Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Friday November 2.
Know The Sector and the Sub-Sector
The sector that a stock is in has always been an important factor in predicting how that stock will trade, but with the proliferation of ETFs, the sector has become more important than ever. Moreover, an investor should not just look at the sector, but the sub-sector; this is important especially in tech, where semiconductors might be performing badly, but cloud plays are winning. Similarly, in retail, there is a huge difference between attitudes about high-end stores and dollar stores. One strategy to insulate oneself against sudden moves in stocks in a certain sector is to sell the ETF of a sector and buy the best stocks held by the ETF; this helps investors hedge against a sudden downturn.
Gross Margins: Beyond the Conference Call
While its earnings conference call has a huge impact on the movement of a stock, it doesn't tell the whole story. There are many things to look for beyond the conference call. One is the gross margin, or what is left after the cost of sales are subtracted. Every industry has unique factors that drive gross margins. In retail, raw costs and labor expenses have a major impact on gross margins. In tech, pricing may determine the gross margin; if a company has to radically cut prices to compete, that move will cut into the bottom line. It can be hard to figure out gross margins for oil companies, because there are many variables that affect drilling and production costs. The bottom line: If investors pay attention only to earnings, but ignore gross margins, they are not getting the whole story about a company.
Know Your Dividends
There was a time, recalls Cramer, when dividends were an afterthought. Management preferred to buy back stock to prop up the stock price. However, shareholders are no longer fooled, and now realize that buybacks are not as beneficial to them as dividends, which can provide cash or be re-invested to create a substantial nest egg. Dividends are "an out-loud declaration of long-term confidence" by a company. Cramer suggests that investors listen for news of a dividend raise during conference calls. While tech companies don't often have large yields, tech management should at least discuss a new product cycle or a significant catalyst.
Mad Mail: Cramer Answers Investing Questions.
To research a stock, investors should go to the company website and read the conference calls from the last few quarters, as well as the recent annual report. In addition, an investor should know what the analysts are saying, what kind of dividend is offered, and what is in the pipeline. Before buying, an investor should think about what warning signs would encourage getting out of the stock.
Cramer prefers puts to shorting stocks. One reason is that he confesses he was a victim of short squeezes and doesn't want to put others in the same position.
Cramer does not like covered calls because they tend to cap the upside. Limiting upside is not worth decreased risk.
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