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NEW YORK (
) -- "Don't get scared off by the misleading bears," Jim Cramer cautioned the viewers of his
TV show Tuesday as he refuted a recent
Wall Street Journal
article citing 10 reasons investors should be cautious.
1. The market is really expensive. Cramer said the markets only care about future earnings, not current earnings, and by that metric stocks are valued at just 12 times earnings, making them very inexpensive.
Is nervous. Cramer said the Fed isn't nervous, it's cautious, and that puts it on the side of the investor. "Never fight the Fed," he reminded viewers.
3. Too many people are bullish. "Nonsense," he said, adding investor sentiment is at record lows, with money flowing out of stocks.
4. Deflation is here. Cramer said with bond yields at just 1.39%, the markets are clearly worried more about inflation than deflation.
5. People still owe too much money. Cramer said this too is nonsense. Corporations are flush with cash and consumer credit card delinquencies are on the decline.
6. Jobs are worse than they're telling you. Cramer agreed that the jobs market is horrible, but argued that this is a known fact, and something already baked into stock prices.
7. Housing remains a disaster. Huh? Cramer said housing prices bottomed a year ago, and 100 out of 150 major markets are showing median home prices on the rise.
8. Labor Day is coming. Worried that the Fall is bad for stocks? Cramer said the markets have been up seven of the past eight Augusts.
9. Gridlock in Washington. While the article said gridlock is bad, Cramer said nothing could be further from the truth. "The market loves gridlock," he said, as evidence by an average 15% gain in years with a split Republican-Democrat Congress.
10. All indicators are flashing. Cramer said the metrics don't matter. He said earnings matter, and by that metric, the markets are doing just fine.
Cramer said he'll never side against taking profits, but these negative articles shouldn't scare investors out of the markets altogether, as they're completely wrong.
Hidenburg Omen Hype
In the "Off The Charts" segment, Cramer went head to head with colleague Tim Collins over the much-hyped "Hindenburg Omen," an indicator that is predicting the market will soon go down in flames.
Cramer said the Hindenburg Omen may well by the most hyped, and least useful, indicator ever, as it offers no guidance for how big the selloff will be, nor a timeline for when it will occur. He said the indicator has a spotty history, predicting declines anywhere from one to 122 days ahead of time.
In July 2000, for example, after the indicator was tripped, the markets rallied 5.5% before trading flat before drifting lower. In September 2005, the market did sell off immediately after the indicator went off, only to rally hard over the next few months. Then in April 2006, the markets rallied for over a month before seeing a plunge.
Cramer and Collins agreed that this so-called "indicator," while seemingly scary, offers nothing of value that investors can trade upon.
"I'm always looking for a good bottom," Cramer told viewers, as he re-recommended
Medco Health Systems
, a stock which he owns for his charitable trust,
Action Alerts PLUS.
Medco is currently trading down 28% for the year, flirting with its 52-week low. Cramer said the stock is trading at just 11.7 times next years earnings, something that's only ever happened three times in the company's history, with each of those times being great buying opportunities.
Cramer explained that Wall Street simply doesn't understand Medco, a pharmacy benefit manager that most analysts see as a commodity player and not a company that provides any real value. Cramer said nothing could be further from the truth, as Medco delivers exceptional, proprietary value that competitors can't rival.
Medco commands a 15% market share in its space, second only to
, another Cramer favorite. He said while some analyst fear Medco could lose its contract with healthcare giant
, Cramer doesn't think that will happen, as it will cost too much money for Unitedhealth to move elsewhere.
Cramer said that Medco both beat Wall Street expectations when it last reported and raised its guidance. He said the company also has a $3 billion stock buyback program to further bolster its shares.
Hold on to Potash
In his "Eureka Moment" segment, Cramer told shareholders of fertilizer giant
to "hold out for more," after the company received a takeover bid from
Cramer said normally, a takeover bid equals sell, as the upside potential for a company is stripped away by the offer. But in the case of Potash, he said, there's clearly more upside to be had.
Cramer said that the worldwide shortage of crops is very evident now that Russia has banned grain exports from the country. With lean fertilizer inventories across the board, Cramer said it's nearly impossible for competitors to replicate what Potash has to offer. Add a scarcity of fertilizer companies for suitors to buy, and Cramer said that's a formula for a higher bid to come in.
Cramer last recommended Potash on Aug. 5 at $114 a share, but even with a 25% gain in the stock he said investors need to hold on for the next few weeks.
Cramer was bullish on
He was bearish on
-- Written by Scott Rutt in Washington D.C.
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At the time of publication, Cramer was long Medco Health Systems.
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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