Cramer's 'Mad Money' Recap: Trading Off Misleading Headlines (Final)

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NEW YORK ( TheStreet) -- "Headlines can cost you a fortune," Jim Cramer cautioned the viewers of his "Mad Money" TV show Tuesday.

He said any investor trading just off the headlines of the day missed out on an incredible rally.

Cramer warned yesterday that today's housing headlines would likely tank the markets, but instead it was the earnings headlines that did most of the damage. He said that while the media touted Goldman Sachs ( GS), a stock which Cramer owns for his charitable trust, Action Alerts PLUS , as a huge earnings miss, Goldman actually earned $2.75 a share, a full 76 cents more than estimates, when government fines and penalties are factored in.

Cramer said the same point could be made with the earnings of Whirlpool ( WHR), Johnson & Johnson ( JNJ) and Pepsico ( PEP).

He said all three these great companies saw negative headlines on their better- than-expected earnings. Cramer said savvy investors could have caught a seven- point swing in Goldman had they bought at the lows, and caught similar moves in the others.

The headlines even affected tech bellwether Apple ( AAPL), another Action Alerts Plus name. Cramer said the market open saw Apple down five points, but investors could have caught a 20-point surge, as Apple traded up 11 points when it reported after the bell.

Cramer said the real story today was China, where the Chinese-mandated economic slowdown appears to be working, and the country is once again buying commodities like copper, oil, gold and steel.

He said China is far bigger than any domestic headline, and is great news for stocks like Caterpillar ( CAT), Bucyrus ( BUCY) and Joy Global ( JOYG).

Excessive Bravado

"Sometimes companies can set the bar way too high," Cramer told viewers, as he examined the earnings of IBM ( IBM), a company that appeared to beat the estimates, only to see its shares get clobbered.

Cramer said on the surface, all seemed well on IBM's conference call. The company beat by three cents a share, on 2% revenue growth. On the call, IBM management said they met all of the goals they set on their April call, and gave a bullish outlook for the future.

So what went wrong? Cramer said it wasn't the company's April conference call but its May analysts day, where IBM laid out its roadmap through 2015. Cramer said at that meeting, IBM promised double-digit growth over the coming years, and portrayed unfettered optimism. As a result, analysts provided IBM estimates that were impossible to meet.

Cramer said in this case, it wasn't the analysts fault that the estimates were raised so high. He said IBM's call for double-digit growth was unnecessary, and analysts naturally assumed with such a bullish outlook that their short term estimates were too conservative.

Cramer said it was bravado that killed IBM shares today, and even with today's plunge he's still not a fan of the company. He instead recommended Accenture ( ACN), an Action Alerts Plus stock that posted better-than-expected bookings and growth, and a company that knows how to under promise and over deliver.

Stocks or ETFs?

Is it better to own individual stocks, or an ETF that spans a sector? That's the question Cramer answered as he went head to head with colleague Tim Collins in the "Off The Charts" segment.

Cramer compared the charts of individual bank stocks versus the Financial Select Sector SPDR ( XLF), which that covers the banking group.

According to Collins, thanks to ETFs like the Financial Select SPDR, banks stocks have become commodities, trading in lock step with each other. Collins noted that there is now a 91% correlation between JPMorgan Chase ( JPM) and the ETF, and an 85% correlation between Bank of America ( BAC) and the ETF.

He said with the bank stocks having more volatility that the ETF, he'd be a buyer of that over individual stocks.

Cramer said he agreed Collins' points about the ETFs. However he defended owning individual stocks, as Cramer owns both JPMorgan and Bank of America for Action Alerts Plus.

Cramer noted that JPMorgan has outperformed Bank of America over time, and with homework, individual investors can still pick out the winners. "The ETFs appear to be winner," admitted Cramer, "just at a time when it should be the other way around, and individual performance should matter more."

Financial Reforms

Cramer spoke with Senator Ted Kaufman (D., Del.) for an update on financial reforms and the state of financial affairs in Washington.

Kaufman said the outcome in the case against Goldman Sachs is clear: Goldman lost and the Securities and Exchange Commission won. He said Goldman may spin the verdict as a win for them, but the fact is that the $550 million fine that was imposed was the largest in history.

Kaufman also said it's important to modify the behavior on Wall Street. "People can't believe that they will get away with this," he said. There is an arrogance on Wall Street, which is why we need to get the regulators back on the beat to keep the market credible, Kaufman said.

When asked about the complexity of the new financial regulations, Kaufman said that no senator ever gets the exact bill they want, but this bill was better than nothing at all.

He said that it was important to lay down the rules, then let the regulators decide how to handle the new rules, but Kaufman admitted that regulators already have their hands full, and this bill doesn't help that matter.

Overall, Kaufman endorsed bringing both sanity and ethics back to Wall Street, and Cramer agreed wholeheartedly.

Lightning Round

Cramer was bullish on Walter Industries ( WLT), Fluor ( FLR), Freeport-McMoRan ( FCX), City Telecom HK ( CTEL), Potash ( POT), Deere & Co ( DE), Monsanto ( MON) and Cirrus Logic ( CRUS).

He was bearish on Foster Wheeler ( FWLT).

Closing Comments

Cramer reiterated his $300 price target on Apple ( AAPL), a stock which he owns for his charitable trust, Action Alerts PLUS , on the heels of the company's earnings report. "The Internet tsunami is alive and well."
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-- Written by Scott Rutt in Washington D.C.

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

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

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