Cramer's 'Mad Money' Recap: Bubble? What Bubble?

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NEW YORK ( TheStreet) -- Has the market become ridiculously overvalued? Jim Cramer tackled the bear argument that the markets have entered bubble territory on his "Mad Money" TV show Thursday.

He said the bears are right... partially.

When looking at the markets overall, the S&P 500 only trades at 15 times earnings. That's the index's historical average -- no bubble there, Cramer said. Likewise with the Dow Jones Industrial Average, which trades at 14 times earnings, also near its historical norms. There's also no bubble when it comes to stocks versus bonds, noted Cramer, as bonds still pay next to nothing while stock dividends continue to enjoy favorable tax treatment.

So where are these bubbles the bears keep citing on TV? Cramer said he's worried about the utility stocks, for one, as that sector is now at 4.5 year highs, a level that's simply not sustainable once the Federal Reserve slows or stops its bond buying.

Then there are other groups that have have miraculous runs, mainly the food and beverage names and the drug stocks. Cramer said he sold Bristol-Myers Squibb ( BMY) for his charitable trust, Action Alerts PLUS, as that stock now trades at 2.5 times its grow rate and leaves little room for error when the company reports later this month.

The upside in these sectors is limited, said Cramer, because the stock prices have run and their yields have fallen, making them less attractive overall. So while there may not be a bubble in the markets as a whole, these are some of the areas investors need to be cautious about.

Sell Block: Teva

In the Thursday "Sell Block" segment, Cramer focused on a drug stock investors should avoid: Teva Pharmaceuticals ( TEVA), the world's largest generic drug maker.

Cramer said the generic drug business was a thing of beauty back in the 1990s and 2000s as companies like Teva took the process of formulating generic versions of branded drugs to an art form, sometimes offering them just months after their branded counterparts lost their patent protection. But that golden age is no more, said Cramer, because there are fewer blockbuster drugs coming off patent and competition to make the generics has increased.

Making matters worse, Teva now has its own branded drug business and will be on the other side of the trade when its own $3.8 billion multiple sclerosis drug loses its patent protection.

Cramer said Teva may seem cheap trading at only seven times earnings, but with the generic space increasingly becoming a commodity it's unlikely Teva will be able to grow much from here. That makes it a value trap, especially given how many other drug makers are offering growth plus great dividend yields.

Now and Then

Continuing with his argument that the markets are not in bubble territory, Cramer took a look at more stocks and sectors to make some comparisons between now and the markets of 2001, when a bubble really did exist.

Cramer noted that back in 2001 stocks were considerably more expensive than today. Alcoa ( AA) traded at $44 a share; today, it trades at $8. US Steel ( X) traded at $191; today, it's $17. Freeport McMoRan ( FCX) was at $62; today just $33, to name a few.

In the retail sector, stocks may seem expensive compared to where they've been recently but historically they're fairly valued. The same holds true with the industrials, he said. They're not rich, nor are they bargains.

In fact, Cramer said there are only three sectors that he feels are bargains at the moment, and those are the banks, technology, and oil and gas.

He said stocks including KeyCorp ( KEY), a stock he owns for his charitable trust, Action Alerts PLUS, remain inexpensive, as does Cisco ( CSCO) trading at just 10 times earnings. In the oil and gas sector, he likes Linn Energy ( LINE) and Markwest Energy ( MWE).

So while the bears continue to scare investors out of the market, Cramer said those same investors will be regretting not buying in right here if there's any sort of pickup in the global economy later in 2013.

Lightning Round

In the Lightning Round, Cramer was bullish on Regions Financial ( RF) and Realogy Holdings ( RLGY).

Cramer was bearish on Universal Display ( PANL), VirnetX ( VHC), Constant Contact ( CTCT) and Zillow ( Z).

Talking to Daymond John

In a special interview, Cramer sat down with author, entrepreneur and brand expert Daymond John, who last appeared on "Mad Money" in April 2010.

John commented on several high-profile brands including BlackBerry ( BBRY), which he recommended shorting in 2010. He said BlackBerry missed the mark when it started listening to retailers over customers, a move which cost the company dearly.

When asked about Apple ( AAPL), another Action Alerts PLUS holding, John said shares were priced for perfection and even Apple isn't perfect. The brand is still cool, however, and John expects the company to recover. Samsung has been smart because that brand has been hustling its way to the top slowly, he added.

When asked about his top picks for the next few years, John gave the nod to Walgreen ( WAG), Urban Outfitters ( URBN), Nike ( NKE), Yahoo! ( YHOO), Visa ( V), MasterCard ( MA) and Facebook ( FB). All of these brands have what it takes to prosper and grow, he noted.

No Huddle Offense

In his "No Huddle Offense" segment, Cramer commented on two stocks that were left for dead but now have investors scrambling to catch up: Ross Stores ( ROST) and Bed Bath & Beyond ( BBBY).

Cramer said that investors deserted Ross at the bottom, but when the company didn't disappoint its shares roared. The same was true for Bed Bath. The company missed on its earnings but still has a solid growth path and the possibility of being taken private.

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

To email Scott about this article, click here: Scott Rutt

Follow Scott on Twitter @ScottRutt or get updates on Facebook, ScottRuttDC

At the time of publication, Cramer's Action Alerts PLUS had positions in AAPL, CSCO, F, KEY and LINE.

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

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