Cramer's 'Mad Money' Recap: Price Matters More Than Earnings (Final)
NEW YORK ( TheStreet) -- When it comes to investing, there are a lot of factors to pay attention to, Jim Cramer told his "Mad Money" TV show viewers Thursday. During earnings season, perhaps the most important factor is a stock's share price. Cramer said that too many investors have been asking whether this has been a good or bad earnings season so far. The question they should be asking is whether stock prices have run up too far, or not enough, ahead of those earnings.
Case in point, Yum Brands (YUM) , a company Cramer recently sold from charitable trust Action Alerts PLUS. Cramer said that Yum delivered on every metric that mattered this quarter, yet the stock got hammered anyway. Why? Perhaps it's because shares have run up 45% so far this year, said Cramer. At that level, it doesn't matter how rosy a picture management paints, profit-taking is in order.
The same applies to IBM (IBM) , another Action Alerts PLUS name. Cramer said he took some profits in this name too ahead of the quarter, but after reading the company's spectacular earnings, he felt that was a mistake. This was, of course, until he looked at the stock price, and saw that shares immediately took a hit on the news after running up ahead of the quarter.
Cramer fav, Cypress Semiconductor (CY) , is an example of the opposite case. This stock has been performing terribly, he noted, but when earnings turned out to be less-terrible, shares shot higher by 11.8%. Insurance giant Travelers (TRV) was up in similar fashion, up 3.75%.
Price matters, Cramer reiterated. That's why shares of Peabody Energy (BTU) can spike 6% on bad earnings and why Apple (AAPL) , another Action Alerts PLUS name, can rise and fall at the drop of a hat. In the case of Peabody, the bad earnings weren't as bad as expected; with shares down 60% over the past 12 months, a rally made perfect sense. For Apple, the stock is up 75% over the past 12 months, so of course some profit-taking will be in order.
Cramer said that earnings do matter, but if the share price isn't right for those earnings, the price will be adjusted accordingly.
Executive DecisionIn the "Executive Decision" segment, Cramer sat down with Klaus Kleinfeld, chairman and CEO of Alcoa (AA) , to talk about the company's outlook as well as its many green initiatives to help the environment.
Kleinfeld mentioned the many different industries that are booming for Alcoa, starting with aerospace, where the company just raised its forecasts. He said that Boeing (BA) now has an eight-year backlog and its newest 737 jet will be made of all aluminum, which affords it a stronger, lighter frame that's 50% more fuel efficient. Autos is another bright spot for Alcoa, where the company is helping carmakers achieve 20% better fuel economy by using lighter, aluminum frames and components.