Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Monday June 26. Click on a stock ticker for more analysis:
Note: This program is a replay of the Mad Money In-Depth program which aired on 2/24/06. There is no 'Lightning Round'.
Do Your Homework
Cramer outlines some basic guidelines for smart investing: get to know the company and practice some self-scrutiny. Before picking up a stock, it is necessary to do one's homework and to be honest about mistakes if dumping a stock is required. For a diversified portfolio, Cramer recommends buying a minimum of five companies and a maximum of ten, and to ensure that not more than 20% is from one particular sector. One of Cramer's favorite strategies is constant maneuvering: selling a stock when it is high and buying it back when it is low. He recommends pure trades only when there is a clear entrance and exit strategy, and external factors that will move the stock. Finally, Cramer reiterates his slogan: "Bulls make money, bears make money, pigs get slaughtered."
Beware of Debt
Cramer cautions against investing in companies with high levels of debt, in most cases, but cites examples of "acceptable" debt. Retailers, cable companies and airlines sometimes require a certain amount of debt to run their businesses, but if the books are not well balanced, a company can wind up in bankruptcy and leave the shareholder with nothing. Cramer suggests buying a stock that is emerging from bankruptcy only if the trustee's report indicates that the stock is worth something, but he has never met success in these cases.
When doing research on a certain company, Cramer recommends taking a look at SEC filings, including the quarterly reports. Analysts' reports may cost some money, but are often worth it. Finally, Cramer says that the best way to find out about a stock is to look at the quarterly conference call following with the earnings report. This information used to be available to the privileged few, but now almost anyone can become as knowledgeable as an analyst. [Editor's note: Cramer didn't mention it, but the reason why conference calls transcripts are now available to everyone is that Seeking Alpha publishes them for free! To get a transcript of a particular company, just type its ticker symbol into the search box above.]
To judge the fitness of a company, an investor needs to look at revenue growth and earnings. Cramer suggests that young companies should be judged based on growth, older companies should show solid profits, and mature companies should produce cash flow and pay solid dividends. Gross margins, which indicates how much of the company's sales can be turned into earnings, are also important to consider, and usually depend on how competitive the market is; usually less competition means a higher gross margin. Cramer advises that an investor should know the key metric of a particular kind of stock (i.e. the key metric of a hotel stock is average revenue per room) and compare this figure with data from competitors. Cramer sites other factors to pay attention to before investing, such as GDP, retail sales and employment growth.
Seeking Alpha publishes a summary of Jim Cramer's stock picks every day!