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Road Rules

Investing can be confusing. Luckily, Cramer has mapped out some road rules for all you Home Gamers trying to navigate the jungle that is Wall Street. Think of it as "Mad Money 101" –- some fundamental advice to keep in mind as you play the market. Whether you're a first time investor or a seasoned financier, it's always good to remember the basics.

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Feb.11

6:58 PM ET

Monday, 11 Feb 2008

Cramer’s Rules for Restaurant Investing

Posted By:Tom Brennan

Topics:Stock Picks | Stock Market

Sectors:Food and Beverage

Companies:Darden Restaurants Inc | McDonalds Corp

You need more than just one month’s worth of data when trading restaurant stocks, Cramer said Monday. One small stat rarely paints an accurate picture of the overall business, and you can lose money if you think it does.

Investors who trusted Bear Stearns’ recent McDonald’s [MCD Loading... () ] downgrade probably learned this lesson the hard way. Bear knocked MCD down a rung to "peer perform" from "outperform" on Jan. 29 after December same-store sales came in below expectations, even though the fast-food chain’s fourth quarter was solid. The negativity hurt the share price – that is, until January same-store sales last Friday showed 5.7% growth. Now MCD is up about $6 since the reaction to the Bear Stearns downgrade.

Not only did Bear ignore one of Cramer’s rules for investing, the firm ignored on key fact about McDonald’s: The company’s enjoying some fantastic growth overseas. So weak U.S. sales wouldn’t cut into MCD’s bottom line as much as expected.

Something similar happened to Darden [DRI Loading... () ], parent company of Red Lobster and Olive Garden. An analyst downgraded the stock only minutes before DRI released better-than-expected guidance.

So what’s the lesson learned? When analysts abandon good companies with great stocks for bad reasons – like one scary-looking data point – you want to buy it, Cramer said. And that goes for McDonald’s right now, even though the stock’s jumped in price a bit.

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Jim's charitable trust owns McDonald's.

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