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NEW YORK (
) -- "The averages don't reflect the most significant milestone of the year," Jim Cramer told the viewers of his
TV show Wednesday, as he opined on the pending bankruptcy of
Cramer said that the death of Blockbuster means that some of his long-held rules would have to broken.
is the beneficiary of Blockbuster's fall and is the new king of all things cinematic. According to Cramer, Netflix's $8.2 billion market cap is too low now that it has cornered in-home movie watching.
He said many would argue that Netflix, after a monster run to the upside, is just too expensive. That's where the rule breaking comes in. Cramer said that normally stocks are measured on their price-earnings ratio, and normally he's willing to pay a multiple that's twice a company's growth rate. But in the case of Netflix, other metrics need to be used.
Cramer said that when a stock punches through his price-earnings metric, he looks at the company's value as a takeover target. In the case of Netflix, there aren't any likely suitors, so Cramer moved to a third valuation metric, one he said needs to be used with caution.
Cramer said his final valuation metric is the notion that a company's market cap is simply too small for its market opportunity. This metric works for a stock like
, which is highly valued, but still far too small for a stock that could become the next
Cramer said only a few stocks fit into this group of valuation exceptions.
is another one, he said, as is
, a stock that's only valued at twice that of
, despite being the world's largest online department store. Cramer said Amazon is worth $177 a share.
And that's why Netflix, despite its 10 point gain today, is still a buy, said Cramer.
Gold and the Fear Trade
Continuing his "Chart Week" series of teaching technical analysis, Cramer welcomed John Roque, managing director of the WJB Capital Group, to the show to discuss the technical analysis of gold versus the
According to Cramer, every portfolio should have some gold, whether it be gold stocks, the
SPDR Gold Shares
ETF or even gold coins. Cramer said ultimately, his price target on gold remains $2,000 an ounce.
Roque agreed with Cramer's sentiments as Roque highlighted a chart comparing the price of gold to the S&P 500 going back 80 years. He said on average, gold trades at 1.5 times the value of the S&P 500, but in times of crisis, such as the Great Depression and the Soviet invasion of Afghanistan, the value of gold rose to four times, and even six times, the value of stocks.
Roque said that gold benefits from all sorts of inputs, including inflation and deflation risks, and as we just saw, sovereign debt risks as well. He said that gold is not in a bubble period. Bubbles, he said, are caused by greed, and in today's market, gold is moving based on fear. Better still, to date, the gold stocks have not participated in this gold rally.
bidding war for
( NZ), Cramer said the data storage stocks have gotten too hot to handle.
Cramer said every stock in the data storage sector has risen on takeover fever, but this fever will be coming to an end once the acquirers come to their senses. He said while the fundamentals are sound, he'd take a pass on companies like
, at least until the stocks cool off a bit.
Cramer said that while its true that the amount of data stored in the world is doubling every 18 months, and these companies offer great technology that companies need, with the stocks trading at an average of 45 times earnings, investors simply need to wait.
Am I Diversified?
Cramer spoke with callers to see if their portfolios have what it takes. The first caller's portfolio included
Bank Of America
iShares Silver Trust
Cramer said "Yes!" to this portfolio.
The second caller's top holdings included
Health Care REIT
Cramer said he'd bless this portfolio.
The third caller had
as their top five stocks.
Cramer said Ceragon and AT&T were too similar and he'd sell Ceragon and replace it with an oil stock.
Cramer was bullish on
He was bearish on
Allied Irish Banks
--Written by Scott Rutt in Washington, D.C.
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At the time of publication, Cramer was not long any stock mentioned.
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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