Skip to main content

Mad Money Mailbag: Reverse Stock Splits Explained

A viewer learns from Cramer how reverse stock splits work.

Editor's note: The following are questions received from viewers of "Mad Money," seen every day at 6 p.m. EDT on CNBC.

What is a reverse stock-split?-- Lisa from Florida

James J. Cramer:

Similar to when a company splits its shares 2-for-1 to entice investors with a lower stock price, sometimes management will look to artificially boost its price. In the example of a 1-for-5 split, 100 shares of a $2 stock will become 20 shares of a $10 stock. This often occurs when a company's share price falls below $1, to try and stave off delisting or move the stock back above $5, which is commonly regarded as a minimum price to garner institutional interest. Just remember that any kind of stock split does not change a company's fundamental worth or the value of your investment.

What kind of stocks are you looking at for after the holidays when retail sales tail off?-- Joe from Arizona

James J. Cramer:

One sector I believe is particularly inexpensive these days is the financials. This is especially true if the


truly does stop raising interest rates in the near term.

You recommended a GPS stock a couple of weeks back, but I can't remember which one. Please help!-- Janice from Maryland

James J. Cramer:

The two stocks I like in this sector are


(GRMN) - Get Free Report



(NVT) - Get Free Report

. The former makes handheld devices while the latter contributes the data for the software.

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

clicking here