NEW YORK ( TheStreet) -- "A little speculation goes a long way," Jim Cramer told the viewers of his "Mad Money" TV show Wednesday, as he commented on the rumors that U.S. Steel ( X) may be the target of a takeover bid at close to $60 a share. Cramer said while he doesn't recommend stocks based on takeover speculation and prefers to use good old fashioned fundamental analysis, today's takeover rumors were welcome news on a sharply negative Wall Street. Cramer explained that takeovers require confidence and changes market sentiment. He said with takeovers happening, ETFs don't look as attractive as individual stocks, as they can't offer the upside surprises. He said takeovers also create fear in the short sellers who can't afford to have their cheap stocks taken sharply higher. With merger activity for 2010 already surpassing that of 2009, Cramer said it's clear that things are looking up, and merger mania may be returning to Wall Street. He said in addition to the recent Potash ( POT) deal, there have been countless smaller deals, all of which have ben done largely in cash, and at hefty premiums. Take a peek at the 52-week high, and Cramer said you'll find not only great companies like Dominion Resources ( D) and Progress Energy ( PGN), along with other Cramer favs McDonald's ( MCD) and Altria ( MO), two stocks which he owns for his charitable trust,
Market Conundrums"Expectations matter," was Cramer's lesson to viewers, as he tried to explain how Cisco ( CSCO) could report a one-cent-a-share earnings beat and get a 10% haircut, while graphics chip maker Nvidia ( NVDA) could report an eight-cent miss, and jump 4.7%. Cramer said conundrums like these may make the stock market seem maddening, but factor in the markets' expectations, and all becomes clear. He said everyone was expecting Cisco to do well, so when it did, no one noticed. But when Nvidia, a stock that everyone had given up on, did less poorly, ears perked up. Cramer said he expected Nvidia to report a bad number when he featured it on July 13 as a second half of the year comeback story. With the quarter now behind us, Cramer said Nvidia is now worth buying. He said the expectations may now finally be low enough for the company to beat them, and its consumer business for smart phones and tablets is starting to pick up. Cramer said Cisco is another story. The stock had run up ahead of its quarter, making it almost inevitable that shares would pull back as CEO John Chambers tempered the enthusiasm. With shares now trading at just 11 times earnings, Cramer said Cisco is now also safe to buy.
Satellite Imagergy Play"The satellite imagery business is terrific," Cramer told viewers, as he highlighted the sectors only two players, GeoEye ( GEOY) and DigitalGlobe ( DGI). Cramer explained that the satellite imagery business, which started as a government necessity, is now a private sector boom town, as new technology is turning imagery into big business for companies like Google ( GOOG) and Motorola ( MOT), as well as countless others. Making the business even better, the lack of competition. Cramer said it would take several years and countless millions for a new competitor to surface in this happy duopoly. From judging demand by viewing Wal-mart ( WMT) parking lots, to assessing grain output from Russian fields, the possibilities for satellite imagery is limitless. So which company should investors buy? Cramer said both companies have a ton of cash and incredibly high margins, but the edge goes to DigitalGlobe since that company has two satellites in orbit compared to GeoEye's single satellite. Cramer said while DigitalGlobe is the better company, it hasn't been the better stock, making it even more appealing. The company is currently trading at a 7% discount to GeoEye. Of the nine analysts covering the company, only six rate it a buy, leaving room for upgrades. Cramer said even with all DigitalGlobe has going for it, he'd still wait for a pullback before pulling the trigger.