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Jim Cramer launched his "Mad Money" TV show Tuesday with a lesson on how to spot a bottom in a stock and how to make money off of it.
After all, "spotting a great bottom might be the single best way for a home gamer like you to outperform the big institutional players," he told viewers.
Cramer used the action in
Abercrombie & Fitch
over the last year as a case study.
Back on his
July 7 "Mad Money" show, Cramer told viewers Abercrombie & Fitch was a $55 stock that eventually would be an $88 stock. Now it's up to $68.95. In July Abercrombie & Fitch had the perfect bottom, Cramer said, and if people caught its bottom, they could have made some mad money.
For the first half of 2006, there were no changes in Abercrombie & Fitch's earnings forecast, so there was no real reason for it to move either way. But after "all the smooth sailing in the first half, "everything that could go wrong went wrong," Cramer said.
Oil went up to $75, investors gave up on retailers and Abercrombie & Fitch reported "confusing and not-so-satisfying" same-store sales results in June, he said.
However, the company said it would report a good quarter in August. "There was no reason to panic and sell the stock, but panic
people did" as analysts "knocked it down with their downgrades," Cramer said.
On Aug. 15, the teen retailer
reported a great quarter just as it said it would back in June, and now it's up. The lesson to be learned is that people should pay close attention to analysts as their comments, upgrades and downgrades can affect stock prices, but folks shouldn't just blindly follow what analysts advise.
"Bottoms are created by too much negativity," Cramer said, adding that when there is this type of "bear raid," people should do their own homework on the company and stock.
If people did their own homework and looked at the company's numbers, they would have seen that Abercrombie & Fitch would have made its quarter like it said it would, Cramer said.
"The Street did the wrong homework and listened to the analysts," Cramer said. "When you see a stock hit with multiple downgrades and it plummets -- that's when you should swing into action and see if it deserves to be down or if it's just because of the analysts."
There was not a single reason to be as negative as the analysts were on Abercrombie & Fitch, he said.
"Analysts are almost always wrong, but money managers listen to them," Cramer said.
For the future, he recommended waiting till analysts have finished downgrading this type of a stock, and then buying it as it will have bottomed.
And "do your own homework," he stressed. "It's always the best way to invest."
Strong Outlook Brews at Starbucks
On recent a "Mad Money" show, Cramer said
had all lost their momentum.
He also said that the one that was most likely to rebound from its poor quarter was Starbucks, and now Cramer believes it's a buy.
When Starbucks missed its same-store sales number in July, the company said it was because of a banana frappuccino that took too long to make, which consequently caused long lines at its stores. Then it beat its estimates in August, he said.
"If Starbucks misses its same-store sales again, it could go down, but I believe they will beat those numbers," Cramer said.
Starbucks' same-store sales in July were "abnormal," he said.
The long lines that the company said it had doesn't make Cramer believe Starbucks has a problem with saturation, a lot of people think it does. In fact, once it beats its same-store numbers, it should send the stock a lot higher, he said.
"How can you be saturated when you have lines that are too long?" he said.
One of the main reasons Cramer believes market players should buy Starbucks is because it has longer-term growth that is "fabulous." In addition to the fact that the company is adding six Starbucks stores a day in the U.S., its China business is "fantastic," he said.
Plus, Starbucks is like a
Barnes & Noble
, in the sense that people go there to hang out and meet people, while sipping on coffee. Now, it is planning on selling books and CDs at its stores.
"Starbucks is the perfect channel to move this type of merchandise," Cramer said.
Am I Diversified?
In the "Am I Diversified?" segment of the show, Cramer's first caller owned the following five stocks:
- Leucadia (LUK) ,
- United Technologies,
- Dynamic Materials (BOOM) - Get Report,
- Brookfield Asset Management (BAM) - Get Report and
- Sears (SHLD) .
Although the portfolio was diversified, Cramer advised the caller to swap out of Brookfield and get into
Equity Office Properties
, which, he said, has a higher dividend and better management. Additionally, he called Leucadia a "mystery" and suggested selling it and getting into some health care instead.
His second caller owned the following five stocks in her portfolio:
- Wells Fargo (WFC) - Get Report,
- DuPont (DD) - Get Report,
- Wal-Mart (WMT) - Get Report,
- Pfizer (PFE) - Get Report and
- Lowe's (LOW) - Get Report.
Cramer said there was a problem with owning Wal-Mart and Lowe's, as both have been trading together. Instead, he suggested tossing Wal-Mart and buying a tech stock, such as
Mad Mail & Sudden Death
In his "Mad Mail" segment, Cramer told a viewer he still believes
is a buy, even though it is having a weak quarter and is experiencing "options issues."
Responding to his next emailer, Cramer said during the "Lightning Round" when he types in his computer, he is looking for a stock's current price and to see if there's any recent news, including news after bell, on the company.
When a viewer asked about
, Cramer said he wishes the
had gotten approval. But he still believes Exelon is a well-run company and that it "will persevere."
In the "Sudden Death" round, Cramer was bullish on
. He was bearish on
Cramer was bullish on
Sirius Satellite Radio
New Century Financial
International Game Technology
Cramer was bearish on
Smith & Wesson
For more of Cramer's insights during the Lightning Round, click here
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At the time of publication, Cramer was long Halliburton, International Game Technology, Sears Holdigns, United Technologies and Yahoo!.
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