Search Jim Cramer's "Mad Money" trading recommendations using our exclusive "Mad Money" Stock Screener.
NEW YORK (
) -- If a company's fundamentals are declining, don't think they can be turned around easily, Jim Cramer said on
He reminded investors one of the time-honored investing mistakes and the biggest personal portfolio management errors they can make is to believe in a turnaround or takeover.
Case in point,
, two stocks that were down 11% and 13%, respectively.
Cramer said investors may be tempted to buy into these companies because they're both household names. Surely they'll be able to resurrect themselves, many may think, but in reality both stocks are total disasters.
Tuesday, HP announced a $5.5 billion write-down for its purchase last year of the U.K.-based Autonomy. According to the company there was widespread accounting errors and misrepresentations at Autonomy, which caused HP to lose nearly $8.8 billion of its $11 billion investment.
Cramer said the problem with HP is it's no longer an innovator but an assembler of products that are in decline. PCs are losing out to tablets while margins are shrinking in the printer business. Meanwhile, rivals are eating HP's lunch in the consulting business. Cramer said it's not too late to sell this stock, which has already lost 55% of its value this year.
Then there's Best Buy, which reported more disappointing results Tuesday and continues to hope that someone, perhaps its founder, will swoop in and take over the company.
Cramer reminded investors the tech world is littered with turnarounds and takeovers that never happened. Remember Circuit City? How about
? That company is on death's door.
Cramer said the list of tech stocks that are hoping for a turn is a long one that includes
Research In Motion
In all of these cases the fundamentals are in decline and management may be able to do little to stem the losses.
Up in the Cloud
In the "Executive Decision" segment, Cramer once again spoke with Marc Benioff, chairman and CEO of
, the cloud-computing giant that delivered a penny-a-share earnings beat on a 35% year-over-year rise in revenue.
Benioff said Salesforce once again had a terrific quarter, despite Hurricane Sandy shutting much of the Northeast and the final cliff looming ever larger. He said this quarter was the company's fifth straight with over $100 million in operating cash flow.
Europe was also strong for Salesforce since times of distress often mean that companies forego buying hardware and turn to the cloud for rapid, cost-effective IT solutions. The cloud grows faster when things are bad, he noted. Benioff said Salesforce is focused on revenue and market share and not necessarily on making a profit.
When asked about the day's news regarding Hewlett-Packard's acquisition gone bad, Benioff said Salesforce has done over 2,000 acquisitions in recent years, mostly to acquire next-generation technology or forward-thinking entrepreneurs. He said Salesforce is working with HP to help its sales and service teams collaborate and innovate.
Do Your Homework
Don't trade on the headlines, Cramer told viewers, do the homework. Headlines can be misleading, as was the case with
, which was widely reported as delivering an earnings miss of only one cent a share on light revenue and with only a 1% increase in same store sales.
Under these headline numbers, Urban Outfitters actually did quite well, and is poised to have a great holiday quarter. Cramer said the 1% increase in same-store sales was actually a 7% increase, but that number was dinged due to merchandise ordered online that was returned at stores.
In addition to strong sales both in-store and online, Cramer noted that the company's margins are up, inventories are lean and management expects the fourth quarter to be "less promotional," which is code for selling more items at full price.
Cramer also noted his unofficial "congratulations quotient," which measures analyst sentiment by counting the number of "congratulations" management receives on their conference call. Of 19 analysts asking questions, a full 11 of them offered such kudos.
Urban Outfitters struggled last year after the company had the wrong merchandise for its customers, but Cramer said now that a solid management team is back in place, Urban Outfitter's business is once again on fire. Shares trade at 19 times earnings with a 17% growth rate.
In the Lightning Round, Cramer was bullish on
iShares FTSE China 25
Plains All American Pipeline
Cramer was bearish on
Delta Air Lines
Applied Micro Circuits
Off the Charts
In the "Off The Charts" segment, Cramer went head to head with colleague Carolyn Boroden over the direction of the overall market.
According to Boroden, a daily chart of the
shows some key Fibonacci indicators, ones that indicate the downward trend in the markets may be about to change. She noted the S&P's decline from April 2 through June 4 lasted 43 trading days. The current decline from Sept. 14 through last Friday was also 43 trading days.
In addition to this correlation, Boroden also said showed the market's rally from June 4 through Sept. 14, when multiplied by 61.8%, a key Fibonacci number, also translates to 43 days.
Boroden said she remains cautious on the markets, however, because it still must pass resistance levels at 1,391 and 1,453 on the S&P 500 before it would be completely out of the woods. If the index can hold these levels and rally beyond 1,453, she said, then it could surge to 1,510 for an 8% gain.
Cramer said Boroden has had an excellent track record predicting the S&P so far this year, which makes him inclined to believe her again.
No Huddle Offense
In his "No Huddle Offense" segment, Cramer opined on what really matters to the U.S. stock market.
Last year, the threat of a French debt downgrade would've sent our markets into a tailspin. Today, such an event barely envoked a collective yawn.
Cramer said a lot has changed over the past year. Many foreign banks have raised a ton of cash while other companies with European exposure have been working hard to distance themselves from the troubled continent.
Cramer said the U.S. taught us that downgrading a country's debt isn't really that big of a deal. Meanwhile, everyone has had time to prepare and anticipate such downgrades, making them far less of an issue than they once were.
To sign up for Jim Cramer's free Booyah! newsletter with all of his latest articles and videos please click here.
To watch replays of Cramer's video segments, visit the Mad Money page on CNBC
-- Written by Scott Rutt in Washington, D.C.
To email Scott about this article, click here:
Follow Scott on Twitter
or get updates on Facebook,
At the time of publication, Cramer's Action Alerts PLUS had a position in FXI.
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."
None of the information contained in "Mad Money" constitutes a recommendation by Mr. Cramer, TheStreet.com or CNBC that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. You must make your own independent decisions regarding any security, portfolio of securities, transaction, or investment strategy mentioned on the program. Mr. Cramer's past results are not necessarily indicative of future performance. Neither Mr. Cramer, nor TheStreet.com, nor CNBC guarantees any specific outcome or profit, and you should be aware of the real risk of loss in following any strategy or investments discussed on the program. The strategy or investments discussed may fluctuate in price or value and you may get back less than you invested. Before acting on any information contained in the program, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.
Some of the stocks mentioned by Mr. Cramer on "Mad Money" are held in Mr. Cramer's Action Alerts PLUS Portfolio. When that is the case, appropriate disclosure is made on the program and in the "Mad Money" recap available on TheStreet.com. The Action Alerts PLUS Portfolio contains all of Mr. Cramer's personal investments in publicly-traded equity securities only, and does not include any mutual fund holdings or other institutionally managed assets, private equity investments, or his holdings in TheStreet.com, Inc. Since March 2005, the Action Alerts PLUS Portfolio has been held by a Trust, the realized profits from which have been pledged to charity. Mr. Cramer retains full investment discretion with respect to all securities contained in the Trust. Mr. Cramer is subject to certain trading restrictions, and must hold all securities in the Action Alerts PLUS Portfolio for at least one month, and is not permitted to buy or sell any security he has spoken about on television or on his radio program for five days following the broadcast.