Cramer: Good Companies Are Horrible Shorts

NEW YORK (Real Money) -- If you are running a hedge fund you live to find a short idea that might produce sharply worse-than-expected earnings. You pray that the CEO is upfront on the call and just outright says the quarter was disappointing. You want to see terrible earnings, weak sales and slipping gross margins.

In short, you wanted to be short the stock of General Mills (GIS), the cereal company, the breakfast of short-selling champions everywhere, because of its recently fessed-up to -- admittedly subpar -- quarter.

Yet how has the stock done since CEO Ken Powell put right up top in its release, "Our sales and operating profits were disappointing"?

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Sure it got hit, falling from $53.70 to $51.70 in a single day. But now, amazingly, it's coming right back, closing at $53 last night.

You have to ask yourself how this can be. How can a company that has 1% growth in sales and a decline of 2% in profits, a company that admits to falling prey to rising inflation and promotional spending that wasn't effective, not have a stock that gets hammered and stays hammered?

How about because the company returned $2.7 billion in cash to shareholders in the last year in the form of a 17% dividend hike and a purchase of 36 million shares in the open market?

How about because this company gives you a 3% yield, much better than Treasuries, after taxes? How about that it announced that it will do a big restructuring and cost-cutting that will presumably produce even more free cash flow for more stock buying and dividend boosting?

Yep, in this market it's hard to keep a good stock down. Nor is General Mills that much of an aberration. Unless an analyst very specifically says that a dividend is in question, or a CEO says the company's doing its best to preserve the dividend, a quality name brand stock just doesn't get rocked the way it used to.

Consider General Motors (GM), a stock I like very much and which is owned by my charitable trust. We have been buying it consistently on the way down, in part because it has huge cash flow -- more than enough to be able to boost that already outsized dividend if the board wants to, despite the recall charges. As long as that dividend remains unquestioned -- and I don't know a soul who does question it -- the darned stock seemed to be able to withstand pretty much everything the market could throw at it. Now that it turns out the sales are terrific, it's gone from what seemed to be a lay-up decliner to an outright frightening short.

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