Cramer's 'Mad Money' Recap: How to Trade the Rally (Final)

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NEW YORK ( TheStreet) -- "Take advantage of the remarkable rally to make some changes," Jim Cramer told his "Mad Money" TV show viewers on Wednesday after a remarkable rally.

He said that today's rally tells us one thing: We were a lot closer to a European meltdown than we thought, but the cavalry has finally arrived.

Cramer explained that the bailout plan offered by the Federal Reserve, the ECB and the central banks of Canada, Britain, Switzerland and Japan has finally taken the worst case scenario off the table and allowed the markets to once again trade off of U.S. news for a change. That positive news included strong existing home sales and a positive employment report from Automatic Data Processing ( ADP).

So what does this all mean for investors? Cramer said that it means that U.S. retail stocks can now be owned along with the oil stocks and any high-yielding stock. He said that with interest rate easing in China, the beaten down industrial stocks can also now be owned, stocks like Cummins ( CMI), a stock which he owns for his charitable trust, Action Alerts PLUS .

Also on Cramer's recommended list, consumer discretionary stocks like Starwood Hotels ( HOT) and Wynn Resorts ( WYNN).

There are still stocks that cannot be owned, warned Cramer, and those include the financials and any stock where the fundamentals are weak. Cramer noted that eventually the sovereign debt of countries like Italy may be a good investment, but that time has not come yet and there are still many battles in the European bailout war yet to be won.

Bank Stocks Too Risky

"Never lose track of the big picture," Cramer told viewers as he opined on the financial stocks and explained why the banks simply cannot be owned, even after today'a strong rally.

He said that too often analysts and investors alike miss the bigger picture by focusing on the smaller details. He used Citigroup ( C) as an example.

According to recent analyst reports, there's a lot to like with Citigroup. The company's fundamentals are good and its business is getting better. Citigroup should be able to raise its dividend next year and the company has a fantastic valuation, trading at 40% less than its book value. Compelling? Cramer said certainly.

But in this case, Cramer said that the reasons to stay away from Citigroup are too compelling to ignore. He said that all bank stocks trade in tandem, and a cascade of sovereign defaults in Europe would obliterate Citigroup along with all of the others. Cramer said that he likes Citigroup and thinks that the bank is doing a great job getting back on its feet, but it simply doesn't matter with such risks hanging over the markets.

Who's right in this argument? Cramer said unfortunately, nobody. The risks are simply too great to ignore. He said that investors who want a bank stock should look at Canada's Toronto-Dominion ( TD), which has no European risk and is valued based on the size of its deposits.

Deckers' Roadmap

Cramer's next recommendation on his "Stock Stuffers" list of stocks that work regardless of Europe was Deckers Outdoor ( DECK), which has returned 1,300% since he first recommended it in November, 2005. Cramer sat down with Angel Martinez, Deckers chairman, president and CEO to learn what's next for the footwear giant.

When it comes to Deckers' continued growth, Martinez said the most important thing is to introduce new consumers to its products. He said that Deckers does that with sophistication through its brands, its stores and its marketing, all of which matter to the health of the company.

Martinez said that emerging markets like China are doing well for Deckers, as the Chinese consumer wants the same thing that everyone else wants: stylish, comfortable footwear. He said that everything from luxury to casual and even the company's surfing footwear is doing well in China.

As for the American consumer, Martinez said that once Uggs are in your closet, they will always be there, which is why most American consumers are in "replenishment mode" and are looking to replace their existing Uggs with a new pair this holiday season.

When asked about growth in the children's segment, Martinez admitted that there is plenty of growth there, but the company chooses not to exploit it for fears that the brand would be harmed by too much emphasis on the younger consumers. He said that Deckers will continue to grow throughout all of its products and its strength is in its operating capabilities.

Am I Diversified?

Cramer spoke with callers to see if their portfolios have what it takes. The first caller's portfolio included Arris ( ARRS), Caterpillar ( CAT), Clorox ( CLX), International Paper ( IP) and Enbridge ( ENB).

Cramer said "bingo," noting this portfolio was well played.

The second caller's top holdings included Alcoa ( AA), Black Hills ( BKH), Weatherford ( WFT), Chesapeake Energy ( CHK) and Verizon ( VZ).

Cramer said that Weatherford, Chesapeake and Black Hills were three of a kind in the oil patch. He said the portfolio could use a healthcare and a hotel stock.

The third caller had Southern Copper ( SCCO), QR Energy ( QRE), BGC Partners ( BGCP), MarketVectors Junior Gold Miners ETF ( GDXJ) and Tornier ( TRNX) as their top five stocks.

Cramer said that BGC was too speculative for his tastes, but otherwise the portfolio was fine.

Lightning Round

Cramer was bullish on Pengrowth Energy Trust ( PGH), Walt Disney ( DIS), Salesforce.com ( CRM), Bristol-Myers Squibb ( BMY) and Sanofi-Aventis ( SNY).

Cramer was bearish on Microsoft ( MSFT), Radioshack ( RSH) and Vertex Pharmaceuticals ( VRTX).

Closing Comments

In his "No Huddle Offense" segment, Cramer asked the question, has housing finally bottomed? He said the new and existing home sales data won't tell you, but the employment reports will.

Cramer said that despite what you may have heard, it's not the foreclosure rate or the number of underwater mortgages that are keeping home prices low, it's the number of people without a job. For years the U.S. built too many homes, then the government made the situation worse by offering tax breaks to home builders and tax credits to home buyers.

With record low mortgage rates, Cramer said that buyers and builders don't need incentives. He said buyers need jobs to secure mortgages. Once employment picks up, so too will the housing market. That's why today's ADP employment report was so promising, 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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At the time of publication, Cramer was long Cummins.

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."

None of the information contained in "Mad Money" constitutes a recommendation by Mr. Cramer, TheStreet.com 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 TheStreet.com, 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 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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