Sneak Preview: How to Be Contrarian

Investors were wary of the stock, and even some of the analysts who were giving Google high earnings estimates were telling their clients to stay away. Amylin is a small drug company that specializes in treatments for diabetes. When I got behind it in June 2005, it was one of the most heavily shorted, most despised stocks out there. When I recommended both of these companies, I stressed not just the good fundamental story, but also what would cause the institutional investors to stop hating them and start buying them.

Even though it already had a drug on the market, Amylin was basically a one-drug story for me when I recommended it on June 13, 2005, at $17.63 a share. That drug was Byetta, and it hit the market the day I told people to buy the stock. Most of the analysts covering the company, and most of the Street, which was either ignoring or shorting the company, thought Byetta would be a nothing drug. It treated type 2 diabetes, and even though the clinical trials had shown it was very effective, the Street didn't think it would sell because it had to be injected.

I disagreed. The stock broke through $30 on August 26, $40 on Dec. 20, and touched $50 on July 5, 2006. This stock did not go up because I was right about Byetta sales and the Street was wrong. The stock went up because the Street changed its mind. It came around to Cramer's view. When I recommended the stock, I knew that the big institutions would start to like it if Byetta sales exceeded the low expectations that the Street had set for them, or if new applications or new versions of the drug were introduced.

Why would this change their minds? The Street hated Amylin because they thought its drug wouldn't sell; they thought it was hype. I know this because Amylin was practically a one-drug stock: if you liked Byetta, you liked Amylin, and if you hated Byetta, you hated Amylin. I'd done my homework and thought the drug would work -- the Street's objections were silly. Most diabetics already inject insulin, so having to inject Byetta, a more effective drug than others on the market, didn't seem to me like much of a drawback. I was right, but again, what mattered was that the Street was willing to repudiate its old position and agree with mine.

The story behind Google was similar. Everyone knew that Google had tremendous growth and earnings power, but people were hesitant to buy it, and most of the analysts were telling people to sell it all the way up. The big institutions were staying away from Google, which was priced at $178.61 on the first day Mad Money aired, March 15, 2005, but which I'd been recommending from the IPO in August 2004 at $100.