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Cramer: What Monday’s Housing Number Really Means

Hey, did you hear? Monday’s better-than-expected existing-home sales didn’t matter because so-called shadow inventory soon will flood the market and ruin our hopes of a recovery. So whatever you do – don’t buy any housing-related stocks.

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That’s what the bears would have you believe, but not Cramer. During today’s Mad Money, he exposed the myth of shadow inventory, telling viewers that it won’t trip up the sector’s long-awaited stabilization. His reasoning went like this:

Federal regulators aren’t demanding that the banks holding this shadow inventory dump it on the open market. As long as that’s the case, then there’s no reason to worry about it. This in turn allows the banks to keep the properties on their balance sheets and negotiate new loan terms with struggling homeowners, which slows inventory growth and helps to put a floor under housing’s decline. We’ve already seen stabilization in some of the hardest-hit areas, such as Florida and California.

Cramer wouldn’t deny the large number of mortgage defaults, but the bears that scoff at a sequential 10% jump in existing-home sales are the same people who dismiss the decrease in new builds, the rising number of American homes as a result of divorce and new children and the extension of the first-time homebuyer tax credit, all of which reduce inventory and return home prices –eventually – to an upward trajectory. No wonder the bears have missed the big moves in stocks like Whirlpool , Black & Decker , Home Depot , Bank of America , Wells Fargo and others.

Well, today’s housing number was a sign that “another big move up” is on the way for this group, Cramer said. Not the homebuilders, but the stocks related to housing. He recommended Whirlpool as a trade on it.

The best analyst covering WHR expects the company to earn $5.25 a share next year, which puts the price-to-earnings multiple at 14. But given that the existing-home sales report beat by 10%, Cramer thinks the analyst’s estimates might be off by that much. Factor in Whirlpool’s strong exposure to Latin America and there’s good reason to believe that next year’s earnings could reach $6.50 a share. If the earnings times the multiple equals the price, then this is a $90 stock masquerading at $71.41.

“That makes Whirlpool,” Cramer said, “an incredibly strong buy.”

Cramer's charitable trust owns Bank of America, Home Depot and Wells Fargo.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

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