Investment

» SteveT - Cramer's 'Mad Money' Recap: School of Stock

Editor's note: This is a recap of a broadcast that aired on Oct. 4.

Investor, Know Thyself

Good investing isn't a game. You have to make plans and stick to them to be successful, said Jim Cramer on his "Mad Money" TV show.

You need to understand what you are buying and why you are buying it. Without that understanding, you will lose money, said Cramer.

Additionally, don't lie to yourself when you're wrong, he said. That only compounds the problem. When you're wrong, you need to recognize it quickly. Don't let hope creep in or give yourself the benefit of the doubt. If you're wrong, sell the stock and find something new.

"Hope has no place," said Cramer. "If you can't be honest with yourself, you can't make a dime."

Cramer recommends only buying stocks you have the time and the inclination to research and follow. "Buy and homework," says Cramer.

For a diversified portfolio, he recommends a minimum of five stocks and maximum of 10. Cramer's rule for diversification also includes having no more than 20% of your portfolio in a particular sector. That means if you have five stocks, you should own, for example, no more than one tech stock, one oil stock, one health care stock, one defense stock, etc.

Cramer's method of managing his portfolio involves trading around investment positions. He likes to sell some of an investment if it goes up too much and buy it back lower, always keeping a core position in the stock.

Cramer will only make pure trades if he has a clear entrance strategy, a clear exit strategy, a defined time frame and catalysts to propel the stock.

How should one decide when to sell? Cramer follows the mantra: Bulls make money, bears make money, pigs get slaughtered.

If you have a stock that has a good gain, take some off the table so that you're playing with the house's money, and let the rest run.

Ground Those Airlines

So, how does one decide which companies are good and which companies are bad? It takes having a rubric and rigor, said Cramer.

The first step is to be sure you're investing in companies that make money and do not have a lot of debt, said Cramer.

Debt is often overlooked, he said, but you have to pay attention to it to accurately value a stock.

The reason is, he said, a company with too much debt may not be able to pay its bills if its business gets into trouble. And, your stock is collateral for the company's debt.

"Debt matters," said Cramer. "Lots of debt can strangle a healthy business." If the company goes bankrupt, the shareholders usually wind up with nothing. People who own the debt, "get first dibs to cannibalize the company," he said.

All debt isn't necessarily bad, said Cramer, but you need to be careful with it. For example, retailers often take on debt in the fourth quarter to buy merchandise for the holiday season. That's acceptable, said Cramer, as long as sales turn out to be good.

Cable companies might need to take on debt to finance building their networks. That's understandable, said Cramer.

Airlines take on debt to buy expensive planes. That too is understandable, he said, adding, however, that he would never recommend investing in an airline.

Cramer said it is only wise to invest in companies emerging from bankruptcy if you've read the bankruptcy trustee's report to find out if the common stock is worth anything.

Cramer says he's rarely done well investing in such a situation, however.

Heed the Conference Call

There's a lot more homework involved in judging a company than just looking at debt, said Cramer. He recommends budgeting an hour a week per stock for homework.

By homework, Cramer means reading the company's SEC filings, available at www.sec.gov. Pay special attention to the quarterly and annual reports, he said.

Cramer also recommends reading analysts' reports. Most are also available via the Internet. Although sometimes you have to pay for the reports, most of the time, it's worth it, said Cramer.

Finally, the "holy grail" of homework, said Cramer, is the quarterly earnings conference call held in conjunction with the company's release of its quarterly earnings report. Conference calls can be listened to via the Web, and transcripts are often available after the call.

Regulation FD has gone a long way toward leveling the playing field for individual investors, said Cramer. Whereas the best information used to only be available to the wealthiest and the most well-connected investors, Regulation FD dictates that all investors should have equal and simultaneous access to information.

Thus, it's possible, if you have the time and the inclination, said Cramer, to do work that is equal to or better than that of Wall Street analysts.

However, if you don't have the time and inclination, you should have a professional do that work for you.
Tons of Metrics

In order to tell how a company is doing, you need to know how fast a company is growing, which is measured by revenue growth (sometimes called sales growth), and how profitable a company is, which is measured by earnings, said Cramer.

For a young company, revenue growth should be rapid, he said. An older company should have healthy profits, some of which can be turned into dividends. A really mature company should maximize cash flow and return that cash in some way to shareholders.

Also pay attention to gross margin, which is a measure of how much of a company's sales are available to be turned into earnings. Things that give clues about gross margin are how much competition a company has, how expensive the company's products are to make and the cost of doing business in general.

Companies that have little competition will have a higher gross margin. Companies experiencing an increase in demand for their products should see gross margin going up. Companies whose costs for raw material are going up should see gross margin go down.

Know which industry-specific metric is important to be able to judge a company, said Cramer. For a cable company, the key metric is enterprise value (market cap plus debt) divided by the number of subscribers.

For a hotel, the key metric is average revenue per room. For airlines, it's average revenue per seat. For retailers and restaurants, the key metric is same-store sales. For tech stocks, it's gross margin per product sold. For financial stocks, it's net interest margin, i.e., how much money was made on each dollar the financial institution had in assets.

Once you know the key metric, compare it with the company's peers. The retailer with the best same-store sales, for example, is the one you want to own, said Cramer. Similarly, you want to own the tech stock with the best gross margin, he said.

As for leading economic indicators, Cramer said the conventional wisdom is to pay attention to GDP, retail sales and employment growth. However, Cramer likes to pay attention to companies on the front lines of the economy.

If those companies are saying that inventories are up and gross margin is down, for example, Cramer would expect a slowdown in the economy even though the more conventional, leading economic indicators might not yet be signaling one.

-- posted by SteveT

» SteveT - Where Are the Bubble Blowhards on CME?

http://www.thestreet.com/_tscs/comment/i...

By Jim Cramer
RealMoney.com Columnist
3/3/2006 8:26 AM EST

This column was originally published on RealMoney on March 2 at 12:26 p.m. EST. It's being republished as a bonus for TheStreet.com readers.

The bull market in exchanges seems to be in gear no matter what. I know people who are short CBOT Holdings (BOT:NYSE) and Chicago Mercantile Holdings (CME:NYSE) and they have pretty much run out of reasons to send me about why they should go lower. The momentum has just swept them up.

And you know what I find so amusing? Despite the unbelievable run in CME, nobody even doubts the valuation. You hear incredible chatter, particularly in the news media about how Google (GOOG:Nasdaq) at $300 is a "return" to the dot-com days of 1999. Someone mentions that peg at least once a day.

But how about CME? Here's a stock that is valued at the exact same forward multiple as Google but is growing at about half the pace. Why doesn't someone comment on how wrong that might be? Plus, at $438, it has that same kind of dot-com feel, a stock that goes to the moon just like so many of the 1999 vintages.

Of course, GOOG isn't at all like the crummy stuff that traded in the $300s and $400s in 1999. This company has strong earnings, stronger than CME. But the legacy of the dot-com crash is still very much with the hairsuit media. The media still feel incredibly guilty for the cheerleading during that period, even the ones who weren't cheerleaders.

One of the reason I received so much attention for my GOOG calls at CNBC was that I was obviously and allegedly courting dot-com disaster. But as I have always pointed out, the reason why the dot-coms could trade as high as they did -- other than the limited float -- is that the governing metrics weren't earnings and sales, but eyeballs and page views and a sense that some companies were going to be the next big things. Of course, it turned out that Yahoo! (YHOO:Nasdaq) was the only real one, but so be it.

So, I am demanding equal time for the farcical with CME, a stock and a company I like very much, but one that is far more out of control than Google is ... and nobody cares!

At the time of publication, Cramer was long Yahoo!.

Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS. Listen to Cramer's RealMoney Radio show on your computer; just click here. Watch Cramer on "Mad Money" at 6 p.m. ET weeknights on CNBC. Click here to order Cramer's latest book, "Real Money: Sane Investing in an Insane World," click here to get his second book, "You Got Screwed!" and click here to order Cramer's autobiography, "Confessions of a Street Addict." While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column by clicking here.

TheStreet.com has a revenue-sharing relationship with Traders' Library under which it receives a portion of the revenue from Traders' Library purchases by customers directed there from TheStreet.com.

-- posted by SteveT

» SteveT - Cramer's 'Mad Money' Recap: Rebound Strategy

http://www.thestreet.com/_tscnav/funds/m...


Friday's show was "not about stocks, but about strategy," Jim Cramer told viewers of his "Mad Money" TV show Friday.

He highlighted three stocks for which he's been waiting on a pullback so that they'd be cheap enough to buy, "stocks we've been waiting for a pullback on to do a 'mon back.*"

With the "big bad employment number out of the way," everyone is looking to buy stocks because it's like an "all-clear siren" has been sounded, he said; the market has been miserable as traders waited to see how the February payroll report would play out.

Now everyone wants stocks that were put on sale when the market was getting crushed and everything got cheap, but Cramer said that it's essential to buy only the best stocks in order to make a lot of money when the market goes higher.

Plus, since next week is options expiration week and the March expiration has a history of going higher, he believes money is sure to be made.

But to trade like a pro, you need to know what's been marked down because it's bad and what fell because it was crushed by bad sentiment.

Cramer said that a winner is a company that reported a great quarter, whose stock went up and then was brought down because the market turned down.
1. Martek Biosciences

Martek Biosciences (MATK:Nasdaq - news - research - Cramer's Take), is one such company, he said, even though he has earlier been bearish on the name.

True, the company has been plagued by inconsistent performance, Cramer said, but this time he believes things are different.

The company's last quarter was excellent and, he said, it could deliver many more good quarters in the future.

The company is a pioneer in the development of micro algae, which is added to foods to make them more healthful, he said, and it just got a contract to add its product to infant formula for Wal-Mart (WMT:NYSE - news - research - Cramer's Take).

While it's not a sure thing, he believes the company could also work with companies including Wyeth (WYE:NYSE - news - research - Cramer's Take), Nestle and Abbott (ABT:NYSE - news - research - Cramer's Take).

2. Finisar

Cramer said that Finisar (FNSR:Nasdaq - news - research - Cramer's Take) is another stock ready to bounce now that the market has turned higher.

The company is part of the fiber optic subsystems and testing business that includes JDSU (JDSU:Nasdaq - news - research - Cramer's Take) and it just reported a "monster quarter."

The stock spiked from near $2.50 to close to $5, Cramer said, but this doesn't mean that we've missed out.

The company is in a sector that is in bull market mode for the first time in years, he said, and while the recent run higher might look huge, it looks insignificant given the fact that the stock tanked with the tech bust and has been dead in the water for years until this week.

Finisar has room to go a lot higher from here, he said, and now a pullback is upon us.

The stock has come down from $4.75 to close Friday at $4.27, he said, and it's time to start buying here.

Don't buy all your position, he said, so if it goes down a little more on Tuesday you can back up the truck and load up.

The said the stock could "do a little backing and filling" but then he said it could fly.
3. Qualcomm

In his hunt for best-of-breed "rebound stocks" that are a real bargains, Cramer also found Qualcom (QCOM:Nasdaq - news - research - Cramer's Take), which he owns for his ActionAlerts PLUS charitable trust.

"It's a stock I think you'd be a fool not to own," he said, and in the "midst of the tumult" it substantially raised its guidance.

Qualcomm is a pioneer in CDMA technology, the most widely used and perhaps the best cell-phone technology out there, Cramer said. Plus, he said the company has seen very strong growth in wireless worldwide, especially in Europe and India.

"It's one of the best stories out there," he said, adding that investors rarely get an opportunity to buy a stock this good that has been knocked down for bad reasons.

Viewer Questions

A viewer wanted to know why said Broadcom (BRCM:Nasdaq - news - research - Cramer's Take) is getting hammered despite the fact that it looks like a good story. Cramer said that all the expensive stocks have gotten hit by profit-taking because this is not a market that favors high multiples.

We've seen Google (GOOG:Nasdaq - news - research - Cramer's Take), Broadcom and Marvell (MRVL:Nasdaq - news - research - Cramer's Take) come down as people ring the register, even if the fundamentals are good, he said. Cramer believes that Broadcom is still a good stock but warned that the viewer may have to "take a little more pain."

Cramer said that it would be foolish to think that Blockbuster (BBI:NYSE - news - research - Cramer's Take) is a buy under any circumstances, even though a viewer pointed out that the company has brought back late fees and increased its profit.

And even though a viewer pointed out that Middleby's (MIDD:Nasdaq - news - research - Cramer's Take) fundamentals look shaky to him, Cramer said that Middleby -- a company he featured on Wednesday's show -- is a growth stock, and he believes its earnings will come through.
Lightning Round

Cramer was bullish on Motorola (MOT:NYSE - news - research - Cramer's Take), Pan American Silver (PAAS:Nasdaq - news - research - Cramer's Take), Corning (GLW:NYSE - news - research - Cramer's Take), St. Jude Medical (STJ:NYSE - news - research - Cramer's Take), UnitedHealth Group (UNH:NYSE - news - research - Cramer's Take), Genentech (DNA:NYSE - news - research - Cramer's Take), Rackable Systems (RACK:Nasdaq - news - research - Cramer's Take), DuPont (DD:NYSE - news - research - Cramer's Take), Taiwan Semiconductor (TSM:NYSE ADR - news - research - Cramer's Take), Micron Technology (MU:NYSE - news - research - Cramer's Take) and Broadcom (BRCM:Nasdaq - news - research - Cramer's Take).

Cramer was bearish on: JetBlue Airways (JBLU:Nasdaq - news - research - Cramer's Take), New Century Financial (NEW:NYSE - news - research - Cramer's Take), Silver Wheaton (SLW:Amex - news - research - Cramer's Take), Lucent (LU:NYSE - news - research - Cramer's Take), Nuance Communications (NUAN:Nasdaq - news - research - Cramer's Take), Texas Regional Bancshares (TRBS:Nasdaq - news - research - Cramer's Take), Lyondell Chemical (LYO:NYSE - news - research - Cramer's Take), PDL BioPharma (PDLI:Nasdaq - news - research - Cramer's Take) and Microsemi (MSCC:Nasdaq - news - research - Cramer's Take).

-- posted by SteveT

» SteveT - Pretty Much Alone on FNSR??

In response to Pretty Much Alone on FNSR?? posted by Kirk:

I'm feeling very fortunate. I sold some GGR at the end of June and used to cash to buy FNSR August 18th and beat your price by a penny. BTW with FNSR I am on house money now

-- posted by SteveT