Cramer's 'Mad Money' Recap: Europe's Problems Difficult but Can Be Solved

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NEW YORK ( TheStreet) -- The situation in Europe may be difficult but that doesn't mean it can't be solved, Jim Cramer told "Mad Money" viewers Tuesday. Cramer said that while the odds of a favorable resolution in Europe are about even, the markets could see a 10% pop if the best-case scenario does happen.

But what is the best-case scenario? Europeans need to create the equivalent of the U.S.'s Federal Deposit Insurance Corporation, an organization that can insure all European banks, in euros, so citizens don't have to flee their home country's banks for what they perceive as safer investments.

Cramer said with this one simple move, a "virtuous circle" would be created. The increased certainty in Europe would likely spur the Chinese to offer stimulus for their country, he said, which would, in turn, boost the confidence of international companies to invest and expand. From there, hiring would increase, the pressure would be off the U.S. banks and earnings would no longer be in danger.

Without such a deal, however, Cramer expects to see a wave of earnings pre-announcements and cuts in the second half of the year. He said the Germans, who appear to be holding all of the cards in this game of international poker, don't seem to think it's in their best interest to prop up the poorer European countries, but Cramer hoped that attitude will change.

If the best-case scenario happens, he continued, investors should look to buy international growth stocks, names like Starbucks ( SBUX) and McDonald's ( MCD). He would also look at companies like Ralph Lauren ( RL) and the automakers such as Ford ( F).

But until the best-case scenario happens, Cramer cautioned, investors need to "stay the course" and remain defensive.

'Naive' Investors, Shameful Sellers

With shares of Facebook ( FB) inking a fresh 52-week low Tuesday, Cramer took a moment to sound off against comments made by Morgan Stanley ( MS) CEO James Gorman, who said investors were "naive" to think putting money into Facebook's initial public offering would net them quick profits.

Cramer said it's clear the Wall Street machine doesn't care about the individual investor, even though individuals are the lifeblood of the markets. He called the execution of the Facebook IPO a disgrace, saying that either the Facebook executives got greedy or those at Morgan Stanley were just plain stupid in their pricing of the deal.

"Everyone is supposed to win with an IPO," Cramer reminded viewers. And while everything about the Facebook IPO may have been legal, it was most certainly horrible for all involved. The deal favored the sellers over the buyers, said Cramer, and there's no denying this was a botched deal from the start.

So while Facebook and Morgan Stanley had the perfect opportunity to lure individual invests back to the stock market, they instead choose to be greedy. "Shame on them," Cramer concluded.

Off the Charts

In the "Off The Charts" segment, Cramer went head to head with colleague Tim Collins over the future direction of the markets.

Starting with a daily chart of the Standard & Poor's 500, Collins noted that over the past two months the S&P has displayed a rounded top and the dreaded cup-and-handle pattern, a bearish sign seen before declines in both 2007 and again in 2008. Based on last trends, Collins said the averages could decline 11% from current levels. But there is hope, as the S&P has been holding a floor of support, signaling that a decline can be avoided.

Using a 10-minute candlestick chart, Collins demonstrated how much of a battleground the S&P has become, with the index oscillating between its floor of support of 1,264 and a ceiling of resistance at 1,280. Today's rally bought the markets some breathing room, Collins concluded, but we're not out of the woods yet.

While the stochastics indicate the S&P is currently oversold -- having fallen too far, too fast -- Cramer warned that this alone is not a positive enough indicator to warrant any short-term buying.

Cramer's bottom line: There is still hope for the markets if they can hold current levels. If they fall much further, however, all bets are off as it will be a lot harder to claw our way back to breakeven.

Lightning Round

Here's what Cramer had to say about callers' stocks during the "Lightning Round":

Cree ( CREE): "No, no, I want you out of that stock by tomorrow morning."

Fluor ( FLR): "I like Fluor every much but I'm going to urge you to don't buy it right now."

NXP Semiconductors ( NXPI): "This market is too tough. I don't want you to buy any semiconductors right now. See you in September."

Clean Energy Fuels ( CLNE): "This is completely speculative. You're betting on companies switching to natural gas. They haven't done it yet, so until then you're stuck."

VIVUS ( VVUS): "I like it as a speculation. I think it's a good one."

Carter's ( CRI): "Keep looking, don't touch. They have no growth. I don't want to touch any no-growth situations."

Executive Decision

In the "Executive Decision" segment, Cramer sat down with Clay Siegall, president and CEO of Seattle Genetics ( SGEN), another cancer-fighting company presenting at the American Society of Clinical Oncology conference this week.

Siegall explained that Seattle Genetics' cancer drugs use target antibodies to dock with tumor cells and kill them while leaving surrounding, healthy cells untouched. He said the result is a less toxic, targeted therapy. Seattle Genetics is currently developing seven such treatments to attack both solid and liquid tumors.

Another part of Seattle Genetics' strategy is to utilize local community doctors, rather than large hospitals, to administer their treatments. He said the 30-minute infusions are easy to administer and patients much prefer to be seen by their regular doctors.

When asked about the potential of their treatments, Siegall said his company has 10 to 15 different trials in the pipeline and he's confident the treatments will be successful in treating different types of cancers as well.

With the frontline treatment for cancer having changed little since its introduction in 1977, Cramer said companies like Seattle Genetics are offering hope for newer, safer and more effective cancer treatments, which is why he remains bullish on the company.

No Huddle Offense

In his "No Huddle Offense" segment, Cramer looked at the shares of Caterpillar ( CAT), an industrial stock in the crosshairs of a potential global recession, to ask, "What's a fair valuation for this earth-moving equipment powerhouse?"

Cramer said Caterpillar shares have already fallen 30% from their high of $116. However, during the recession of 2008 and 2009, a time when earnings fell by 60%, shares of Caterpillar fell a whopping 75%. Could investors be in for a similar decline now to $36 a share?

Cramer said that scenario assumes Caterpillar will earn only $4 a share this year and receive a market multiple of nine times earnings. However, with the P/E ratio likely to expand given the company's dividend, Cramer said a $70 price target, or slightly less, is far more likely.

"Bottom fishers beware," Cramer concluded, Caterpillar may be one stock that's not yet found its bottom.

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

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At the time of publication, Cramer's Action Alerts PLUS had no positions in the stocks mentioned.

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