Did you think that investing has a foundation steeped in logic? "Think again," Jim Cramer told his Mad Money viewers Wednesday. Investing is largely a leap of faith, believing that a company will do well in the future. But the key to being a great investor is not knowing what to believe, but rather who to believe.
Walt Disney Co. (DIS) - Get Walt Disney Company Report CEO Bob Iger told another terrific story on Tuesday night's earnings call, but Wall Street remained skeptical, not willing to give Iger the benefit of the doubt when it comes to fixing the ailing subscriber count at ESPN. Cramer said investors need to take a longer-term view and trust that Iger can get the job done.
Compare that to Tesla (TSLA) - Get Tesla Inc Report , a company where investors have too much faith in CEO Elon Musk. All it took was a single tweet that Musk has "financing secured" for a deal to take the company private and that's all investors needed to know.
Investors likewise have no faith in Cigna (CI) - Get Cigna Corporation Report , with activist Carl Icahn saying he's opposed to the company's $54 billion acquisition of Express Scripts (ESRX) . Cramer said he thinks the deal will be terrific over the long-term, and if management says they can get the deal done, he trusts they know what they're doing.
Finally, there's the case of AutoZone (AZO) - Get AutoZone, Inc. Report and CVS Health (CVS) - Get CVS Health Corporation Report , two companies that we have been under pressure as investors fretted competition from Amazon (AMZN) - Get Amazon.com, Inc. Report . As we learned this quarter, both companies are doing just fine. Shares of CVS ended the day up 4.1% despite Wall Street's lack of faith.
Cramer and the AAP team are getting ready for their monthly members-only call, set for 11:30 a.m. Eastern on Thursday, Aug. 9. Find out what they're telling their investment club members and get in on the conversation with a free trial subscription to Action Alerts PLUS.
Executive Decision: IDEXX Labs
For his "Executive Decision" segment, Cramer once again sat down with Jonathan Ayers, chairman, president and CEO of IDEXX Laboratories (IDXX) - Get IDEXX Laboratories, Inc. (IDXX) Report , the pet health company which today posted a six-cents-a-share earnings beat with a 14% rise in revenues and raised forecasts. Shares of IDEXX are up 57% for the year.
Ayers said that diagnostics has been the fastest growing segment of the pet health industry and IDEXX currently accounts for 80% of the research and development spending in the category. Pets can't tell us how they feel, Ayers said, which is why diagnostics serve as the voice of our pets. With IDEXX suite of blood, urine and fecal tests, veterinarians can tell what's ailing an animal in as little as 20 minutes.
Nearly one in seven adult animals are suffering from common diseases, Ayers said, which is why the lab equipment and testing supplies that IDEXX sells is so in demand. The company has 500 field reps calling on vets and plans to add another 13% in the next six months alone.
Know Your IPO
For those who may not be familiar with Sonos, the company makes a family of wireless home speakers that can stream music and audio from just about any device or service. Sonos currently has 630 patents to its name with hundreds more filed, along with 19 million products registered to over seven million households.
Sonos came public at $15 a share, below the expected range between $17 and $19 a share. But by the end of its first day of trading, shares closed above $19.
When the company last reported, it saw revenue increase by 10%, but also forecast a decline in revenue. Gross margins have also been rocky, up one quarter, down the next. For a company climbing toward profitability, Cramer said, this is worrisome.
So too is the fact that Sonos claims to be a neutral platform, one that works with everything, but is also becoming more and more integrated with Amazon's Echo. Beware any company that competes with the likes of Apple (AAPL) - Get Apple Inc. (AAPL) Report , Alphabet (GOOGL) - Get Alphabet Inc. Class A Report and Amazon, Cramer cautioned.
Cramer added that while Roku (ROKU) - Get Roku, Inc. Class A Report has been able to carve a profitable niche in the streaming media space, Sonos reminds him more of Fitbit (FIT) - Get Fitbit, Inc. Class A Report , which has been a disaster of a stock.
CarMax Pulls Into the Lead
With so many stocks trading in unison thanks to the rise of ETFs, when two companies in the same sector diverge, investors should sit up and take notice. That's certainly been the case among the auto dealers, with shares of CarMax (KMX) - Get CarMax, Inc. Report up 17% for the year, while rival AutoNation (AN) - Get AutoNation, Inc. Report is down 7%.
On the surface, both companies are identical, selling both new and used cars at hundreds of locations across the country. So why the disparity?
Cramer explained that while both companies saw their shares decline earlier in the year, only CarMax was able to rebound. When the company last reported, it saw a pickup in sales and posted both a top- and bottom-line beat. The company also impressed investors with plans for a new ecommerce experience for its customers.
AutoNation however has struggled all year long. Cramer said when you take a closer look, the reason is clear. While CarMax is levered more towards used cars, AutoNation sells primarily new cars, and new car sales peaked in 2016.
Looking ahead, tariffs will make new cars more expensive, which in turn makes used cars even more attractive to buyers.
Given the different mix of businesses, Cramer said the market is right to send AutoNation lower. He recommended buying CarMax, especially at just 15 times earnings, where shares currently trade.
In his "No Huddle Offense" segment, Cramer weighed in on the possibility of Elon Musk taking Tesla private and what the Musk's comments meant for short-sellers.
According to Cramer, Musk had every right to say he was considering taking Tesla private. As long as there aren't any stock sales taking advantage of the surge in Tesla shares, the comments were certainly legal. And even if those comments were questionable, unless the SEC or the Justice Department takes some action, the comments really don't matter.
The fact is that short sellers need people to sell the stock in order to make money. Who on Earth would sell shares now with a possible deal in the works? In the words of economist John Maynard Keyes, the markets can afford to be irrational for longer than you can remain solvent.
Cramer said Musk is both a visionary and a showman. And while Cramer wouldn't be a buyer of Tesla shares at these lofty levels, he certainly wouldn't be dumb enough to short them either.
In the Lightning Round, Cramer was bullish on Enable Midstream Partners (ENBL) - Get Enable Midstream Partners LP Report , Tractor Supply (TSCO) - Get Tractor Supply Company Report , Sempra Energy (SRE) - Get Sempra Energy Report , American Electric Power (AEP) - Get American Electric Power Company, Inc. Report , Visa (V) - Get Visa Inc. Class A Report , Mastercard (MA) - Get Mastercard Inc. (MA) Report and Zuora (ZUO) - Get Zuora, Inc. Class A Report .
Search Jim Cramer's "Mad Money" trading recommendations using our exclusive "Mad Money" Stock Screener.
To watch replays of Cramer's video segments, visit the Mad Money page on CNBC.
To sign up for Jim Cramer's free Booyah! newsletter with all of his latest articles and videos please click here.
At the time of publication, Cramer's Action Alerts PLUS had a position in AMZN, AAPL, GOOGL.