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


In order to determine which stocks in your portfolio are going to jump back up and which ones are going to go lower, people must look at the sector the stock is in, Jim Cramer told viewers of his "Mad Money" TV show Monday.

Then they must decide if it's cheaper than its peers, take a look at the company's management and determine the stock's future prospects.

Even though sometimes people have to kill their portfolio before it kills them, Cramer said that selling everything would be a mistake right now.

Therefore, he came up with a diagnostic test to find out which loser stocks are worth keeping and which ones should get tossed, he said.

This checklist, he said, will help you when you're doing your homework.

Cramer said that Nabors ( NBR), which he owns for his charitable trust, Action Alerts PLUS , and eBay ( EBAY) are two examples of stocks that have fallen hard, and he put them through his test.

One of these stocks you can buy more of, Cramer said, but in the case of the other, he suggested that investors cut and run.

In May, Nabors peaked, and since then the stock has fallen 21%, Cramer said. It is definitely an underperformer in the market.

Taking a look at the sector Nabors is in, Cramer said that although oil supply is extremely tight and in bull mode now, Nabors is also exposed to natural gas, which was down horribly today.

Therefore, in terms of sector, Nabors doesn't have much going for it. However, compared with other companies in its sector, it is cheap, Cramer said, adding that the company's management gets a check plus.

The current CEO, Eugene Isenberg, is probably the single strongest CEO in the industry, and he's saying that nothing is wrong, Cramer said.

Nabors' future looks downright beautiful because oil is not coming down any time soon. In addition, the company's "ugly" natural gas business could turn around with hurricane season coming or if we get a colder-than-expected winter, Cramer said.

The bottom line: The company's oil exposure is a plus, and the future of natural gas doesn't look that bad either, he said.

Next, taking a look at eBay, Cramer said the company's e-commerce business is not doing well, and its online auction business is seeing slowing growth because of saturation.

Not only is the sector bad, but it is also not cheap for its group, when comparing it with Yahoo! ( YHOO), Cramer said.

eBay's management is in denial and unable to recognize what's wrong with the company. Additionally, the future for the company looks pretty bleak, as Internet stocks have no defenses, Cramer said.

After performing the diagnostic test, Cramer said he would sell some eBay now. However, he said he would not sell all of it at once, because snap-back rallies do occur.

Cheap Tricks

Cramer warned his viewers not to believe everything they hear, as general Wall Street gibberish will lose them money, he said. Instead, he said people should do their own homework.

As long as people know what makes a stock cheap, they can figure out the company's fundamentals themselves, he said.

A day doesn't go by without someone talking about how either Home Depot ( HD) or Lowe's ( LOW) is cheap based on the company's fundamentals.

Both of the big home-improvement retailers are at or near their 52-week lows. But in a head-to-head comparison, only one of the companies is actually cheap, Cramer said.

"The truth is a bad investor knows the price of everything and the value of nothing," Cramer said. But stocks are more than just price deep.

The first way to check whether a stock is cheap or not is to compare it with the S&P 500. This is the gold standard of benchmarks, he said.

The S&P 500's multiple is 16. While Lowe's trades at 14.8 times its trailing earnings, Home Depot trades at 12 times these numbers. Thus, both of these stocks are potentially cheap compared with the benchmark.

Step two, said Cramer, is to compare Home Depot with Lowe's. Home Depot trades at a lower multiple to its 2007 estimates than Lowe's. But a company's growth rate determines its multiple, and in this case Lowe's growth rate tells us that the stock is actually cheaper than Home Depot.

In terms of margins and management, Cramer believes that Lowe's has an upper hand in both cases.

Even though numbers are important, growth is also important. Home Depot has nearly hit the saturation point in the market with more than 2000 stores and is probably finished growing.

Lowe's is about half the size of Home Depot and has plenty of room to expand, Cramer said.

Therefore, Lowe's is the cheaper stock, Cramer concluded.

The GE Gauge

General Electric ( GE) reported its earnings last Friday, and whenever this happens, there is usually pin action in the market because General Electric is one of largest companies on Earth, Cramer said.

Looking at General Electric, we can see which stocks should do well and which should not perform so well, he said.

In places where General Electric is hurting, other companies in those businesses are also hurting; where its business is strong, other businesses should also be strong.

Cramer said he believes that investors should stay away from DuPont ( DD) because General Electric's plastic business is weak

GE's infrastructure business is doing well, so he believes that people should buy ABB ( ABB), which he owns for his charitable trust, Action Alerts PLUS .

However, Cramer recommended buying ABB in three days, and not before then.

Playing on General Electric's earnings, Cramer also said CIT Group ( CIT), Boeing ( BA), Whirlpool ( WHR) and Varian Medical Systems ( VAR) are good buys.

In addition, General Electric's wind-power business is getting stronger, and for this there are two pure plays, Cramer said: Vesta and Gamesa.

However, because General Electric reported slowing medical equipment demand in China, Cramer advised selling China Medical Technologies ( CMED).

Cramer welcomed Headwaters ( HW) CEO Kirk Benson onto the show and asked him why the company's stock is on the low list.

"We're under some pressure because oil prices have gone up, but business is performing well," Benson responded. "We're happy with our fundamental businesses."

Though he said he didn't have a good answer for the question, Benson said that the company has been able to gain some cost efficiencies, and that its ongoing businesses are doing OK.

With Headwaters' stock at its 52-week low and oil at $76 a barrel, Cramer said he was hoping to hear that the stock is ridiculously cheap, but in this case Cramer said it falls in the don't buy list.

To view Cramer's interview with Benson, please click here .

Lightning Round

Bullish

Cramer was bullish on Safeway ( SWY), Chicago Mercantile Exchange ( CME), Manulife ( MFC), Allstate ( ALL), Prudential ( PRU), Sealy ( ZZ), Oakley ( OO) and Nike ( NKE).

Bearish

Cramer was bearish on Ciena ( CIEN), Broadwing ( BWNG), Eagle Materials ( EXP), Iron Mountain ( IRM), 3M ( MMM) and Sun Life Financial ( SLF).


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

Here's your chance to pick the stock you'd like me to feature on my radio show July 20:
Ford
Forest Labs
PepsiCo
Marriott
Activision
SAP

REMEMBER to listen in on Thursday for my take on the stock that wins this poll!

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 Nabors Industries, ABB and Yahoo!.

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