Lopez and Marc Anthony brands.

Cramer calls the retailer a “cash flow machine” and said it is expected to use that cash to buy back up to $1.8 billion worth of stock and pay a dividend for the first time at the end of June.

“Best of all, the stock sells for 12 times forward earnings with a 14 percent growth," Cramer noted. "That’s a steal.”

Walgreen is also turning around based on its major store remodeling. Last year, the drugstore chain operator opened or converted more than 1,500 new stores, and the analysts expect it to refresh another 3,500. That’s more than half of its 7,500 store base. Despite bad weather and high gas prices, Walgreen delivered 5.5 percent sales growth in April. The stock is also up 34 percent since Cramer first recommended it in October 2009, and he thinks there is more room to run.

Lastly, auto parts retailer AutoZone saw commercial sales grow 21.2 percent after refurbishing its hub stores to better serve commercial parts customers and its retail network. By the end of fiscal year 2009, the company converted 60 out of 143 hub locations. It then decided to convert the rest ahead of schedule because the remodel was going so well.

Cramer thinks there is a huge opportunity in AutoZone's stock, but he wouldn’t buy shares until after it reports earnings on May 24.

When this story was published, Cramer’s charitable trust owned Kohl’s.

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