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Cramer's 'Mad Money' Recap: Trading Off Misleading Headlines (Final)

Excessive Bravado

"Sometimes companies can set the bar way too high," Cramer told viewers, as he examined the earnings of IBM (IBM), a company that appeared to beat the estimates, only to see its shares get clobbered.

Cramer said on the surface, all seemed well on IBM's conference call. The company beat by three cents a share, on 2% revenue growth. On the call, IBM management said they met all of the goals they set on their April call, and gave a bullish outlook for the future.

So what went wrong? Cramer said it wasn't the company's April conference call but its May analysts day, where IBM laid out its roadmap through 2015. Cramer said at that meeting, IBM promised double-digit growth over the coming years, and portrayed unfettered optimism. As a result, analysts provided IBM estimates that were impossible to meet.

Cramer said in this case, it wasn't the analysts fault that the estimates were raised so high. He said IBM's call for double-digit growth was unnecessary, and analysts naturally assumed with such a bullish outlook that their short term estimates were too conservative.

Cramer said it was bravado that killed IBM shares today, and even with today's plunge he's still not a fan of the company. He instead recommended Accenture (ACN), an Action Alerts Plus stock that posted better-than-expected bookings and growth, and a company that knows how to under promise and over deliver.

Stocks or ETFs?

Is it better to own individual stocks, or an ETF that spans a sector? That's the question Cramer answered as he went head to head with colleague Tim Collins in the "Off The Charts" segment.

Cramer compared the charts of individual bank stocks versus the Financial Select Sector SPDR (XLF), which that covers the banking group.

According to Collins, thanks to ETFs like the Financial Select SPDR, banks stocks have become commodities, trading in lock step with each other. Collins noted that there is now a 91% correlation between JPMorgan Chase (JPM) and the ETF, and an 85% correlation between Bank of America (BAC) and the ETF.

He said with the bank stocks having more volatility that the ETF, he'd be a buyer of that over individual stocks.

Cramer said he agreed Collins' points about the ETFs. However he defended owning individual stocks, as Cramer owns both JPMorgan and Bank of America for Action Alerts Plus.

Cramer noted that JPMorgan has outperformed Bank of America over time, and with homework, individual investors can still pick out the winners. "The ETFs appear to be winner," admitted Cramer, "just at a time when it should be the other way around, and individual performance should matter more."
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