Cramer's 'Mad Money' Recap: Hedge Funds in Agony (Final)

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NEW YORK ( TheStreet) -- "Let it ride," Jim Cramer said on his "Mad Money" TV show Tuesday, as he told home gamers that they don't need to be like a hedge fund and try to game the market every day. Instead, he said, sometimes doing nothing works just fine.

Cramer said that hedge fund managers are like sharks in that they need to be in constant motion in order to stay alive. There is daily pressure to turn a profit with every trading session. And that leads to the endless buying and selling of the S&P 500 futures on every headline, every tidbit of news out of Europe, out of the U.S., out of China and out of pretty much anywhere.

Cramer explained that the hedge fund managers have been playing it safe as of late, shorting the markets, betting that worries out of Europe and debt concerns here at home would flush out the retail investor and send the markets lower.

But he said no one expected to hear about a possible U.S. debt deal today, nor were they prepared for Apple ( AAPL), a stock which Cramer owns for his charitable trust, Action Alerts PLUS, to report blowout earnings so good it made the analysts' heads spin.

Sometimes the good news can outweigh the bad, noted Cramer, and that's why the market was able to surge higher, as the hedge funds were forced to admit they were wrong and cover their short positions.

What's all this mean for the individual investor? Cramer said nothing at all. He told viewers to not try and game the market every day. "Doing nothing is fine," he said. On up days you'll make money and on down days you'll lose a little. Sometimes it's best to sit back and watch and be ready to pounce on great opportunities as they arise, he said.

Bearish on Tech

In the "Off The Charts" segment, Cramer showed viewers just why he's so bearish on the tech sector, despite Apple's superb results. He used a monthly chart of the Morgan Stanley Tech Index and the Philadelphia Semiconductor Index, relative to the S&P 500 overall, to illustrate his point. The chart included the combined monthly performance between 2000 and 2010.

According to the chart, both the tech and semiconductor indices underperformed the S&P by about 1% in the months of July through September, while they outperformed the markets from September through January by almost 3%.

What's behind this move? Cramer said a few things, including the need for retailers to replenish inventories after the back to school season, all of Europe returning from summer vacations, governments around the globe rushing to complete year-end buying and the curious case of summer pre-announcements not being quite as bad as predicted.

For all of thee reasons, Cramer said history tells us that now is not the time to be buying tech stocks. He urged investors to use any strength in this rally to sell their tech before the next leg lower can begin.

Cramer said there will always be outliers, like Apple and IBM ( IBM), another Action Alerts PLUS name, but these two companies are only making it harder for others that compete with them, which is why Apple and IBM are the only two tech names Cramer said he'd comfortable recommending for the time being.

Online Edge

Sometimes its not all about the numbers, Cramer told viewers, as he pitted the high-end retailer Williams-Sonoma ( WSM) against its lower-end rival Pier 1 Imports ( PIR) to see which makes the better investment.

Williams-Sonoma operates 589 high-end stores under four different concepts, while Pier 1 has 1044 stores in the U.S. and Canada and mainly caters to a less expensive crowd. Cramer said based on the metrics alone, Pier 1 seems to have the lead, while both companies are doing quite well.

In both cases, the companies are seeing stronger margins, lower inventories and increased same store sales, said Cramer. Both companies also have great balance sheet, with Sonoma having $4.50 a share in cash on its books and Pier 1 having $2.60 a share.

But Cramer said sometimes picking stocks is also about the subjective, not just the numbers. Here, he said, Sonoma has the edge, thanks to its online operations which account for 34% of total sales. Online is growing at a 20% clip for Sonoma and the company's platform will allow it to expand internationally with ease. Pier 1, on the other hand, is only getting started with its ecommerce operations, the bulk of which will roll out next summer.

Cramer said Sonoma also gets the edge thanks to its multiple concepts, which include West Elm and Pottery Barn. He said each of these concepts has room to grow, while Pier 1 only has a single concept.

So while the companies may look identical, Sonoma trading at 17 times earnings with a 13% growth rate and Pier 1 trading at 15 times earnings with a 12.5% growth rate, in reality the time is now to pull the trigger on Williams-Sonoma, said Cramer. The stock is also 15% off its high and has less analyst coverage, he said, leaving more room for upgrades.

King of Coal

In the "Executive Decision" segment, Cramer once again spoke with Greg Boyce, chairman and CEO of Peabody Energy ( BTU), the world's largest coal company. Shares of Peabody are up 15% since Cramer last recommended Peabody in October, 2010.

Boyce made a strong argument for the use of coal, saying that there are still 3.5 billion people in the world without access to adequate electricity and only coal has the capacity to supply that need. He said inadequate or nonexistent electricity is at the root of many problems around the globe and should be a priority.

Boyce also noted that coal is and will be the faster growing fuel source for the next 10 to 20 years, thanks to developing countries like India and China, where demand is increasing 15% a year. He said the world has huge demand for coal to make both electricity and steel.

Turning closer to home, Boyce said that the U.S. has no long-term energy strategy and it needs one that puts people first and one that provides low energy rates so America can compete globally. He said that renewable energy still only accounts for 2% of global energy supplies and that's after years of government subsidies.

Boyce confirmed that Peabody did indeed have a blowout quarter, with revenues up 20% and earnings per share up 60%, thanks to continued strong demand.

Cramer called Peabody a cheap stock and continued to recommend it.

Lightning Round

Cramer was bullish on Advance America ( AEA), International Paper ( IP), PNC Financial Services ( PNC) and UGI Corp ( UGI).

He was bearish on InterDigital Communications ( IDCC) and AFLAC ( AFL).

Closing Comments

In his "No Huddle Offense" segment, Cramer asked, "How could News Corp shares go up today as its head, Rupert Murdoch, was getting grilled?" Answer: Because it makes perfect sense.

Cramer said that it's all down hill for News Corp ( NWSA) from here, as today marked the worst the company will likely see. He said in reality, the scandal will not bring down this media empire, one with rising ad revenues, terrific properties and consistent earnings with huge cash flow. News Corp, he said, is now the cheapest high growth media stock out there, trading at just 14 times earnings with a 14% growth rate.

"This is not about personalities. This is about numbers, and News Corp has them," he said.

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

To contact the writer of this article, click here: Scott Rutt.

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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, clickhere .

At the time of publication, Cramer was long Apple, IBM.

Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for TheStreet.com, Inc., and CNBC, and a director and co-founder of TheStreet.com. All opinions expressed by Mr. Cramer on "Mad Money" are his own and do not reflect the opinions of TheStreet.com 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 TheStreet.com, 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 TheStreet.com is related to the specific opinions expressed by him on "Mad Money."

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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 TheStreet.com. 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 TheStreet.com, 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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