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NEW YORK ( TheStreet) -- If a company's fundamentals are declining, don't think they can be turned around easily, Jim Cramer said on "Mad Money" Tuesday. He reminded investors one of the time-honored investing mistakes and the biggest personal portfolio management errors they can make is to believe in a turnaround or takeover. Case in point, Hewlett-Packard ( HPQ) and Best Buy ( BBY), two stocks that were down 11% and 13%, respectively. Cramer said investors may be tempted to buy into these companies because they're both household names. Surely they'll be able to resurrect themselves, many may think, but in reality both stocks are total disasters. Tuesday, HP announced a $5.5 billion write-down for its purchase last year of the U.K.-based Autonomy. According to the company there was widespread accounting errors and misrepresentations at Autonomy, which caused HP to lose nearly $8.8 billion of its $11 billion investment. Cramer said the problem with HP is it's no longer an innovator but an assembler of products that are in decline. PCs are losing out to tablets while margins are shrinking in the printer business. Meanwhile, rivals are eating HP's lunch in the consulting business. Cramer said it's not too late to sell this stock, which has already lost 55% of its value this year. Then there's Best Buy, which reported more disappointing results Tuesday and continues to hope that someone, perhaps its founder, will swoop in and take over the company. Cramer reminded investors the tech world is littered with turnarounds and takeovers that never happened. Remember Circuit City? How about Radio Shack ( RSH)? That company is on death's door. Cramer said the list of tech stocks that are hoping for a turn is a long one that includes Nokia ( NOK), Research In Motion ( RIMM), Dell ( DELL) and even Microsoft ( MSFT). In all of these cases the fundamentals are in decline and management may be able to do little to stem the losses.
Up in the CloudIn the "Executive Decision" segment, Cramer once again spoke with Marc Benioff, chairman and CEO of Salesforce.com ( CRM), the cloud-computing giant that delivered a penny-a-share earnings beat on a 35% year-over-year rise in revenue.
Benioff said Salesforce once again had a terrific quarter, despite Hurricane Sandy shutting much of the Northeast and the final cliff looming ever larger. He said this quarter was the company's fifth straight with over $100 million in operating cash flow. Europe was also strong for Salesforce since times of distress often mean that companies forego buying hardware and turn to the cloud for rapid, cost-effective IT solutions. The cloud grows faster when things are bad, he noted. Benioff said Salesforce is focused on revenue and market share and not necessarily on making a profit. When asked about the day's news regarding Hewlett-Packard's acquisition gone bad, Benioff said Salesforce has done over 2,000 acquisitions in recent years, mostly to acquire next-generation technology or forward-thinking entrepreneurs. He said Salesforce is working with HP to help its sales and service teams collaborate and innovate.
Do Your HomeworkDon't trade on the headlines, Cramer told viewers, do the homework. Headlines can be misleading, as was the case with Urban Outfitters ( URBN), which was widely reported as delivering an earnings miss of only one cent a share on light revenue and with only a 1% increase in same store sales. Under these headline numbers, Urban Outfitters actually did quite well, and is poised to have a great holiday quarter. Cramer said the 1% increase in same-store sales was actually a 7% increase, but that number was dinged due to merchandise ordered online that was returned at stores. In addition to strong sales both in-store and online, Cramer noted that the company's margins are up, inventories are lean and management expects the fourth quarter to be "less promotional," which is code for selling more items at full price. Cramer also noted his unofficial "congratulations quotient," which measures analyst sentiment by counting the number of "congratulations" management receives on their conference call. Of 19 analysts asking questions, a full 11 of them offered such kudos. Urban Outfitters struggled last year after the company had the wrong merchandise for its customers, but Cramer said now that a solid management team is back in place, Urban Outfitter's business is once again on fire. Shares trade at 19 times earnings with a 17% growth rate.