Jim Cramer's Mad Money Review

On Tuesday's show Cramer gave out 5 rules for investing in the stock market. His first rule is that there is a market for everything, including the stocks themselves. He said an example was how ethanol stocks were very hot about a year ago, and then several IPOs came on the market, so there was an oversupply of ethanol stocks on the market and the entire sector went down. So the ethanol business and news didn't matter because there were too many ethanol stocks available. Cramer said another example was his recommendation of Sealy (ZZ) at its IPO where he liked the stock, but didn't realize that there was a glut of IPOs, so the IPO market was saturated and the stock tanked.
Cramer took soma calls. The first caller asked how you can know whether an IPO is a good investment or not, and Cramer said that the key is the offering price for the shares. Another caller asked if there are any sectors that Wall Street overlooks, and Cramer said that you should look for a sector that used to have 10 analysts and only has 1 or 2 now and consider that sector for a turnaround. The next caller asked about the Vonage (VG) IPO, and Cramer said that this IPO was overhyped and that they should not have let the company sell stock to its customers.
Cramer's second rule is to know what you own. Sectors don't always matter since stocks within a sector can rally without others. Industries within a sector are the key to rallies, not the sector itself. An example occurred a couple years ago when he called for a tech rally and recommended Cisco (CSCO) and Microsoft (MSFT) because they were the big tech stocks, and he should have been thinking more specifically about the gadget industry within tech, since stocks like Apple (AAPL) were up big. He also said that he wants you to do at least 1 hour of homework each week for each stock you own. He thinks you should give your money to a mutual fund if you don't have enough time.
A caller asked why you don't see big rallies in the biotech sector, and Cramer explained that biotech stocks are moved by FDA rulings, not broader industry moves. The next caller asked how to find the pin action within a sector that Cramer talks about, and he used an example where Boeing (BA) reported a great quarter, and you should look to see who makes the components of the planes they make, since their sales will rise with Boeing's. The next caller asked how to predict performance if a sector is split, like Internet search with Yahoo! (YHOO) and Google (GOOG), and Cramer said that you need to look at management and other company specific factors in that case.
Cramer's third rule is that Latin America should always be treated as a shorter term trade since Wall Street has preconceived notions about the region that prevent it from being a long term investment, and they are the ones who move the market. You should always take profits as a Latin American stock moves up so you don't get caught when the big investors move out of their trade. A caller asked how important our economy is to Chinese stocks, and Cramer said that he doesn't like to recommend Chinese stocks because he doesn't trust their economy. The other caller asked about stocks like Wal-mart (WMT) and Starbucks (SBUX) that are expanding in China, and Cramer said that Starbucks could be the next Yum! Brands (YUM) which doubled their stock price after they doubled their stores in China.
Cramer's next rule is that being a lemming is ok, but he still wants you to go your homework, but if you agree with the moves that big investors are making, then it's good to go with the momentum.
His last rule was to not be afraid to say that something is too difficult to invest or trade on. His example is restaurant same store sales, which he has been crushed on in the past since there are so many factors that contribute to the number and the reaction. He said you aren't being weak, but smart by focusing your time someplace where you can make money.

Labels: AAPL, BA, China, CSCO, GOOG, IPO, Jim Cramer, Lightning Round, Mad Money, Mad Money Lightning Round, Mad MOney Recap, MSFT, SBUX, VG, WMT, YHOO, YUM, ZZ

The New York Mercantile Exchange's IPO is one of the hottest Wall Street has seen in six years, with investors already reaping big returns as the stock's price doubled. Too bad rank-and-file retail investors didn't see much of it. Shares in the 134-year-old exchange vaulted some 125 percent on their first day of trading on the New York Stock Exchange, but hedge funds and other major institutions were expected to be among the initial public offering's biggest winners. Retail investors essentially were boxed out of owning shares of Nymex Holdings Inc., although they still have a chance to buy in the coming days as the stock price stabilizes. They can also look toward a secondary offering since the Nymex only floated 7 percent of its total shares. Still, "almost by definition the little guy gets cut out of these deals," said David Menlow of IPOfinancial.com. "They're not supposed to work that way, the playing field hasn't been leveled, and anytime you have situations of limited supply and unlimited demand somebody is going to get shut out." With an unusually hot IPO, the first wave of buying typically goes to major banks, brokerages, mutual funds, money managers, and hedge funds. Nymex rivals' CBOT Holdings Inc., Chicago Mercantile Exchange Holdings Inc., and InterContinental Exchange Inc. all have massive holdings by this class of investors. However, shares of publicly traded stock and futures exchanges are even more attractive to hedge funds. Recent consolidation among financial markets - such as the Chicago Merc's $8 billion offer to buy rival CBOT - has hedge fund managers looking to cash in if the Nymex merges with another player. Also, futures contracts like those offered on the Nymex are a popular tool used by hedge funds to diversify, betting on the price of oil, metals and other commodities. So, owning a stake in the Nymex also helps hedge funds collect back some of the fees charged them to complete these transactions. "Hedge funds are really coming after the Nymex early," said Stephen Carl, principal and head of equity trading at The Williams Capital Group. "With all this consolidation among exchanges, this kind of investment looks good to them." Nymex won't have to disclose to regulators who took large ownership stakes in their company for some weeks to come. However, funds such as Scout Capital Management, Sands Capital Management, and Marisco Capital Management are all major investors in the other futures exchanges. And, without taking advantage of the first day of trading's surge, is it even worth it for retail investors to come in this late in the game? While publicly traded stock and commodities exchanges are all the rage right now, some on Wall Street are questioning what kind of value they'd bring to a portfolio. The nation's six publicly traded exchanges currently have high price to earnings ratios, a metric that evaluates the attractiveness of a company's stock price. The high p/e ratios suggest that profit at these exchanges must remain lofty to carry the kind of stock prices they command. Shares of the company rose $73.67, or 124.9 percent, to $132.67 from their initial offering price of $59. At this price, the Nymex is trading at 73 times its annualized earnings. That's more than the Chicago Merc, which trades about 47 times its annual earnings, and the 43 times carried by IntercontinentalExchange. Further, most of the exchanges only recently went public, and lack earnings records. There's little consensus among analysts on ratings or price targets, and all the stocks are trading at or near their highs. Ed Keon, chief investment strategist with Prudential Equity Group, said investors who want to hang on to the stocks need to be prudent. "Individual investors should be cautious about buying any individual stock, and think it through carefully whether it a new IPO or a company that has traded for 100 years," he said. "You especially have to be wary of a company that's had such a big one day pop, which might make it more difficult for individual investors to assess."
Source: Mercurynews.com

Labels: Investors, IPO, NYMEX, Stocks