Skip to main content

Click here for an archive of Cramer's "Mad Money" recaps.

We have to put up our maximum defense now, Jim Cramer told viewers of his "Mad Money" TV show Tuesday. We're in a bad market, so it's time to be extra careful and stick to high-quality growth names, he said.

But what's the difference between high-quality growth and low-quality growth?" Cramer asked. "Isn't all growth good?"

That's where people get it wrong, Cramer said. Earnings are not just quantitative, they are also qualitative.

There are some stocks that look good, but might be really ugly on the inside, he said. These stocks with low-quality growth are like impressionist paintings, he said. They look good from afar, but on closer examination are fuzzy and abstract.

Weak-Growth Impressions

Three examples of stocks that look good, but are full of bells and whistles are

Lucent Technologies

(LU) - Get Lufax Holding Ltd American Depositary Shares two of which representing one Report


H&R Block

(HRB) - Get H&R Block Inc. Report



(IMAX) - Get Imax Corporation Report

, Cramer said.

"All of these bears have very low-quality earnings," he said.

Scroll to Continue

TheStreet Recommends

"I used to like Lucent, but I was wrong," Cramer said. The company boosted its net income from phantom credits because it could hide behind confusing pension accounting rules. But after the truth came out, everybody could see how ugly its earnings were, he said.

This is a big lesson. You always need to know where the earnings are coming from, Cramer said.

Imax had a similar problem in 2004-05. It was hitting its earnings estimates, but not because of organic growth, he said. It was selling used equipment, it was getting cash from lease settlements, said Cramer, making Imax an example of subpar earnings.

Image placeholder title

The third example Cramer gave of a low-quality-growth company was H&R Block. "They're a tax preparation company, but in 2004-2005, they screwed up their own taxes," he said. "That can't be a good thing. You're better off with the mafia preparing your taxes than HRB."

Cramer also mentioned that if the company's press releases seem esoteric, or if there seems to be too much M&A activity, you shouldn't buy the stock. Both can be signs of low-quality growth.

The bottom line: Dump stocks with low-quality earnings and load up on high-quality names.

Realistic, Strong Growth

"When the market gets bad you need to cling to companies with high-quality earnings," said Cramer. "They are your life vest."

Unlike companies with low-quality growth, you can compare high-quality companies to realist paintings, as they provide a true picture of the health of the company. Their earnings should be sustainable in a tougher market, which is coming, Cramer said.

Before revealing three stocks that he believes to have high-quality growth, Cramer explained to his viewers that they should avoid stocks that have made too many acquisitions.

"You're looking for core organic growth," he said. "Organic growth doesn't come from M&A; it is growth in the core business."

The company's dividends are also something to look for, he said.

"Like hips, dividends don't lie," Cramer said. "Every company that has had consistently increasing dividends is good."

Buybacks are also good, he said. They provide a cushion. Simple financials, steady cash and growth potential are what you want in stocks.

"You want management to be clear when they talk to you," Cramer said. You don't need to be an expert to understand a press release or a conference call. Avoid stocks that are too complicated. They should be transparent."

Cramer's three picks for companies with high-quality-growth earnings were


(PEP) - Get PepsiCo Inc. Report


United Technologies

(UTX) - Get n.a. Report

, which he owns for his

Action Alerts PLUS charitable trust, and


(MMM) - Get 3M Company Report


He gave Pepsi three thumbs up, and said that although United Technologies got hammered Tuesday, he's willing to take the heat and recommends staying with it.

All three of these companies have transparent earnings and consistent, increasing dividends. Their cash flows are significantly higher than their earnings, and they have organic growth, he said.

"If you want to survive, get out of your impressionist stocks," Cramer said.

Gilded Gold

Even though gold is down $14 today, Cramer hailed it as the king.

Gold is not low-risk, he said. But with risk there is reward, and in the case of gold, Cramer believes the reward outweighs its risk.

"Nothing destroys wealth like hyperinflation," Cramer said. But gold is the ultimate source of value, and it has come back to a good entry point, he said.



is off the table, Cramer said. And you can't make money off of



right now either, he said.

Cramer said he likes

Crystallex International


as a speculative play.

But the more solid choice is

Yamana Gold

(AUY) - Get Yamana Gold Inc. (Canada) Report

, Cramer said.

"It's time to go hunting for gold in Brazil," Cramer said. "This thing

Yamana Gold holds up better than a Brazilian supermodel."

Yamana is the cheapest producer of gold, expects to produce 400,000 ounces of gold by 2007 and has a market cap of $1.87 billion, Cramer said.

"AUY is the ultimate gold-growth play," he said. "While the rest of the world is running out of gold, they're increasing production."

The bottom line: "AUY is down today, but it's the best play on gold I've got," Cramer said.

Lightning Round

Cramer was bullish on

Dow Chemical

(DOW) - Get Dow Inc. Report



(BG) - Get Bunge Limited Report



(CMI) - Get Cummins Inc. Report



(SLB) - Get Schlumberger N.V. Report


Palomar Medical Technologies




(CAT) - Get Caterpillar Inc. Report


Peabody Energy

(BTU) - Get Peabody Energy Corporation Report


Cramer was bearish on

American Oriental Bioengineering









China Yuchai International

(CYD) - Get China Yuchai International Limited Report


On Semiconductor



Marvell Technology

(MRVL) - Get Marvell Technology Inc. Report


Texas Instruments

(TXN) - Get Texas Instruments Incorporated Report

, International

(CTRP) - Get International Ltd Sponsored ADR Report


D.R. Horton

(DHI) - Get D.R. Horton Inc. Report


Standard Pacific




(IDR) - Get Idaho Strategic Resources Inc. Report


For more of Cramer's insights during the most recent Lightning Round, click here.

Want more Cramer? Check out Jim's rules and commandments for investing from his latest book by

clicking here


At the time of publication, Cramer was long United Technologies.

Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for, Inc., and CNBC, and a director and co-founder of All opinions expressed by Mr. Cramer on Mad Money are his own and do not reflect the opinions of 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, 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 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, 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, 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. 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, 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.