There are things you need to know to spot when a company will turn from hot to cold, when its stocks will go from great to bad, Jim Cramer said on his
"RealMoney" radio show Tuesday.
One thing to look at is inventories, said Cramer, adding that prices come down whenever there is a growing stockpile of a given product. The exception here is oil, he said.
Countries around the world are stockpiling crude because its supply is threatened by global instability and terrorism.
Otherwise, inventory is a good clue as to whether a stock will turn lower; and Cramer pointed out some big inventory gluts in the economy, including housing, natural gas and semiconductors.
Because of these gluts, Cramer said he would not get into these sectors. There is also a glut of stocks on the market, with 10 companies waiting to come public.
This is a lot, he said, adding that the last time companies flooded the IPO queue was in March 2000.
There's too much inventory, so we're having a correction in equities, he said.
At first blush, there isn't a lot of similarity between
, the first being a community Web site purchased by
and the second being an Internet phone service bought by
But both were bought to make their new parent companies faster, better and more attuned to younger people, Cramer said.
And to gauge whether these services are helping their acquirers, listeners can take note of how each company is handling the freebies that come with each service.
first hit the scene with lots of free stuff, analysts said the companies would never make money.
But each company found that it could make money through advertisements and fees for certain services. Cramer owns Yahoo! for his charitable trust
Action Alerts PLUS.
Cramer said that News Corp. has a very good chance of making money with MySpace, a site with about 30 million users. With numbers like that, he said the chances are high that someone will be in a buying mood, and advertisers think so, too.
However, eBay has waived even more Skype fees, a move that Cramer said shows the company is desperate.
It's giving away more free stuff, but the company has not yet found a way to bring in more revenue, Cramer said, adding that he would not be a buyer of eBay until it comes down some more.
Cramer took some time to go over one of his "10 Commandments," discussing the fact that one should never turn a trade into an investment.
For starters, a trade is held for only a short period of time and is bought for a specific reason. It is sold once the catalyst that you've been waiting for happens, Cramer said. An investment is held for a longer time, up to 18 months.
For example, say you bought
at $40 because you thought the quarter would be good. If the company reports a disappointing quarter and the stock begins to fall, do not hold onto it, Cramer said.
Do not rationalize keeping the stock just because your catalyst didn't come through -- because that would be taking a stock from a trade to an investment.
To see the most recent edition of The RealMoney Radio Recap in its entirety, please click here. This recap is published every day around 3 p.m. ET.
At the time of publication, Cramer was long Yahoo!
James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for
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