'RealMoney' Radio Recap: The Skinny on Short-Selling

Cramer says that Ken Lay's testifiying that short-sellers contributed to Enron's collapse is ridiculous.
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Jim Cramer told a caller on his

"RealMoney" radio show Tuesday that even though he likes

Zoltek

(ZOLT)

as a company, the stock has run so high that it's time to ring the register and take profits.

He also said that he would be wary of buying or holding onto

U.S. Steel

(X) - Get Report

at its current high level.

In the steel sector at this moment, he would be more likely to buy

Wheeling-Pittsburgh

(WPSC)

.

Ford

(F) - Get Report

announced that it will beef up its advertising campaign and that it will use American Idol winner Kelly Clarkson in its latest campaign.

"But what the company really needs is not a new face for its cars ... they need to build better cars," Cramer said.

He pointed out that the auto industry is not a bad place to do business. In Japan,

Nissan

(NSANY)

and

Toyota

(TM) - Get Report

have posted a string of great quarters. And in France,

Renault

announced good earnings, too.

Even

General Motors

(GM) - Get Report

just reported a better quarter, and Cramer said the company is far ahead of Ford in its turnaround. While he would not buy GM stock just yet, he would be willing to buy the company's bonds.

Finally, he turned his attention to the Enron trial, where the company's founder Kenneth Lay denied any wrongdoing and testified that the company collapsed because of corrupt ex-CFO Andrew Fastow, journalists and short-sellers.

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"There's a common blame game," he said, referring to the mention of short-sellers.

If you're an executive and you're worried about short-sellers, "you don't have a clue," Cramer said.

If investors bet that a stock will go down, which is the premise at the heart of short-selling, they will have to scramble to buy the stock back if the company proves that it's business is sound and that it's going higher.

For example, short-sellers bet against

Travelzoo

(TZOO) - Get Report

, and the stock shot up after it announced a good quarter, because shorts had to cover their positions -- meaning that they had to buy the stock back.

But with Enron, short-sellers bet that the stock was bad and would fall, and the stock was indeed bad. The sellers didn't make it so, Cramer said.

So what is short-selling? Cramer used the lemonade stand to illustrate what happens in the "fairly complicated" concept of short-selling.

Say lemons cost $10 each. As a short-seller, you may borrow 100 lemons from one stand to sell to another stand. At this point in time, you have borrowed $1,000 worth of lemons.

You sell them and make $1,000.

You are betting that the price of lemons will drop. Say the price drops to $7. When you pay back your loan, instead of owing 100 lemons at $1,000, you will owe 100 lemons at $700.

However, if the price of lemons goes up, you will lose money and have to scramble to buy lemons back to pay back your loan.

Cramer said that he has been a critic of

Exxon Mobil

(XOM) - Get Report

because he's driven by price.

The company has not taken out its high from last year and is at the same price it was in March of 2005, but other oil companies are up huge, Cramer said.

Cramer said this is because the company is not finding any more oil and because it's not trying to profit from higher crude prices because its management thinks that prices will come down significantly.

"How could you be more wrong than the management of Exxon?" he asked.

If you like oil stocks, he told the caller to swap out of Exxon Mobil and to buy

Occidental Petroleum

(OXY) - Get Report

, which he said reported a magnificent quarter. Cramer owns Occidental for his

ActionAlerts PLUS charitable trust.

But like all oil companies, he said that Occidental was down Tuesday because of profit-taking and news that Bush is taking measures against high gasoline prices.

He told another caller that he has been mystified by

Apple

(AAPL) - Get Report

. While its quarter was not all that good, the company did signal that there's a lot in the pipeline that will be great.

The company can barely keep up with demand for its

Intel

(INTC) - Get Report

-based machines, and it will come out with four new iPods.

"But the stock can't get out of its own way," he said. The company is growing at 21%, but is selling at only 31 times earnings, making this is a buying opportunity, he said.

"Do not get shaken out by periodic declines," he said, adding that these problems are not anything they can't beat by Christmas. For those who own

Dell

(DELL) - Get Report

, Cramer said he would sell it and buy Apple instead.

Cramer likes

Mitsubishi UFJ Financial

(MTU)

, Japan's largest bank, because it grows as fast as a great U.S. bank, and Japan is a great growth market. He owns the stock for

ActionAlerts PLUS.

Of all the constants on a college campus, pizza is one that can make you money, Cramer said.

USA Today

just reported that

Papa John's International

(PZZA) - Get Report

will give its lunchtime customers a 10-minute carryout guarantee, and that it's investing in ovens that can cook a pizza in four minutes.

Cramer said this will put the pizza chain in the same league as a fast-food restaurant.

When a company is dedicated to innovation, he said that it's time to take a hard look at the stock. Innovation has been one of the reasons why

Starbucks

(SBUX) - Get Report

is such a successful company, he said, adding that it changes its menu constantly and sells new merchandise that now includes DVDs.

"Where there's pizza there's a movie," he said. But the real reason he wanted listeners to take a look at

Netflix

(NFLX) - Get Report

is because it just keeps on adding customers.

The video rental and delivery company added 600,000 new customers just this quarter alone, and saw its revenue jump by 47%, he said.

That is organic growth, Cramer said, meaning that the company created a market rather than took market share from someone else.

The stock is going higher because it has organic growth, he said.

Cramer said that "gas prices are out of control," adding that President Bush has tried to implement some stop-gap measures to cap soaring fuel costs.

The president has temporarily suspended environmental rules for gas additives and stopped U.S. government purchases of crude for the nation's emergency reserve, as well as asking the Federal Trade Commission and the Department of Justice to look into price-gouging at the pump.

But Cramer said that price-fixing isn't keeping gas prices high. Rather, he said that the threat to supply is what is driving prices sky-high.

"All the investigating you need ... pick up a newspaper," he said. OPEC is running out of oil, geopolitical tension in Iran and Iraq are threatening their oil supply and terrorists are taking out supply in Nigeria, he said.

Morever, there hasn't been a new refinery built in the U.S. in the past 25 years, he said.

This is why

Valero

(VLO) - Get Report

, which reported earnings today, is up 29% for the year and up 77% year-on-year.

The stock is down on Tuesday in part because people are concerned that Bush's measures will create more supply, but Cramer said that only finding significantly more oil will really make a dent in the supply problem.

This is a buying opportunity, he said. This industry will stay tight and get more expensive unless we build refineries, he added. "And we are not even on the books, there are not even any plans to create new refineries," Cramer said.

At the time of publication, Cramer was long Occidental Petroleum and Mitsubishi UFJ Financial.

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

Action Alerts PLUS. While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column by

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