Cramer's 'Mad Money' Recap: Takeover Tonic (Final)

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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, Action Alerts PLUS , but also plenty of smaller companies that look just like those already receiving takeover bids. These are the companies that just got a whole lot more interesting, said Cramer.

He also there are also plenty of other companies that look just like ones already receiving takeover bids.

"The sellers will be proven wrong," said Cramer, "the markets are finally starting to see the light."

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.

Am I Diversified?

Cramer played "Am I Diversified" with callers to see if their portfolios have what it takes. The first caller's portfolio included CtiGroup ( C), Copano Energy ( CPNO), Altria ( MO), TriQuint Semiconductor ( TQNT) and Corning ( GLW).

Cramer said he would bless this portfolio.

The second caller's top holdings included Amgen ( AMGN), Procter & Gamble ( PG), Johnson & Johnson ( JNJ), Duke Energy ( DUK) and Nike ( NKE).

Cramer said Johnson & Johnson and Amgen are too similar. He would sell Amgen and add a bank or a tech stock.

Lightning Round

Cramer was bullish on ARM Holdings ( ARMH), Cirrus Logic ( CRUS), Cree ( CREE), SanDisk ( SNDK), Apple ( AAPL), Cognizant Technology ( CTSH), Kinder Morgan Energy Partners ( KMP), Skechers USA ( SKX), Nike ( NKE) and DSW ( DSW).

He was bearish on Tyco Electronics ( TEL), Satyam Computers Services ( SAY), Terra Nitrogen ( TNH) and Anadarko Petroleum ( APC).

-- Written by Scott Rutt in Washington D.C.

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 MacDonald's, Altria.

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.

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