Jim Cramer introduced a new game with new rules on his "Mad Money" TV show Tuesday, called short-busting. The shorts are the people who bet against a stock, and short-busting is betting that the shorts are wrong, he explained. In a heavily shorted stock, when all shorts try to cover their shares at once, we call it a short squeeze, which causes the stock to jump. That's where short-busters make money, Cramer said. If you're going to ride the short bust, you must eye the stock's average daily volume, which reveals how hard it would be for shorts to close or cover their positions, he said. And if the shorts are deep, they'll drive up the price to get out with profits. Another important factor to look at is the insider buying of a shorted stock because a big shareholder buy lets people know that things are OK enough for them to join the crowd, Cramer continued. Though Cramer, when at his hedge fund, used to short stocks all the time, he still worried about losing money.
Greenbrier's a GoThe next short-busting target Cramer named is Greenbrier Companies ( GBX), which makes and sells railroad freight-car equipment. Although Greenbrier may have a lot of debt as well as "serious production issues," and even though it just missed its quarter earlier this month, Cramer believes that it's a great position to be in because the rail business is in a "multiyear bull market."
CAT BottomsThe truth is that on Wall Street, professionals don't give a hoot where a stock deserves to be; it's where it deserves to sell that really matters, Cramer said. While it is typical to expect growth from growth stocks, cyclical stocks are stocks for which a growth rate can't be assumed, he said. Their growth rates are dependent on the economy -- on what the Fed does and on the inflow of worldwide capital. Therefore, the only way to value a play that doesn't control its own future is to pay less for the earnings of that stock, according to Cramer. For example, when you believe that the economy has peaked and there is no growth ahead, then pay next to nothing for a cyclical stock, he said. When the economy peaked last spring, Caterpillar ( CAT) topped off and then fell off a cliff, Cramer said. "The drop was based on fears that its growth would slow, and the fears turned out to be true," he said.
Lightning RoundCramer was bullish on Apple ( AAPL), Abercrombie & Fitch ( ANF), MasterCard ( MA), W.W. Grainger ( GWW), Melco PBL Entertainment ( MPEL) and Gmarket ( GMKT). For more of Cramer's insights during the Lightning Round,
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