After analyzing the last five years' worth of trades as part of his research for Get Rich Carefully, his latest book, Cramer came to another counterintuitive realization: Stop worrying and learn to love secondary stock offerings.
Cramer said we're all conditioned to believe that when a company issues new stock it's bad news for shareholders. When a company does a secondary, it tends to weigh on the stock for a time. But these days that totally reasonable fear of secondaries is also a mistake, Cramer said, because interest rates are still low by historical standards.
For example, real estate investment trusts have done a huge number of these kinds of secondaries, and those deals have worked fabulously for investors. You can find these deals in all sorts of companies that were hit hard by the housing crash, said Cramer. They're now snapping back, like mortgage insurance companies, a group that had pretty much been left for dead. Cramer mentioned how investors could have made a killing on Radian (RDN - Get Report) if they had listened to his buy call in February.
Cramer also likes the secondary offerings from master limited partnerships, the oil and gas pipeline players that are always issuing stock to finance their expansion plans to crisscross the country with pipelines.
Enterprise Products Partners (EPD), Kinder Morgan Energy Partners (KMP) and MarkWest (MWE) are the best-of-breed players here, and they've become serial issuers of equity to expand their pipeline networks. These companies can be risky if interest rates are rising, Cramer warned, but if rates are stable you should jump all over their secondaries.
The bottom line, Cramer said: Forget the conventional wisdom that says a secondary stock offering always means a company is in trouble.
Know When to Fold 'Em
Like "The Gambler" of song, Cramer has some suggestions for when you should fold your positions or even run. "When it comes to picking stocks, cash is not always king," he said. In fact, if you buy a stock just because it's sitting on a mountain of cash, you could get crushed.
Think about it, Cramer said: What do Cisco (CSCO), Microsoft (MSFT), Oracle (ORCL) and Intel (INTC) all have in common? People were lulled into buying their stocks at very high levels simply because they had so much cash on their books, as if cash per se is always good news. What really matters is how companies put that cash to work. Cash can been wasted on undisciplined buybacks -- when you see a company doing that, you should pass on its stock and walk away, Cramer said.
Contrast this with one of the best performing stocks in the S&P 500 since the generational bottom in 2009, Wyndham Worldwide (WYN), run by Steve Holmes, one of the most shareholder-friendly CEOs out there today. Holmes buys back stock aggressively and when it makes a difference, particularly during those ravaging downturns when most other CEOs seem frozen. Holmes thinks it is his duty to return his company's excess cash to the shareholders via dividends, Cramer said. He's the model of what Intel, Microsoft and Cisco need at the helm.
Here's another sign that you should fold. If you own shares in a company that starts blaming its customers for its own poor performance, it's time to walk away.