Jim Cramer's 'Mad Money' Recap: Lost in the Rotation

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NEW YORK (TheStreet) -- The action in the markets might seem downright laughable, with stocks up big one day only to falter the next, Jim Cramer said on "Mad Money" Wednesday. But with different investors focused on different things, it actually all makes perfect sense.

Cramer explained that some investors focus only on commodities for their market outlook, and commodities have been in trouble of late as fears ripple around the world that China may be slowing faster than expected. This sudden move in commodities, as seen by the iPath Dow Jones Copper ETF (JJC), has investors spooked, Cramer said.

Then there are those investors who focus only on the geopolitical landscape. Those investors worry about the Ukraine and a compromised Europe.

Still other investors focus on individual stocks, where things are indeed looking a lot more rosy. Cramer said restaurants like Starbucks (SBUX) do better when commodities fall, while cloud stocks like Yelp (YELP) have absolutely nothing to do with Ukraine or Europe.

Cramer said these cross-currents are called rotation, and it's something big money does on a regular basis. The gyrations may seem maddening to those with longer-term views, which is why Cramer said those investors need to stay diversified to sidestep the big moves to the downside.

Executive Decision: John Schiller

For his "Executive Decision" segment, Cramer talked with John Schiller, chairman and CEO of Energy XXI (EXXI). Cramer last spoke with  him Monday on location in the Gulf of Mexico. Energy XXI just announced the acquisition of EPL Oil & Gas (EPL), news that sent shares down 7.8% and spurring Cramer to follow up.

Schiller said EPL has four billion barrels of reserves that it has yet to tap; with Energy XXI's technology, that number could bump by another 5%.

When asked about the deal, which issued more stock, Schiller defended the move saying that deals like EPL don't stay around long and investors will see great results soon enough.

Schiller continued there are tons of synergies that will be realized from the merger of two Gulf drillers. He said boats and helicopters that are running at 60% capacity can now run at 80% or more, saving money. Insurance costs can be combined, saving money. Add that to the boost in reserves and the deal is clearly a big winner.

Cramer agreed, saying at this new lower price shares of Energy XXI, with EPL included, are a steal.

When Breaking Up Doesn't Work

Cramer has long been a fan of corporate breakups as a way of unlocking shareholder value. Sometimes, however, not breaking up may be the best course of action. That's the case with Dow Chemical (DOW) despite activist investor Dan Loeb suggesting otherwise.

Cramer said while it's true Dow makes both commodity and specialty chemicals, the stock's performance, up 10% so far this year and 50% over the past 12 months, proves Dow's vertically integrated model is working just fine.

Unlike other chemical breakups, Dow makes commodity chemicals that it then uses as feedstock for its specialty operations. Dow has already announced plans to spin off a few ancillary businesses, making its remaining business all the more focused.

After delivering a 22-cents-a-share earnings beat on a 3.4% rise in revenue, Cramer said there's little more investors could ask for. Dow has already announced an increase to its buyback program as well as a boost of its dividend to 3%.

Trading at just 14 times earnings, Cramer said there's nothing better than a motivated CEO with an activist push.

Lightning Round

In the Lightning Round, Cramer was bullish on Skyworks Solutions (SWKS) and DaVita (DVA).

Cramer was bearish on Cara Therapeutics (CARA), ARM Holdings (ARMH), Raven Industries (RAVN) and Lionsgate Entertainment (LGF).

Cramer's Playbook

For the next installment of "Cramer's Playbook," Cramer answered a handful of questions on how investors should get started with investing.

Cramer said that ideally investors should have between five and 10 stocks in a well-diversified portfolio. But, he noted, investing takes time, especially to do the homework and listen to the quarterly conference calls. Investors without the time or inclination should stick with an S&P 500 index fund.

For investors with the time and at least $10,000 to start, Cramer suggested a portfolio where no more than 20% is invested in any given sector.

Cramer's sample portfolio included EOG Resources (EOG) for domestic oil and gas; Google (GOOG), a stock Cramer owns for his charitable trust, Action Alerts PLUS, for technology; Johnson Controls (JCI), another AAP holding, for industrials; Costco (COST) for retail and Merck (MRK) or Gilead Sciences (GILD) for health care exposure.

No Huddle Offense

In his "No Huddle Offense" segment, Cramer opined on a stock he hasn't mentioned in years: VeriFone (PAY).

Cramer said that after stumbling for many years, this quarter the payment processor signaled that it's back in the saddle by delivering fantastic results with accelerating growth. Shares of Verifone shot up 11% on the news.

In addition to having powerful global trends in its favor, Cramer said that VeriFone is also an attractive takeover target. He said eBay (EBAY) could be one possible suitor, as activists are pushing the online retailer to spin off its PayPal unit, which would blend nicely with VeriFone's bricks and mortar dominance.

Cramer said that Starbucks would also be a good fit for VeriFone, as the coffee and tea chain is already big into mobile payments.

To watch replays of Cramer's video segments, visit the Mad Money page on CNBC.

To sign up for Jim Cramer's free Booyah! newsletter with all of his latest articles and videos please click here.

-- 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 GOOG and JCI.

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