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NEW YORK (TheStreet) -- What does it take to stop a selloff in its tracks? Jim Cramer gave his Mad Money TV show viewers his recipe for a rally Wednesday. He said to truly understand today's snapback rally, investors need to first understand the reasons for the selloff.
Cramer explained the April selloff has largely occurred in a news vacuum, with investors having little actual data to go on. That caused many to get too negative and, as Cramer always says, "no one ever made a dime panicking."
Then there were the large hedge funds, which switched into redemption mode and began selling everything to "de-risk" their portfolios. Cramer said wounded hedge funds, much like wounded tigers, are a very dangerous animal.
But today the analysts who have been patiently waiting for the selloff to subside came out in favor of the bull, helping to swing the markets into positive territory. The move was bolstered by Wednesday's lackluster initial public offering of La Quinta (LQ), which proved the markets have finally had enough of the IPO tidal wave.
Further helping things along was positive business news from Alcoa (AA) and others, as well as the latest minutes from the Federal Reserve, which outlined that rate hikes aren't coming anytime soon.
That's how a rally is built, Cramer concluded, and that's how it will likely continue in Thursday's session.
The Window Closes
The initial public offering window is finally closing, Cramer told viewers, as seen in the sharp decline at the open for hotel chain La Quinta. Shares of La Quinta opened at $17 a share and almost immediately broke the IPO price, falling to $16.75 before eking out a small gain by the close of trading. This was after La Quinta lowered its initial pricing between $18 and $21 a share.
Make no mistake, La Quinta is a well-run company with good growth, Cramer said, but given the huge supply of recent IPOs the market simply cannot handle them all and has finally said "enough is enough."
Cramer explained that an overwhelming supply of new IPOs is a curse for everyone and has the ability to take the entire market lower if not corrected. He cited as recent examples Coupons.com (COUP) and Castlight Health (CSLT), which are down 29% and 52%, respectively, from their highs as two more reasons investors will begin seeing IPO deals get pulled in the coming days.
From here on out, only those select few who can get in on the IPO deals themselves will make money, Cramer concluded. Everyone else sees that betting on these deals has now become a sucker's game they're not likely to win.
What's Best for Your Buck
For Wednesday's installment of his "Best For Your Buck" series, Cramer offered up his favorite stock in the $50 to $100 a share range, and that stock is Spirit Airlines (SAVE).
After almost a decade of telling viewers to never, ever own an airline stock, Cramer said he's become a big fan of the airlines thanks to consolidation that has eliminated the cut-throat competition and left only three major carriers in the U.S.
But unlike the majors, Spirit is an ultra-low cost operator with a $4.2 billion market cap. The company has just 55 planes with a 1.4% market share, but also big plans to grow aggressively.
Spirit remained in the black while many airlines went bankrupt, thanks to disciplined operations that keep its planes in the air longer and have more seats per flight, Cramer continued. That explains why shares are up 149% over the past 13 months since Cramer first got behind the stock.
Executive Decision: James Morgan
For his "Executive Decision" segment, Cramer spoke with James Morgan, chairman, president and CEO of Krispy Kreme Doughnuts (KKD), a stock that's been on the decline since December when the company reported slowing customer traffic and lowered its forecasts.
Morgan said there's been some misunderstanding about his company's same-store sales traffic, which wasn't as bad as many have feared. In particular, he said the company is seeing excellent results from six of its eight new concept locations, which feature a smaller footprint and better economics. Among the two that have seen disappointing results, Morgan said one has a less-than-ideal location and the other may just be early to its area.
Turning to concerns over the company's beverage performance, Morgan said he feels good about the coffee and beverage opportunities, both in-store and in the wholesale market.
When asked about growth, Morgan admitted Krispy Kreme had two very difficult quarters with tough comparisons and was saddled with very harsh winter weather at many of its locations.
Cramer said with the misunderstandings cleared up, the stock of Krispy Kreme is very inexpensive and he'd stick with it.
Executive Decision: Gary Evans
In his second "Executive Decision" segment, Cramer sat down with Gary Evans, chairman and CEO of Magnum Hunter Resources (MHR), the oil and gas driller that's up 28% since Cramer last checked in back in November.
Evans said the oil and gas business is all about location and Magnum Hunter has great acreage in both the Marcellus and Utica shale regions. He said infrastructure is also important, which is why Magnum has been one of the first to lay pipelines that, over the next three years, will be pumping a billion cubic feet of gas per day.
When asked about financing, Evans, a former banker, said Magnum sold $600 million in non-core assets last year and has another $130 million planned this year, which will give the company plenty of capital to focus on its core properties. No additional raising of capital is planned, he added.
When asked about the current price of natural gas, Evans said he loves $4 to $5 gas because many producers in the Bakken and other regions won't drill if gas is less than $5, which makes his gas all the more valuable because the company profits on anything over $2.
Cramer said that Magnum Hunter is not done going higher.
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-- Written by Scott Rutt in Washington, D.C.
To email Scott about this article, click here: Scott Rutt