Mad Money Recap

Try Jim Cramer's Action Alerts PLUS
CLICK HERE NOW

Cramer's 'Mad Money' Recap: Play by the Rules

02/19/08 - 06:57 PM EST

TheStreet.com Staff

In the end, it doesn't matter what Cramer thought of the company. "What drives a stock is what the money managers think, and the money managers obey the cycle," he said.

Moving on to the next rule, the analysts that cover a given sector -- a group commonly referred to as the Street -- are "never bullish enough on good stocks, and ... never bearish enough on bad stocks," Cramer said. This means that market players can actually follow the Street's lead and still make money.

The reason analysts are never bullish or bearish enough is because they don't just cover individual stocks but cover an entire sector, he explained.

"If you're an analyst, and you're covering the oil patch, you always need to have some buys, some holds and some sells, Cramer said. "Even if oil is in free-fall, you're under a lot of pressure to put a buy on at least one or two oil companies. ... You can't say everything is a buy or everything is a sell."

Although this might be "terrible" for the analysts, it's great for investors, as it means "the Street will almost always treat a sector that's en fuego as being a lot less en fuego than it actually is," he said.

Therefore, people can make money by using this as an indicator to help get into hot sectors that will be "underappreciated even if they look like they're already smoking."

Enthusiasm Curbed

Taking a look at oil in 2003, 2004 and 2005, Cramer offered an example of how analysts were bullish but not as enthusiastic as they should have been.

"They would say things like higher oil prices were being caused by increased demand and not just tightness of supply," he said. "They would recommend oil stocks -- but not every oil stock. A lot got left behind by the analysts and went up anyway."

In fact, oil stocks didn't keep going up just because oil prices kept going up. They went up because the analysts had to keep their estimates too low and had to keep sell ratings on some oil stocks that kept blowing away the analysts' estimates, Cramer said.

However, the same holds true on the negative end, he continued. Although analysts were bearish on stocks such as eBay EBAY, Amazon AMZN and Lucent LU, before these stocks had "serious declines," they should have stayed negative longer because they could have probably saved a lot of market players from the pain of the stocks' further declines.

Cramer's third rule pretty much means exactly what it sounds like: "Don't be a snob." It doesn't matter if people are snobs in their personal lives, he said. But if they're a snob about investing and are too busy looking at Neiman Marcus rather than Target TGT, they could be missing "great opportunities" to make money.

"The Street will almost always be late to picking up trends in low-end or even midgrade products, because everybody on the Street lives in an upper-class bubble," Cramer said.

Therefore, even an analyst, whose job it is to cover the restaurant industry, might not understand a casual-dining play such as Darden Restaurants DRI as much as a higher-end stock like Morton's MRT or Ruth's Chris Steakhouse RUTH, he said.

In fact, most big institutional players on Wall Street missed about a 50% gain with the big move Darden had between March 2005 and January 2006 because they were snobs and didn't want to go to Olive Garden or Red Lobster, Cramer said.

At the time of original publication, Cramer was long UnitedHealth Group.

Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for TheStreet.com, Inc., and CNBC, and a director and co-founder of TheStreet.com. All opinions expressed by Mr. Cramer on "Mad Money" are his own and do not reflect the opinions of TheStreet.com or its affiliates, or CNBC, NBC UNIVERSAL or their parent company or affiliates. Mr. Cramer's opinions are based upon information he considers to be reliable, but neither TheStreet.com, nor CNBC, nor either of their affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Mr. Cramer's statements are based on his opinions at the time statements are made, and are subject to change without notice. No part of Mr. Cramer's compensation from CNBC or TheStreet.com is related to the specific opinions expressed by him on "Mad Money."

None of the information contained in "Mad Money" constitutes a recommendation by Mr. Cramer, TheStreet.com or CNBC that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. You must make your own independent decisions regarding any security, portfolio of securities, transaction, or investment strategy mentioned on the program. Mr. Cramer's past results are not necessarily indicative of future performance. Neither Mr. Cramer, nor TheStreet.com, nor CNBC guarantees any specific outcome or profit, and you should be aware of the real risk of loss in following any strategy or investments discussed on the program. The strategy or investments discussed may fluctuate in price or value and you may get back less than you invested. Before acting on any information contained in the program, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.

Some of the stocks mentioned by Mr. Cramer on "Mad Money" are held in Mr. Cramer's Action Alerts PLUS Portfolio. When that is the case, appropriate disclosure is made on the program and in the "Mad Money" recap available on TheStreet.com. The Action Alerts PLUS Portfolio contains all of Mr. Cramer's personal investments in publicly-traded equity securities only, and does not include any mutual fund holdings or other institutionally managed assets, private equity investments, or his holdings in TheStreet.com, Inc. Since March 2005, the Action Alerts PLUS Portfolio has been held by a Trust, the realized profits from which have been pledged to charity. Mr. Cramer retains full investment discretion with respect to all securities contained in the Trust. Mr. Cramer is subject to certain trading restrictions, and must hold all securities in the Action Alerts PLUS Portfolio for at least one month, and is not permitted to buy or sell any security he has spoken about on television or on his radio program for five days following the broadcast.


TheStreet Picks

Mad Money Recap

Go To Section Home


02/15/08
Cramer's 'Mad Money' Recap: Spitzer Weighs In On the Credit Crisis

The New York governor says he is taking steps to shore up the capital reserves of bond insurers.


02/14/08
Cramer's 'Mad Money' Recap: Street to Washington: Help!

The government needs to help bond insurers and strapped homeowners, Cramer says.


02/13/08
Cramer's 'Mad Money' Recap: The Oil Umbrella

Wednesday's rally was all about the resiliency of oil, and not retail sales, Cramer says.


05/19/08
Cramer on Top Searched Stocks: Yahoo!

Yahoo! is among the most searched stocks on TheStreet.com. Here's what Cramer had to say about the stock recently.


05/17/08
Jim Cramer's Best Blogs

Catch up on his thinking on the hottest topics of the past week.


04/26/08
Coming Week: Make or Break

Investors will have to deal with a Fed meeting and another flood of earnings and economic data.


05/19/08
Top Rocket Stocks: Ensco

Ensco International and Echelon have the potential to move higher in coming days.


04/28/08
Monday's Analysts' Upgrades, Downgrades

See who made what calls.


05/19/08
Telecom Giants See a Savior in Video

The addition of video is helping telecom companies compete against cable and satellite companies.


05/19/08
Contract Expiration Tempers Oil's Rise

The June West Texas Intermediate contract reflects selling pressure ahead of Tuesday's expiration. But stocks in the sector are generally trading higher.


05/19/08
Analysts' Upgrades, Downgrades: Amazon

See who made what calls.


Your Recent Quotes: Quote Up0 | Quote Down0
Dow S&P 500 NASDAQ
Oil*
Gold
10 Yr
0.00%
%
%
%
Data delayed 20 min
Sign up for our FREE newsletters now. See All

Keep on top of the market and the critical information you need to make more profitable investing decisions.

  • Cramer's Daily Booyah!
  • Before the Bell

Privacy Policy


Premium Stock Ideas