"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
Takeover TargetsNext, 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."
Am I Diversified?
Cramer's CallersThe 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
Lightning RoundCramer 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 DeathCramer 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,