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NEW YORK (
) -- Blindly following celebrity investors based on what their quarterly filings say is a recipe for disaster, Jim Cramer told his "Mad Money" audience on Tuesday.
Cramer explained that the quarterly filings detail the buying and selling patterns of the big-time fund managers and celebrity investors like Warren Buffett. But Cramer said that doesn't mean it's a good strategy to mindlessly follow what these reports say.
First off, these reports show what investors have bought in the past. There's no way to know whether they still like those companies at today's prices. Furthermore, these larger investors surely aren't going to tell you before they sell their stocks, leaving you vulnerable. Plus, Cramer said that funds and those like Buffett buy and sell for all sorts of different reasons, most of which have no indication on whether a stock is good or bad.
But Cramer said the primary reason not to follow the big boys, they're often dead wrong. Cramer said that activist investors have showed interest in companies like
, but those stocks have not been particularly great performers. Neither has Buffett's stake in
Bank of America
, which by the way included preferred shares, not the common shares that normal people can buy.
Cramer said its far better to watch for insider buying, executives buying shares of their own company. Executives are not allowed to flip their own shares, meaning that if they're buying, then they're in it for the long haul.
"Don't rely on someone else's homework," Cramer concluded, only you should control the investments that you make.
Beneath the Surface
Continuing his "Stock Supermarket" series, Cramer went shopping for telco companies, comparing the stocks of
, a stock which he owns for his charitable trust,
Action Alerts PLUS, vs.
, our nation's largest rural carrier.
Cramer said that on the surface, both AT&T and CenturyTel seem similarly priced, with AT&T trading at 12 times earnings with a 5.8% dividend and CenturyTel trading for 14 times earnings with a 7.8% dividend. But price multiples alone are misleading, said Cramer, which is why he instead used the PEG Ratio, a company's multiple divided by its growth rate.
Using the PEG Ratio, AT&T came back with a respectable 1.7. Anything over 2 is expensive said Cramer. Meanwhile CenturyTel's PEG Ratio is 12.4, making it insanely expensive.
Cramer explained that while CenturyTel is a mature, no-growth cash cow, that cow has the possibility of not providing milk. That happened to rival
, which recently announced it's reviewing its dividend payout, sending shares down 28% in just 24 hours.
CenturyTel delivered good earnings, said Cramer, but given the risk, is it really worth paying such a high PEG Ratio? Cramer said AT&T is far less risky and is only paying slightly less of a dividend.
Cramer went head to head with colleague Ed Ponsi over the charts of the beer stocks, mainly
Molson Coors Brewing
, a stock near its 52-week low,
, a stock near its 52-week high,
, a stock stuck right in the middle.
According to Ponsi, the chart of Molson is problematic, with the stock stuck in a downward channel of lower highs and lower lows. Additionally, the stock is selling off on high volume, signaling that any rally is lying, and the stock is stuck under its 200-day moving average. Molson's relative strength indicator, RSI, indicates the stock has further to fall.
The chart of Boston Beer, however, Ponsi said is promising. After gapping higher on strong earnings, Ponsi said the stock is near a multi-year high. However the RSI shows that it may have run too far, too fast and is due for a pullback. Ponsi suggested buying on any weakness, not here.
Finally, there was Anheuser Busch, a stock in the sweet spot. Anheuser delivered a three-month high on Friday, but isn't hitting any resistance until $64 a share. The stock's RSI is also neutral, signaling that there isn't much in its way to get there.
Turning to the fundamentals, Cramer said he agreed with Ponsi. He said the beer wars have taken their toll on Molson and Boston Beer is just too pricey after it's big move higher. That leaves Anheuser, which is focused on its better beer brands and has terrific Latin American exposure. Cramer said that Anseuser deserves to trade at a premium.
Exciting Growth Prospects
In the "Executive Decision" segment, Cramer once again sat down with Alan McKim, chairman, president and CEO of
, an environmental cleanup company whose shares are up 70% since Cramer first recommended it in June 2010.
McKim said that the natural gas industry in America is still in its early stages and Clean Harbors is excited about its growth prospects. He said that his company surrounds drilling rigs with equipment and people that help keep them safe and environmentally friendly.
McKim also noted that Clean Harbors deals with not only with contaminated water used in fracturing but also in the drill cuttings themselves, the dirt and rock that's excavated that can sometimes have naturally occurring radiation.
Clean Harbors is also committed to its work force, maintaining a booming lodging business for its workers in the field. McKim said that Clean Harbors is hiring and needs about 600 additional people. He said that overall, the natural gas industry will be a big opportunity for American workers as areas like the Bakken shale expand from 4,000 wells today to an estimated 40,000 in the future.
Another bright spot for the company is its incinerator business, where the company operates nine incinerators and handles about 70% of all U.S. capacity. McKim said that business is also growing and more and more companies outsource their incinerator operations.
Cramer continued his recommendation of Clean Harbors.
Cramer was bullish on
Deere & Company
Chipotle Mexican Grill
Cramer was bearish on
Chicago Bridge & Iron
In his "No Huddle Offense" segment, Cramer said that he doesn't have enough fingers to count all of the good things happening in the U.S. economy. He said that the data is so good and so varied that investors can't help but smile.
But Cramer also noted that we were in a similar spot last week, only to be taken down hard by news about Italy's bond rates. He said that we're in a "trust, buy, verify" mode where investors can believe in the good things that were happening, but they still need to temper those results against the latest news out of Europe.
"If we didn't have Europe, we'd be dramatically higher," Cramer concluded, "but alas, we do."
--Written by Scott Rutt in Washington, D.C.
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At the time of publication, Cramer was long AT&T.
Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for TheStreet.com, Inc., and CNBC, and a director and co-founder of TheStreet.com. All opinions expressed by Mr. Cramer on "Mad Money" are his own and do not reflect the opinions of TheStreet.com or its affiliates, or CNBC, NBC UNIVERSAL or their parent company or affiliates. Mr. Cramer's opinions are based upon information he considers to be reliable, but neither TheStreet.com, nor CNBC, nor either of their affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Mr. Cramer's statements are based on his opinions at the time statements are made, and are subject to change without notice. No part of Mr. Cramer's compensation from CNBC or TheStreet.com is related to the specific opinions expressed by him on "Mad Money."
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