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Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday April 1.

The "Inside Baseball" on IPOs: Visa (V), Mastercard (MA)

IPOs are a great way to make money in the stock market; some generate returns of 20% to 50% in one day. As with other aspects of investing, it is crucial to know the "inside baseball" on how to trade IPOs, said Cramer.

First, it is useful to know that underwriters underprice an IPO to attract interest and to lure retail investors from the sidelines into the game. Since the most common underwriters are brokerage services which make money from individual transactions, there is a benefit to attracting a large number of investors rather than a few who will buy up a lot of shares at one time.

Visa's (V) offering in March 2008 is a good example of how IPOs are strategically underpriced. Although the IPO of Visa was an almost certain success, especially given the strong performance of Mastercard's (MA) IPO, the price was kept at a low $44. As buyers ran in, the stock jumped to $69 and, although it fell back to $56.40 by the close, Visa still gave a 28% profit to those who bought the IPO.

Another key to Visa's success was its "rationing process" through which underwriters kept strict control of the amount of stock that entered the market. The stock was parceled out to clients who wouldn't simply flip the stock, and since there was a limited number of shares, many buyers were forced to buy Visa in the aftermarket. A syndicate desk keeps track of clients who are guilty of flipping stocks and they are kept out of future deals, while retail investors are the most attractive clients, because they tend to hold on to shares.

With this in mind, Cramer said his one rule about IPOs is to avoid buying in the aftermarket, since IPOs are often bargains. If you can't get in on the deal, the general rule is to forget about it.

How to Buy an IPO: KKR (KFN), Blackstone (BX), Fortress Investment Group (FIG)

There are three things to look for when buying an IPO: the CEO, the investors and the underwriters. Of the three, ironically, the CEO might be the least important factor. The manager could be a complete unknown and yet could have an excellent, revolutionary product that will make money. However, the investor can be a major plus or a red flag. Cramer generally avoids IPOs with private equity backing. Red flags are IPOs backed by Blackstone (BX), KKR (KFN) and and Fortress Investment Group (FIG), because these firms tend to dump undesirable businesses into the open market to make money. As far as underwriters are concerned, Cramer trusts "household names" such as Goldman Sachs, Morgan Stanley and Credit Suisse because their reputations ride on the deals they oversee.

Analyzing an IPO: Heely's (HLYS), Under Armour (UA), Nike (NKE), Lululemon Athletica (LULU)

There are many things to look for when deciding whether an IPO will be successful or not: the addressable market, competition, historic growth rate versus the health of the market, profits and the product.

Cramer focused on product as one of the most important factors to consider when evaluating an IPO. For instance, when he found out about Heely's (HLYS) wheeled shoes, he decided it sounded like a fad, and made a short trade in the stock. The deal was priced at $22, went up to $30 and fell to $1 just a few short years later. However, Under Armour (UA) had an excellent track record and Cramer suggested making quick money from the IPO, taking profits and holding the rest for the long-term. UA's deal was priced at $12, jumped to $22, and is a sell at the $60, according to Cramer, because the company is making the mistake of moving into athletic footwear, which is Nike's (NKE) territory.

Lululemon Athletica (LULU) was an example of a "thrice-blessed" IPO; it was a profitable company, had a big addressable market and strong underwriter. From its $18 IPO, the stock tripled, but has since reached saturation level.

Some Trader in our DNA: Macy's (M), Caterpillar (CAT), Google (GOOG)

While "buy and hold" has been a thesis of many successful investors, in today's volatile post-crash environment, "I think we all need some trader in our DNA," Cramer said. Long-term trading involves investing in stocks with an eye toward where the stock will be in 18 months or longer and trading is way to play the near-term fluctuations in the market. While he used to prefer the former approach, Cramer thinks it might be useful to use both approaches to make money. After all, there is no doubt that a stock like Caterpillar (CAT), is more attractive at $30 than at $55 or Google (GOOG) is a better buy at $600 than at $700 the same way a consumer may rush to buy a sweater at $30 but may look elsewhere if the price tag has $55 written on it. The market right now is "Macy's on steroids," said Cramer and he recommends keeping a shopping list of attractive stocks to buy at target prices, and keep cash available to take advantage of bargains. He also urged investors to take profits when a stock has made a significant move. "This is the basis of intelligent long-term investing."

Do Your Homework

This may come as a surprise, but even though many money managers have degrees from Ivy League schools, they don't always do their homework. Just as kids have a thousand excuses for not doing homework, so-called stock "experts" may claim that fundamentals "don't matter anymore" or since information is public, it is already priced into the stock.

However, Cramer says these excuses don't hold up very well, since information gives investors a clear idea of the range a stock should be trading. Even given short-term fluctuations, stocks tend to return to their genuine value, and the only way to determine value is through doing homework. Cramer recommended doing one hour of homework per week for every company in your porftolio. Studying stocks can give even a novice investor an advantage over harried fund managers who don't take the time to review their portfolios on a regular basis; "And if that's not an edge, I don't know what an edge is."

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Jim Cramer was up 31% in 2009. Click here now to trade alongside him.

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Source: Cramer's Mad Money - All About IPOs (4/1/10)