"Aren't you tired of hearing the phrase 'better than expected?' " Jim Cramer asked "Mad Money" viewers Thursday. "I'm sick of hearing that when I don't own the stock. "Don't I want to know that before it's 'better than expected' so I can own the stock?" he asked. Cramer said that even now when he hears that phrase, which he dubbed BTE, he thinks, "Thanks a lot, pal. I can't make any money off that." Cramer then promised viewers that he would show them how to create their own upside surprise. "I'm going to look in my crystal ball at Valero Energy ( VLO)," which reports earnings next week. He said he saw a headline from that same day in the future: " 'Valero Energy Reports Much BTE and Boosts Forecasts.' I just deduced that headline from the facts that are already out there. I will give you the schematic of my mind," he said. Cramer was clear about one thing: He didn't have any insider information. Rather, he had been listening to conference calls of the other companies in the sector. In particular, he named ConocoPhillips ( COP), which had announced that worldwide refining margins, or the crack spread, had widened. "Conoco is the third biggest refiner," he said. "Valero is the first, and the spread for Valero is going to be even larger ... because it uses cheaper stock." The other reasons he gave as to why the company would beat expectations were: At the end of June, the company indicated it would smash the consensus forecasts for the second quarter; no new refineries are being built by the competition, gasoline prices are up; and the Wall Street analysts covering the stock are "stupid." He elaborated on the analyst comment, saying that despite the improved outlook by management, the analysts at the major Wall Street banks had steadfastly refused to increase their earnings estimates.
Award SeasonNext, Cramer decided to turn the tables on the analysts. "Tonight I'm giving out my first award for 'The Absolute Worst Piece of Research of the Month,' " said Cramer. "Part of my job is to protect you from the really bad information out there." And he alluded to how poor advice in the dot-com boom of 2000 had cost investors a lot of money. The report he picked out was by Alan Laws from Merrill Lynch ( MER). The research recommendation had lowered the rating on Halliburton ( HAL), as well as reduced earnings estimates. "Alan Laws takes the cake," he said. "It's the first winner of my worst research award." Cramer took viewers through Laws' rationale. The argument was that investor confidence had eroded so much, it was unlikely to be rekindled. And, he added, Laws had lowered expectations. "What the guy is telling you is that people are panicking," he said. "They've sold it down and Laws can't take it anymore." "I'll give them what they want," said Cramer, mimicking what how he thought Laws might sound. "Here's an analyst who is already broken. He looked
Luxury Leads the WayCramer then introduced a new idea. He said he'd created an index of luxury goods firms. "Through thick and thin, luxury spending has been the one thing that has held up," he said. "This market is powered by luxury goods." He said if high-end consumers stop spending, the economy could be in for a recession. So in order to try to track what the market thought, he had identified certain key stocks levered to luxury spending, which he put into an index: Coach ( COH), Polo Ralph Lauren ( RL), Tiffany & Co. ( TIF), Four Seasons Hotels ( FS), Orient-Express Hotels ( OEH), Harman International ( HAR), Nordstrom ( JWN), Diageo ( DEO), Toll Brothers ( TOL), Wynn Resorts ( WYNN), Movado ( MOV) and Ruth's Chris Steak House ( RUTH). "How's it been holding up so far?" he asked. "The benchmark index is 100, and it's now at 96." He noted that 96 wasn't terrible, but it was worth looking at. "The Brothers Toll has been marked down the most," and "I think Wynn is way too high." He said the index is telling us about hard times ahead for the economy. "So stay diversified and get defensive," he concluded.
Nice KrispiesCramer had Kellogg ( K) chief Jim Jenness join him on the show by phone. "You guys never miss, but you guys were more negative about the costs than the analysts," said Cramer. Jenness explained that the business was robust enough to absorb the massive increases in costs. "We are showing strong top-line growth across our business units," he said. "So are you sticking by the guidance?" asked Cramer. "We don't run the company to make quarterly estimates," said Jenness. "We run this to deliver sustainable and dependable earnings. We increased our guidance at the end of the second quarter. We look for another year of sustainable performance," he concluded. To view Cramer's interview with Jim Jenness,
Lightning RoundCramer was bullish on Abercrombie & Fitch ( ANF), Corning ( GLW), Crystallex International ( KRY), United Technologies ( UTX), Inco ( N), FMC ( FMC), Conceptus ( CPTS), Pike Electric ( PEC), Suncor Energy ( SU), and Marathon Oil ( MRO). Cramer was bearish on StrataSys ( SSYS), Aetna ( AET), Intuitive Surgical ( ISRG), Grant Prideco ( GRP), Energy Partners ( EPL) and Andrew ( ANDW). In the Sudden Death Round, he liked Pitney Bowes ( PIB). Want more Cramer? Check out Jim's rules and commandments for investing from his latest book by clicking here.