Cramer's 'Mad Money' Recap: Rotational Investing

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NEW YORK (TheStreet) -- Investors don't have to wait for next week's Olympics to catch a good game of volleyball, Jim Cramer told "Mad Money" viewers Wednesday. Cramer gave four examples of how "rotation" really works as the markets spiked one to the bears.

Rotations happen when sectors get beaten down too far, said Cramer -- so far that even bad news can send stocks higher. That's what happened Wednesday with EMC (EMC), a company that only reaffirmed its guidance but was able to pop its shares 9.4%.

That was enough to send cloud stocks like Salesforce.com (CRM) and F5 Networks (FFIV) higher as well.

Intel (INTC) was another rotation story, said Cramer, as this company was light on earnings but was upbeat on its fourth-quarter outlook. That news was enough to rally the stock along with shares of Microsoft (MSFT), Skyworks Solutions (SWKS) and other tech names.

Outside of tech, shares of Stanley Black & Decker (SWK) initially dropped when that company reported, but after doing their homework the buyers swooped in to take the stocks higher by the close thanks to stronger home sales. Honeywell (HON) was also a market highlight, said Cramer, as shares spiked despite European skepticism.

Cramer said as money was rotating into the beaten-down technology and industrial sectors, it was also rotating out of the financials after Bank Of America (BAC) reported another weaker quarter.

Cramer concluded by saying that markets are stronger than you might think, and many CEOs are becoming increasingly optimistic. How long this rally will last however, will still likely hinge on the next European bond auction.

Winners and Losers

Even in tough markets, there are still winners and losers. Cramer has preached time and time again that execution, how a company runs its business, matters. His latest example, IT outsourcing giant Infosys (INFY), which once again reported horrible results, sending shares down over 11% in a single day.

On the company's conference call, Infosys blamed Europe and in particular weakness in the financial sector. But does that mean all of enterprise technology is on the ropes? Not if investors listened to SAP (SAP), which pre-announced on the same day as Infosys, only this time to the upside, sending its shares up 10%.

Cramer said while Infosys and SAP aren't direct competitors, they do sell into the same end-market, the enterprise. While Infosys blamed Europe and the financial sector, SAP actually took time out to mention it is seeing strength in all geographies, including Europe, and the financial sector was a bright spot for the company.

Infosys has now disappointed for three consecutive quarters, noted Cramer, a clear indication the company doesn't have a handle on its business.

Another clue: The company discontinued quarterly guidance.

Given that SAP revenue increased by 18% at a time when Infosys is shedding gross margins, Cramer said it's clear which company is the better operator and which one is able to execute on its vision.

Need more proof? Cramer called out Infomatica (INFA), which also imploded on weak earnings, sending shares down 27%. Infomatica's explanation for the shortfall? Europe.

Executive Decision

In the "Executive Decision" segment, Cramer sat down with David Cote, chairman and CEO of Honeywell, a company Cramer credited with lifting the entire industrial sector Wednesday as its shares shot up 6.6% on strong quarterly results.

Cote said there's a lot of good things happening at Honeywell. He said Honeywell does a lot of "seed planting" and is constantly working on new products and initiatives that later bears fruit to keep it growing.

When asked about aerospace, Cote discounted the notion the sector has peaked. He said there are still a lot of orders out there and sales may stay high for awhile. Turning to natural gas, Cote called the fuel an important resource for the U.S and one that could be a huge economic driver for our country.

Cote did caution, however, that the U.S. needs to take action, whether it be with our debt, energy policy, math and science education, tort reform, infrastructure or free trade. "We need to get moving," said Cote, or risk falling behind the rest of the world.

When asked about that rest of the world, Europe in particular, Cote forecast three outcomes for the troubled continent. He said the most likely of the three is zero percent growth for the continent for the next four to five years. The political will just isn't there, noted Cote, which is why Honeywell is planning for stagnation.

Cramer once again commended Honeywell for its excellent results and insights onto the state of the world. "Own it, don't trade it," he concluded.

Lightning Round

Here's what Cramer had to say about callers' stocks during the "Lightning Round":

Alexion Pharmaceuticals (ALXN): "I want you to stick with this one."

Sonic (SONC): "The analysts have gotten so negative. They haven't seen anything yet. That stock is going higher."

Lululemon Athletica (LULU): "That apparel complex is starting to come back. I want to own Lululemon."

FirstEnergy (FE): "That is one terrific company but I like Duke Energy (DUK) at this point."

Carnival (CCL): "I lack a catalyst. You know who has a cruise line that's humming? Walt Disney (DIS)."

Amarin (AMRN): "This is another biotech where I'm willing to take the risk. You can lose a lot or make a lot. If we get good news, ring the register on half."

Allot Communications (ALLT): "I think it's good but its had a big run. I think the stock is a little played out. I don't want to chase it."

Altera (ALTR): "It's fine. I want to hold it for this cycle."

Am I Diversified?

In the "Am I Diversified" segment, Cramer spoke with callers and responded to tweets sent via Twitter to @JimCramer to see if investors' portfolios have what it takes for today's markets.

The first portfolio included: Michael Kors (KORS), AT&T (T), Apple (AAPL), Magnum Hunter (MHR) and Facebook (FB).

Cramer said that Apple and Facebook are both tech, which means that Facebook needed to be sold to make room for a drug stock like Bristol Myers-Squibb (BMY).

The second portfolio's top holdings included: Verizon (VZ), Altria (MO), Eli Lilly (LLY), Consolidated Edison (ED) and Pepsico (PEP).

Cramer analyzed this portfolio and deemed it properly diversified.

The third portfolio had: Enterprise Product Partners (EPD), Southern Company (SO), Bristol-Myers-Squibb, AT&T and B&G Foods (BGS) as its top five stocks.

"Wow!" Cramer said, as this was also a "darn good portfolio."

No Huddle Offense

In his "No Huddle Offense" segment, Cramer recapped his CNBC Seeking Alpha interview with Preet Bharara, the U.S. Attorney for the Southern District of New York, from earlier Wednesday.

Cramer said that Bharara has prosecuted 71 insider cases to date, winning 65 of them. The other six are still pending.

He said that Bharara is serious about leveling the playing field for average investors. Bharara felt that hedge fund managers have their calculus all wrong, as they often fail to take into account how their actions may be illegal and doom their entire firm.

Cramer said that Wall Street underestimates the firepower of the U.S. District Attorney, often at their peril.

--Written by Scott Rutt in Washington, D.C.

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At the time of publication, Cramer's Action Alerts PLUS had a position in AAPL, BMY and DIS.

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