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NEW YORK (
) -- Don't pay attention to which sectors are "under-owned," pay attention to companies that are improving. That was Jim Cramer's thoughts to
viewers Wednesday as he sounded off against the notion of contrarian investing.
Cramer explained when a sector has been going down for a while, the contrarians -- those betting against the prevailing market wisdom -- will come in and say that sector is a buy. Their thinking is that big money managers will own less, or be under-weighted, in that sector as a percentage, compared to that sector's weighting in the
Standard & Poor's 500
But Cramer called contrarian investing "treacherous," noting that sometimes even out-of-favor sectors can still fall lower. Contrarian investing to too risky, he said. Case in point: the banks and the industrials, two sectors that have been "under-weighted" by money managers ever since Europe took its latest turn for the worse.
The contrarian view totally backfired for the industrials, said Cramer, as executives announced things were looking weaker than expected in Europe, sending shares even lower than they were. The banks, on the other hand, have been gaining strength, thanks in part to stronger than expected real estate loans. Two contrarian theses, two very different outcomes.
Cramer said that he doesn't think contrarian thinking matters much in today's markets. He said that the smart money seeks out and invests in companies that are improving and those that offer protection from Europe and the other ailing sectors in the economy.
In the "Executive Decision" segment, Cramer spoke with Dinesh Paliwal, chairman, president and CEO of
, the auto infotainment company whose shares fell 4% Tuesday on the news that nine automakers would integrate Siri,
popular voice assistance, into their cars.
Paliwal said the Apple news is actually good news for both Harman and the entire auto industry as it helps promote the value of integrated electronics systems, something only two out of every 10 cars currently have installed. He said Harman has been a big advocate of hands-free systems such as what Apple has proposed with Siri. Harman sees Apple as a collaborator, not as an adversary, said Paliwal.
Harman shares also came under fire two years ago, noted Paliwal, as
announced its Android smartphones would include maps with turn-by-turn directions. However, since then sales have increased by 20% because Harman was able to integrate the new maps and directions into its existing systems. Paliwal said that more choices for consumers is always a good thing.
Finally, when asked about sales in Europe, Paliwal said they remain strong. The company derives 35% of its total sales from Europe, most of that from Germany.
Cramer said it took guts for Paliwal to appear on
and refute the negative reports. He remained bullish on the company's prospects.
Weakness at Home, Strength Abroad
In a second "Executive Decision" segment, Cramer spoke with Mike Sutherlin, president and CEO of
, the industrial machinery maker whose shares are off 27% so far this year on the weak global economy. During the 2008 and 2009 recession, shares of Joy Global lost 70% of their value on similar concerns.
Sutherlin said Joy Global is seeing weakness in the U.S., primarily as coal production has been slowing. But in the rest of the world, demand remains strong as companies and countries are not cutting back on the projects already under construction. This strong demand, he said, is offsetting any U.S. weakness.
When asked about that U.S. weakness, Sutherlin said that only about one-third of the decline in cola production has stemmed from utilities closing plants to meet EPA regulations. The other two-thirds, however, stem from short-term economic weakness, something Sutherlin expects to turn around soon.
So why should investors believe that Joy Global won't lose the lion's share of its value this time around? Sutherlin said Joy Global still has a 12- to 14-month backlog and, unlike 2008, nearly 60% of the company's revenue now comes from the aftermarket rather than new equipment sales. Joy Global is able to level off any weakness in its revenue, said Sutherlin, all while continuing to grow earnings.
Cramer agreed that Joy Global is far from a cyclical company and investors are simply overreacting to the fears in Europe. He said for investors that can weather the short-term, the time to start buying Joy Global is now.
Here's what Cramer had to say about caller's stocks during the "Lightning Round":
: "Why would I want to own Chesapeake when
has better assets? I don't want to own Chesapeake."
: "Cheap, cheap, cheap, cheap. It has Europe and semiconductors so people hate it, but I think that's a great story."
Dr Pepper Snapple
: "I think that's a terrific stock to own here. They generate a lot of cash. I say buy, buy, buy."
: "No, no. This has been a terrible performer. "
: "I want to be hopeful, but the latest data did not give us as much hope as we wanted. "
: "I think they tell a good story. People get nervous and they keep selling it, so be careful. But I like it."
: "There's too much takeover fluff in there. I don't want to touch it."
: "I don't really care for this stock. I like
: "This is a terrific company but the industrials are hated. I'd buy it at a 4% yield."
Am I Diversified?
In the "Am I Diversified" segment, Cramer spoke with callers and responded to tweets sent via Twitter to
to see if investors' portfolios have what it takes for today's markets. The first portfolio included:
Johnson & Johnson
and Joy Global.
Cramer said that Randgold is gold and Joy Global is mining, so he'd bless this portfolio.
The second portfolio's top holdings included:
Royal Dutch Shell
Cramer said he'd get rid of Exxon and BP and add a health-care and a utility stock like Johnson & Johnson and ConEd.
The third portfolio had:Apple,
Kodiak Oil & Gas
as its top five stocks.
Cramer said this portfolio was properly diversified.
Shame on J.P. Morgan
J.P. Morgan Chase
CEO Jamie Dimon do well testifying in front of Congress today? Cramer's answer, who cares!
Cramer said it doesn't matter whether Dimon did well or not. He and his firm were wrong when they walked into the hearing room and were just as wrong when they walked out. The real issue, said Cramer, is J.P. Morgan was betting against the interests of its clients.
Cramer explained that trading losses are one thing, loan losses another. But when a company makes directional bets that are not in sync with what it's telling clients, that's wrong. J.P. Morgan may claim these losses were just hedges, but Cramer challenged that notion by asking, "Hedges against what, intelligence?"
In the end, J.P. Morgan's actions cost its shareholders billions of dollars, and everyone there should be giving back their bonuses to help repay those losses. "Shame on them," Cramer concluded.
--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, BA, DIS, DVN and JPM.
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