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Critical analysis of Jim Cramer’s recommendations has revealed the following:

Buying Cramer’s picks after he recommended them underperformed the broader stock market. His picks experience a “bump” relative to the market that happens faster than you could conceivably trade.

Cramer’s mid-cap and large-cap picks did not outperform the market, and “shorting the bump” would be an interesting strategy for high-frequency traders.

Cramer’s small-cap and micro-cap picks do a little better than small-cap indexes after he discusses them.

Cramer might be trying to do the impossible by making 80+ weekly stock picks. He provides entertainment, relays business news, interviews executives, and displays an encyclopedic knowledge of publicly traded companies. He is like Stone Phillips, Oprah, and Bloomberg News combined. However, these talents did not translate into alpha for his mid- and large-cap picks.

Exploiting any persistence of these effects is fairly simple: Contrarians should review large- and mid-cap stocks recommended by Cramer and consider whether there is merit to taking the opposite positions.

Here is a full list of Jim Cramer’s 83 buy and sell stock opinions from 12.19.2011 to 12.22.2011:

Ticker

Cramer's Call

Airdate

Market Cap (Millions)

P/E

P/B

P/S

KMP

Buy

12.19.2011

27897

523.56

3.65

3.43

VMC

Buy

12.19.2011

5114

0

1.32

2.02

NLY

Buy

12.19.2011

16433

8.82

1.03

4.81

COV

Buy

12.19.2011

21951

12.04

2.23

1.9

BMY

Buy

12.19.2011

59495

18.1

3.59

2.85

PFE

Buy

12.19.2011

167807

17.19

1.86

2.46

ED

Buy

12.19.2011

18154

16.66

1.43

1.38

DUK

Buy

12.19.2011

29138

15.86

1.28

1.99

YUM

Buy

12.19.2011

27183

23.15

13.66

2.25

PAA

Buy

12.19.2011

11166

17.19

2.17

0.34

INTC

Buy

12.19.2011

124245

10.56

2.71

2.41

WFR

Sell

12.19.2011

922

0

0.41

0.32

CLF

Sell

12.19.2011

9340

4.97

1.63

1.42

TXN

Sell

12.19.2011

33971

12.39

3.08

2.45

TEF

Sell

12.19.2011

78820

4.91

1.11

0.96

QUAD

Sell

12.19.2011

664

74.53

0.47

0.15

AEGN

Sell

12.19.2011

608

20.68

0.97

0.66

CHK

Sell

12.19.2011

15644

12.76

0.96

1.44

DRI

Sell

12.19.2011

6024

14.02

3.52

0.78

S

Sell

12.19.2011

6920

0

0.53

0.21

EOG

Buy

12.20.2011

26420

25.59

2.11

2.89

CLR

Buy

12.20.2011

12469

25.59

5.16

7.66

NAV

Buy

12.20.2011

2766

1.94

3.88

0.21

T

Buy

12.20.2011

177010

15.16

1.56

1.41

HBAN

Buy

12.20.2011

4882

11.3

0.9

2.42

SWK

Buy

12.20.2011

11570

18.07

1.62

1.15

USB

Buy

12.20.2011

52462

12.06

1.58

4.19

ERF

Buy

12.20.2011

4588

10.1

1.29

4.16

ETP

Buy

12.20.2011

8808

34.05

1.87

1.36

FUN

Buy

12.20.2011

1229

148

6.22

1.21

PAYX

Buy

12.20.2011

10817

20.31

7.04

5.08

TIBX

Sell

12.20.2011

3925

41.74

4.81

4.5

WHR

Sell

12.20.2011

3913

11.28

0.92

0.21

ORCL

Sell

12.20.2011

131462

14.81

3.22

3.6

NWL

Sell

12.20.2011

4655

39.22

2.46

0.8

PER

Sell

12.20.2011

#N/A

#N/A

#N/A

#N/A

CMG

Sell

12.20.2011

10496

52.23

10.51

4.87

LULU

Sell

12.20.2011

6867

42.03

13.13

7.85

CRM

Sell

12.20.2011

13331

4901

8.9

6.37

BIDU

Sell

12.20.2011

41093

45.49

19.93

20.91

PCLN

Sell

12.20.2011

23981

25.49

10.03

5.85

NFLX

Sell

12.20.2011

4020

16.5

9.83

1.37

FITB

Buy

12.21.2011

11810

11.17

0.91

2.77

HBAN

Buy

12.21.2011

4882

11.3

0.9

2.42

NLY

Buy

12.21.2011

16433

8.82

1.03

4.81

BMY

Buy

12.21.2011

59495

18.1

3.59

2.85

MRK

Buy

12.21.2011

115516

25.96

2.1

2.41

ED

Buy

12.21.2011

18154

16.66

1.43

1.38

DUK

Buy

12.21.2011

29138

15.86

1.28

1.99

CL

Buy

12.21.2011

45056

18.73

16.89

2.72

EPD

Buy

12.21.2011

40338

24.21

3.5

0.95

KMP

Buy

12.21.2011

27897

523.56

3.65

3.43

DIS

Buy

12.21.2011

67728

14.96

1.78

1.66

NKE

Buy

12.21.2011

44930

20.97

4.54

2.06

ABT

Buy

12.21.2011

87268

19.32

3.55

2.27

ZNGA

Sell

12.21.2011

#N/A

#N/A

#N/A

#N/A

LNKD

Sell

12.21.2011

6223

1275.8

15.19

14.27

RFMD

Sell

12.21.2011

1518

18.2

2.19

1.6

OLN

Sell

12.21.2011

1614

7.22

1.6

0.85

JBLU

Sell

12.21.2011

1587

20.54

0.93

0.37

CME

Sell

12.21.2011

16358

13.06

0.78

4.95

NCT

Sell

12.21.2011

515

0.76

3.06

1.75

ORCL

Sell

12.21.2011

131462

14.81

3.22

3.6

KMX

Sell

12.21.2011

6861

17.02

2.69

0.71

EMR

Sell

12.21.2011

34036

14.2

3.29

1.41

AAPL

Buy

12.22.2011

374859

14.58

4.89

3.46

ASH

Buy

12.22.2011

4508

113.16

1.09

0.69

EOG

Buy

12.22.2011

26420

25.59

2.11

2.89

ESV

Buy

12.22.2011

11252

17.24

1.05

5

FLR

Buy

12.22.2011

8609

16.11

2.61

0.38

GOOG

Buy

12.22.2011

205068

21.58

3.74

5.73

IYR

Buy

12.22.2011

3178

0

0

0

KO

Buy

12.22.2011

158850

12.88

4.78

3.45

MX

Buy

12.22.2011

289

31.91

1.81

0.37

SLB

Buy

12.22.2011

92795

21.47

2.95

2.46

BBY

Sell

12.22.2011

8434

8.17

1.32

0.17

BRCM

Sell

12.22.2011

16043

17.93

2.6

2.13

FGP

Sell

12.22.2011

1472

0

96.9

0.57

HANS

Sell

12.22.2011

8267

32.74

8.91

5.13

HGG

Sell

12.22.2011

518

11.96

1.79

0.23

NEE

Sell

12.22.2011

25458

16.6

1.71

1.71

ORCL

Sell

12.22.2011

131462

14.81

3.22

3.6

RSH

Sell

12.22.2011

979

9.91

1.23

0.23

From this week’s large- and mid-cap picks, KMP, ETP, CLF, TEF, and BBY are challenged.

What could an investor expect from these three picks? We can model total returns over a three-year holding period for each of these stocks. (I use a 3-year holding period since above-average growth estimates are not reliable further out.) Giving Cramer the benefit of the doubt for buy recommendations, the stock is assumed to be sold at a generous growth stock price to earnings multiple of 17 and the maximum of historical and analyst estimate values for earnings growth are assumed. On the contrary, we will use more conservative values to give Cramer the benefit of the doubt for his sell recommendations. For his sell calls, a bargain value stock price to earnings multiple of 10 and the minimum of historical and analyst estimates values for earnings growth are assumed. These assumptions are used to project an annualized total return over the next three years and terminal price-to-earnings ratios, that is, price paid today divided by earnings at the end of the holding period for each stock:

3 Years Growth

Ticker

Cramer

g (past)

g (future)

Terminal P/E

Annualized Return

KMP

Buy

-2.3%

7.9%

417.2

-65.0%

ETP

Buy

-13.8%

16.7%

21.4

-5.1%

CLF

Sell

25.0%

13.1%

3.44

43.6%

TEF

Sell

20.4%

-0.9%

5.04

30.6%

BBY

Sell

6.3%

7.7%

6.81

14.7%

Even with assumptions that would favor Cramer’s sell recommendations for Cliffs Natural Resources Inc. (CLF), Telefonica, S.A. (TEF), and Best Buy Co. Inc. (BBY), these sell recommendations cannot be supported given attractive current valuations. Indeed, terrible scenarios look good for these stocks: holding these stocks through three years with the lesser of historical growth or analyst growth estimates and then selling at a bargain 10 price-to-earnings multiple would reap 43.6% and 30.6%, and 14.7% annualized returns, respectively.

In addition, Cramer’s buy recommendations for Kinder Morgan Energy Partners (KMP) and Energy Transfer Partners (ETP) are not supported rosy scenarios. Buyers of these stocks who enjoy the greater of historical growth and analyst growth estimates and are able to sell at a growth stock P/E ratio would still suffer negative total returns. Regardless of conceivable growth levels, the price is just too high for these stocks. Intrepid contrarians should research KMP and ETP as a sell picks, rather than trusting Cramer’s buy recommendation on each stock.

Bear in mind that challenging the consensus requires guts. In addition to countering Cramer, contrarians have to shut out the allure of stories, interviews in the financial media, and other distractions in order to focus on valuation.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: This article was written to provide investor information and education, and should not be construed as a guarantee or investment advice. I have no idea what your individual risk, time-horizon, and tax circumstances are: please seek the personal advice of a financial planner. This article uses third-party data and may contain approximations and errors. Please check estimates and data for yourself before investing. I repeat: this research does NOT constitute a guarantee.

Source: Countering Cramer's Recent Picks