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" Caterpillar ( CAT) reported what looked like a great quarter Friday," Jim Cramer told "Mad Money" viewers Monday. "But the stock got crushed."

He said investors viewed Caterpillar as a cyclical stock, rather than an emerging-markets play, even though the company was "practically printing money in China."

"That's because people don't want to own cyclical stocks," he said. "Cyclicals are weak in America."

Instead, Cramer told viewers to buy Avon Products ( AVP) because although he "despised the stock with every vein in my body" in the past, now the stock presented an interesting example of a turnaround play.

"I think it represents one of the best turnaround stories that there are," he said.

He said 57% of Avon's revenue comes from emerging markets, and he sees China as a great opportunity for the company.

"China is hotter and it's better than it has been since the second Opium War," he said.

"Avon is now trading well below its 10-year average price-earnings ratio," he noted, but warned that wasn't enough on its own.

"You need to look for evidence of change," he said. "Avon has gone through some massive restructuring. It didn't feel good at the time, but its paying off now. He also highlighted the company's huge sales force.

"Over the next five years, Avon will be a great stock to own," he said. "All the managers that sold Caterpillar will likely rotate into Avon, but don't expect it turn around by summer's end."

Anno Domino's

"What should you do when you make a bad decision based on what a CEO says or what a 'Cramer' says?" Cramer asked viewers Monday.

"A lot of Wall Street analysts will pretend that nothing is wrong and that they got the timing wrong, which is 'right' deferred," he said. "That's not how it is done on 'Mad Money.' Let me tell you what to do."

Cramer decided to use Domino's Pizza ( DPZ) as an example of a stock he'd recommended based on bullish comments by the company CEO. He recalled the current advertising campaign that offers any three items from the Domino's menu for $6.

"If you hadn't bought Domino's stock, you would have been able to afford those three items with those toppings," he said, alluding to the fact that the stock had declined significantly after his bullish call.

"So what do I do?" he asked.

"I think you buy more," Cramer said. "This is not just Cramer refusing to admit he's wrong. At $22 now, I think buying Domino's is right," he said. "When most people have this happen to them, they act irrationally and sell or act irrationally and refuse to sell."

But this one case in which investors should act rationally and stay invested, he explained.

"If Domino's hit a wall and people stopped eating pizza or Domino's had saturated the market for pizza," then that would be a reason to sell, he said.

"Domino's isn't much of an eat-in place, so they have lower real estate costs, but can sell pizza for the same low prices of its competitors," Cramer said, adding that the company's profit margins would be higher. "I think the long-term thesis is good."

The Pharma System

Next Cramer turned to discussing pharmaceutical companies.

"I think you should buy the 'drugs,' including Schering ( SGP) because what we have now is a rush from one type of stocks to another type," he said.

"Schering-Plough was up 5.7% today; I don't normally tell you to buy a stock that's up, but I don't think there will be a chance to get in at a lower price," he said.

"So how can you spot the next trend?" he asked.

He explained to viewers that the reason that Big Pharma is sexy is that the Fed has acknowledged that there is some trouble in the economy and that fact changes the way investors view earnings reports.

He said investors are now discounting the earnings of all cyclical stocks as "the last decent earnings the company will report."

"So money flows out of the cyclicals because no matter how good the quarterly earnings are, the market is discounting a recession," he said, adding that investors have now switched to drug companies.

"When they see a Schering-Plough reporting a good quarter, the market says 'ah ha' first good quarter," he said.

The switching of funds between separate groups of companies "is called a sector rotation, and you'll see it every time there is a slowdown in the economy," he said.

But he added that another factor was at work as well.

"The elephant in the room that is obvious now, but wasn't before, is that Medicare Part D is finally kicking in and causing people to buy more drugs than ever," he said. "That's because now they can afford them," and added that Rite Aid ( RAD) is the best speculative way to play the Medicare Part D phenomenon.

Lightning Round

Cramer was bullish on Openwave Systems ( OPWV), Florida Rock Industries ( FRK), Ashland ( ASH), American Express ( AXP), Arrow International ( ARRO), MEMC Electronic Materials ( WFR), CVS ( CVS) and Altria ( MO).

Cramer was bearish on Sonus Networks ( SONS), Internet Security Systems ( ISSX), ViroPharma ( VPHM) and Alcoa ( AA).

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

In the Sudden Death round at the end of the show, Cramer was bullish on California Pizza Kitchen ( CPKI), Halliburton ( HAL), Kraft Foods ( KFT) and Bristow Group ( BRS).

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

Here's your chance to pick the stock you'd like me to feature on my radio show July 27:
Chicago Merc
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REMEMBER to listen in on Thursday for my take on the stock that wins this poll!

At the time of publication, Cramer was long Altria and Schering-Plough.

Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for, Inc., and CNBC, and a director and co-founder of All opinions expressed by Mr. Cramer on "Mad Money" are his own and do not reflect the opinions of 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, 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 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, 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, 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. When that is the case, appropriate disclosure is made on the program and in the "Mad Money" recap available on 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, 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.

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