Cramer's 'Mad Money' Recap: Insider Trading Indictment Shows How Market Works (Final)

Click here for an archive of Jim Cramer's Mad Money recaps. Click here to get Jim Cramer's Mad Money Post Game video exclusively on

NEW YORK ( TheStreet) -- "Want to know what really makes stocks move?" Jim Cramer asked the viewers of his "Mad Money" TV show Monday.

He said the the recently released indictment of insider trading at Galleon Investments provides an "inside" look into how hedge funds make their decisions and how stocks react to those decisions.

Cramer said there are many lessons to be learned from report, which outlines in detail, exactly what information was received by the investment group, and how they reacted to it. The first lesson: Earnings don't matter, guidance does.

Cramer Clearing House All things Cramer Mad Money Recap Trade With Cramer Free

Cramer said in the report, Galleon allegedly received information that Intel ( INTC) was going to report a blow-out quarter, but would also lower guidance. Galleon then sold on that information, and the stock sold off sharply.

Another nugget from the report: cost cutting is a good thing. Cramer said in another incident, Intel was reporting a bad quarter, but was also announcing a restructuring effort to lower costs. Galleon bought in on this information, and as expected, the stock rallied on the news.

Cramer's Upcoming Book Signings

Tuesday, Oct. 20, 7 p.m.: Mendham Books, Mendham, NJ (84 East Main St.)

Tuesday, Nov. 17, 7 p.m.: Barnes & Noble, Manhattan (33 East 17th St.)

Cramer said other lessons include that hedge funds put emphasis on a company's backlog, and also in how quarterly results compare to not only the year ago quarter, but also to the previous, or "linked," quarter. "The results quarter to quarter really matter to these guys," said Cramer.

Cramer called the government's indictment a "page turner" and said it provides invaluable insight into how the game is really played and why stocks sometimes move in the opposite direction from what you would expect.

Smart Energy Grid

Cramer said there's a revolution coming, and this one doesn't have anything to do with smart phones. He said that after long delays, it looks as if the country is finally beginning to make the switch to a smart energy grid.

Cramer said he was tipped off by General Electric ( GE), which recently reported that its first smart-grid appliance, a hybrid electric hot water heater, will be rolling out soon. Unfortunately, GE is too large for smart-grid technologies to "move the needle," said Cramer, but that's not the case at Itron ( ITRI), the leader in smart-power meters.

Cramer said he's been wrong on Itron, which he first recommended on April 27 during a "green week" segment at $100 a share, but he now feels that with President Obama's blessing, and GE's move into the space, the transition to a smarter-energy grid is coming.

Itron makes smart power meters, which allow utilities to monitor usage at hourly intervals, and even turn on and off smart-enabled appliances to help conserve and manage power. Cramer said smart meters are the first step toward a smart grid, and Itron's growth is showing that the trend is catching on.

Itron currently trades at 14 times its projected 2011 earnings, despite a 26% projected growth rate. Cramer said that makes Itron cheap, especially given shares are down 11% year to date and the country is still in the very early stages of a long-term trend towards smarter, and greener, power management.

Dole's IPO

In this "Know Your IPO" segment, Cramer examined the upcoming IPO of Dole Foods, which is set to issue 35.7 million shares between $13 and $15 a share later this week. Cramer told viewers that they should buy all they can if they can get in on the IPO, but avoid the stock in the open market.

Cramer said he normally doesn't like IPOs of companies previously taken private, but Dole Foods is the exception. The company will be using the proceeds from the offering to pay down debt, and unlike other IPOs, management is not cashing out and selling its stake in the company.

Dole is also a fabulous company, said Cramer, being the No. 1 or No. 2 player in every category it operates. The company makes 70% of its money from fruit, mainly pineapple products, another 15% from vegetables and a final 15% from packaged food products.

Cramer said the best thing about the Dole IPO is its price, which is currently at a discount to the premium price he thinks the stock should command. Given the strength of the company, Cramer said this is one IPO that shouldn't be missed.

Mad Mail

Cramer told a viewer that he'd take profits from Starent Networks ( STAR) and roll them into the acquirer, Cisco ( CSCO).

Cramer told another viewer that while he likes Netflix ( NFLX), he'd still be a buyer of Coinstar ( CSTR) for their RedBox DVD kiosks.

Cramer told a final viewer that he's definitely not a buyer of Xerox ( XRX), a company whose business model just simply doesn't make sense.

Lightning Round

Cramer was bullish on Teradyne ( TER), Cypress Semiconductor ( CY), Siemens AG ( SI) and Bank of America ( BAC).

Cramer was bearish on Ares Capital ( ARCC), Eastman Kodak ( EK) and Digital River Inc ( DRIV).

To watch replays of Cramer's video segments, visit the Mad Money page on CNBC.

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

For more of Cramer's insights during the Lightning Round, click here .
At the time of publication, Cramer was long Bank of America.

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.