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TheStreet Open House

Jim Cramer's 'Mad Money' Recap: Apple Fooled the Analysts

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NEW YORK ( TheStreet) -- The analysts think way too linear, which means that sometimes they get it wrong, Jim Cramer said on "Mad Money" Monday regarding Apple (AAPL), a stock he owns for his charitable trust, Action Alerts PLUS .

Cramer explained that analysts tend to think in cold, hard, easy-to-understand numbers. They calculate what they feel a company can earn, divide that by the share count, then determine a multiple investors should be willing to pay for those earnings per share. But for many companies, using an analytical approach just doesn't work. According to the analysts, Apple simply had no innovation left, and couldn't possibly produce a product that would wow consumers as the first iPhone or iPad did.

That's why when Apple debuted its new iPhones earlier this month, the analysts were quick to not only pan the product, but also lower estimates and downgrade the stock every chance they got.

But then the iPhone launched to rave reviews, and Apple announced that it sold a record nine million units in just the first three days. The worries over the iPhones features, its pricing and its suitability for the global market, it seems, were just plain wrong.

So now the opposite is true: The estimates for Apple are too low and analysts will be forced to raise estimates. Those upgrades will only continue to propel shares higher, back to the levels they probably should've been all along, Cramer said.

Off the Charts

In the "Off The Charts" segment, Cramer went head to head with colleague Mark Sebastian over the overall direction of the stock market in the face of another pending government shutdown. Fortunately, Cramer said, we've been here before, so we already have a playbook for what to do when the political rhetoric begins to heat up.

Sebastian noted that in the April 2011 government standoff, the CBOE Volatility Index, commonly known by its symbol, the VIX, was already elevated over fears about Greece. In the days leading up to the Washington showdown, the VIX sold off, as did the markets, which was unusual as the two usually trade against each other. The lesson, according to Sebastian, was to buy when the VIX was high because the market rebounded after a deal was reached.

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