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"What do art and stocks have in common?" Jim Cramer asked "Mad Money" viewers Wednesday. "They are cool," he answered.

Cramer said stocks are not just valued by the numbers, fundamentals, sentiment or speculation. Companies with different levels of "coolness" get different valuations, he said.

"When I talk about valuation, I mean the price-to-earnings ratio," he said. "The thing that is causing stocks to jump around is coolness."

Cool stocks get higher multiples than others, he said. Wal-Mart Stores ( WMT) is not cool, but Whole Foods Market ( WFMI) is cool, he explained.

Tim Hortons ( THI) and Home Depot ( HD) are uncool, he added.

"I have to compare stocks to art," he said. "The price of stock just like that of painting is determined by a market."

The number of people that actually determine the price is relatively small, Cramer said, and might only amount to a couple of thousand. Investors need to understand how those people think.

"There is a reason why cool matters," said Cramer. "That's because we have young managers."

"They don't want to buy Wal-Mart because it's uncool, but they don't mind buying Best Buy ( BBY) because they see all the BMWs in the parking lot," he said, or extreme sports retailer Zumiez ( ZUMZ)

Understanding the cool or the subject feel is more important than the numbers, he said. "Not long ago you could not give away a General Motors ( GM)."

" Hewlett-Packard ( HPQ) is like a Renoir, a benchmark," said Cramer. " Starbucks ( SBUX) is like a Hockney" -- classic and cool.

" News Corp.'s ( NWS) acquisition of MySpace seemed like a dramatic overplay," he said. "Like a Klimt -- or Verklempt." Cramer owns News Corp. for his charitable trust Action Alerts PLUS .

He said he wanted investors to buy a stock with hidden coolness like VF Corp. ( VFC), adding that the company owns the Vans footwear and North Face brands, and the stock is getting a coolness premium for it.

"It makes no sense," he said. "It's totally inscrutable. You need to be open-minded."

Takeover Targets

Next, Cramer turned to teaching viewers how to identify potential takeover targets.

"The market has been taking down anything with a high multiple," he said. "I think we are going to see a wave of consolidation, and we need good stocks with good balance sheets."

He promised to reveal to viewers his list of technology stocks of good takeover targets during the segment that could be bought with acquisitions in mind.

But Cramer warned that it would only work, "as long as you do your homework."

"I want to show you how to do this analysis yourself," he said. "So what's on the list and why?"

He explained that the criteria he used to select a target takeover group included those stocks that have taken a beating in the market lately -- those that got hammered in the backdating scandal.

Among the homework we do is "screening for profitability," he said. "I will not recommend a stock that is not making money."

The twenty stocks that Cramer narrowed down further, based on other "totally subjective factors," are: Broadcom ( BRCM), Western Digital ( WDC), Palm ( PALM), Wind River Systems ( WIND), Websense ( WBSN), BEA Systems ( BEAS), Tibco ( TIBX), Filenet ( FILE), Avid Technology ( AVID) and ActiveIdentity ( ACTI).

"Let me explain a few," he said. "Let's start with Broadcom, BRCM."

"A most, most hated stock," he exclaimed. "Is pretty simple really: It is getting killed on the options backdating stuff."

"But it's still a great chip company with a great product line."

ActiveIdentity, he said, was likely to be bought by Symantec ( SYMC).

"Both Tibco and BEA Systems are in the same business," he added. " Citigroup ( C) says there is a middleware gap, that's what these guys make, and they are the companies most likely to get absorbed by buyers."

"I could see Hewlett-Packard, SAP ( SAP) or Oracle ( ORCL) buying either one or both."

"I endorse all these names on my top 10 list."

"Here's the real bottom line," he said. "Tech, because it has too much cash but not enough growth," would mean consolidation that investors could profit from.

"Please do not speculate on anything unless it is profitable," Cramer said.

Am I Diversified?

Cramer's Callers

The first caller to ask whether his portfolio was diversified owned UnitedHealth Group ( UNH), Caterpillar ( CAT), Sears Holdings ( SHLD), Altria ( MO) and Boeing ( BA). Cramer owns Sears, UNH and Altria for his charitable trust Action Alerts PLUS .

Cramer said that the caller's portfolio was indeed diversified and liked the stocks as well.

"I think that Altria will split into three," Cramer said, and would provide a 20% premium from the current price of $79.

The next caller owned Clorox ( CLX), Chevron ( CVX), Hershey Foods ( HSY), Walgreen ( WAG), Johnson & Johnson ( JJ) and Bank of America ( BAC)

Cramer was not impressed. "This is a portfolio too overloaded with staples," he said. "I would sell Clorox."

"I worry too much that when the Fed is done tightening, that this portfolio is going to do nothing," he said.

"When Hershey gets to $60, back out of it," he said. "Add in General Dynamics ( GD) or Textron.

Lightning Round

Cramer was bullish on Evergreen Solar ( ESLR), UnitedHealth Group ( UNH), Scientific Games ( SGMS), UST ( UST), PW Eagle ( PWEI), BE Aerospace ( BEAV), Shire ( SHPGY), Textron ( TXT) and Tata Motors ( TTM).

He was bearish on AmSouth Bancorp ( ASO), Cummins Engine ( CMI), Acacia Research - Acacia Technologies ( ACTG), JDSU ( JDSU), Arch Coal ( ACI), Carnival ( CCL) and L-3 Communications ( LLL).

Sudden Death

Cramer was bullish on Gray Wolf ( GW). He was bearish on Impac Mortgage Holdings ( IMH), RF Micro Devices ( RFMD).

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

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 UnitedHealth Group, Altria, Sears Holdings and Textron.

Jim Cramer is a director and co-founder of He contributes daily market commentary for's sites and serves as an adviser to the company's CEO. Outside contributing columnists for and, 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. Listen to Cramer's RealMoney Radio show on your computer; just click here. Watch Cramer on "Mad Money" at 6 p.m. ET weeknights on CNBC. Click here to order Cramer's latest book, "Real Money: Sane Investing in an Insane World," click here to get his second book, "You Got Screwed!" and click here to order Cramer's autobiography, "Confessions of a Street Addict." While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column by clicking here. has a revenue-sharing relationship with Traders' Library under which it receives a portion of the revenue from Traders' Library purchases by customers directed there from

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