Cramer's 'Mad Money' Recap: Wrong Side of a Trade (Final)

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NEW YORK ( TheStreet) -- "When hedge funds bet against 'overvalued' stocks, they better have the whole story," Jim Cramer told his "Mad Money" TV show viewers on Tuesday, as he opined on a handful of high-momentum stocks that seem to have defied gravity.

Cramer explained that all investors, even big ones, can get themselves on the wrong side of a trade and bet against the wrong stocks. Such was the case with a handful on names, he said, those where hedge funds determines that the fundamentals didn't justify the stocks' sky-high prices. The only problem was, they were wrong.

The newly-minted shares of Michael Kors ( KOR) was one such name, said Cramer. He noted that just last week he declined to recommend the stock because it had exceeded his limit of a multiple twice that its growth rate. But today, Kors delivered stellar numbers, seeing a 35% surge in European sales alone. The news sent shares rocketing higher, forcing out all those who shorted it.

Cramer noted that another accessory retailer, Fossil ( FOSL), also seemed overvalued with a slowing growth rate. Yet on the company's conference call, company management said they see growth accelerating, news that sent shares up 14% in a single day.

Whether it's Netflix ( NFLX), which ramped another 4% today, or Apple ( AAPL), a stock which Cramer owns for his charitable trust, Action Alerts PLUS , or Chipotle Mexican Grill ( CMG), Cramer said sometimes it just doesn't pay to bet against these high-flying companies.

Cramer's recommendation to hedge funds, "bet against stocks where the fundamentals are actually bad, not those that seem to have run too far."

Movie Catalyst

"Every once and awhile there's a new product that's big enough to move the needle," Cramer told viewers. Once such product is a new movie called The Hunger Games, coming in March.

Cramer explained that movie studios have a hit-or-miss record when it comes to financial success, but in the case of Lion's Gate Entertainment ( LGF), shares have already run up 35% for the year ahead of the Hunger Games release.

So what makes this movie so special? Cramer said it's the first book in a trilogy by Suzanne Collins, a trilogy that has already sold more than 23.5 million copies and comes with a built-in fan base. Lion's Gate plans to covert the series into four movies, the first of which could generate $400 million in revenues for the company in the U.S. alone.

Cramer said that number translates to 87 cents a share for Lion's Gate, a huge swing for a company that was expected to earn only nine cents a share this quarter but delivered a penny a share loss instead. yet despite the disappointment, shares of Lion's Gate rallied 7% in the follow day's trading, another sign that momentum for the new movie is building.

But Lion's Gate is more than just a single potential hit movie, said Cramer. The company also has one more film in the popular Twilight series and is actively developing other pop-culture young adult titles for its portfolio. Cramer said that movie studio stocks often don't trade on earnings, but rather on the anticipation of new releases. In this case, that anticipation is reaching a fever pitch, which is why Cramer recommended buying the stock on any weakness.

Low Expectations

While personal break-ups may be painful for you, Cramer said that corporate break-ups are often great for your portfolio. Such is the case of Post Holdings ( POST), the spin-off from Ralcorp ( RAH), which went public on Jan. 27.

Post Holdings is the maker of Post cereals, with includes such household names as Raisin Bran, Honey Combs and Grape-Nuts. Ralcorp acquired Post in August, 2008, but Cramer said the merger went so awry that the company was forced to jettison the brands in order to save itself. But that's great news for Post, said Cramer, as shares are now on the run higher, up 7% today alone.

So what went wrong at Post? Cramer said just about everything. Ralcorp's primary blunder was cutting back on ad spending, something that caused Post brands to lose marketshare. Additionally, gross margins eroded to just 16%, down 8% from before the merger and Ralcorp raised prices three times, taking Post brands out of their "sweet spot" just below the competition.

But Cramer noted that with expectations so low for the company, just about any good news from here will be seen as a positive for Post, which has almost no analyst coverage on Wall Street. He said the company's new management has a great track record of success and it should be hard for Post to ramp up ad spending, return margins to their historic levels and begin taking marketshare again.

Trading at just 12 times earnings with an 8% growth rate, Cramer said shares of Post are a $15 stock masquerading as an $11 stock. He would be a buyer.

Bull Run

In the "Off The Charts" segment, Cramer went head to head with colleague Scott Redler over the future of the markets using the charts of the S&P 500 as their guide. Cramer said that after trading essentially sideways for the past 12 years, its easy to see why investors have adopted a perma-bear stance towards investing. But do the charts signal a true bull market is ahead? According to Redler, it does.

Redler looked at a long-term chart of the S&P 500 dating back to 1998. He noted that the chart does show a dreaded double-top formation, with tops in 2000 and again in 2007 just before the financial crisis began. But he also noted that since the lows of 2007, the markets have been exhibiting a healthy uptrend pattern, making higher highs and higher lows. According to Redler, if the S&P 500 can break above 1576, the sky's the limit.

Cramer said he too is a believer in this thesis. He said after over a decade of going nowhere, the markets are now poised to begin another true bull market, one reminiscent of the 1990s, an era which far too many investors have forgotten.

Lightning Round

Cramer was bullish on Sasol ( SSL), CF Industries ( CF), Fortinet ( FTNT), EastGroup Properties ( EGP) and TiVo ( TIVO).

Cramer was bearish on Activision Blizzard ( ATVI), Halliburton ( HAL), Websense ( WBSN) and Healthsouth ( HLS).

Troubling Signs

In his "No Huddle Offense" segment, Cramer said he's baffled by the stocks of Amazon.com ( AMZN) and Google ( GOOG), which have been creeping higher despite disappointing on earnings.

Cramer said both stocks should have gone down and stayed down. In both cases, the companies are trying to take on Apple, moves which will cost them both money and margins.

So why the moves higher? Cramer said it could be because they shouldn't have fallen so much when they reported or it may be growth funds expanding their position. In either case, Cramer said he doesn't like the outlook and would use any strength to trim positions.

--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 Apple.

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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