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Cramer: New-Home Sales Were Good – Here's Why

The key to housing’s recovery is all about equilibrium, Cramer said during Stop Trading!, which is something the sector seems to be finding given Wednesday’s new-home sales report.

Cramer wants to see a pause in homebuilding while the existing inventory is worked off. That’s why he took the 11.3% decline in November new-home sales as a positive sign, even though it seemed to dash Wall Street’s hopes of a sustained recovery. An increase would indicate that more inventory was flooding an already crowded market, the Mad Money host said, “and that ruins the thesis.”

  • 10 Stocks to Buy Your Kids in 2010

Cramer also shrugged off the idea that inventories of new homes were growing regardless of the decline in sales. He said that home prices right now are just too low for builders to make money on additional properties.

Elsewhere in the market, the much-publicized Research in Motion BlackBerry outage could be a chance for Google’s Android. While Cramer admitted that RIM is “a loved product,” and therefore customers would be willing to cut it some slack, he said, “we’re impatient people.”

Also, Bristol-Myers Squibb’s lowered 2009 outlook was “not a real earnings decline,” Cramer said, but rather “an adjustment” from spinning off Mead Johnson Nutrition . Cramer reiterated his buy call on BMY, citing its 4.8% dividend yield, strong management and the renewed strength of big pharma now that health-care reform has turned out much tamer than expected.

Cramer also reiterated his buy call on WellPoint , saying the company could earn $6 a share in 2010. The stock, trading at just 12.7 times earnings, usually fetches a 16. Give WLP a conservative 14, Cramer said, and there’s still another potential $24 in upside.

Lastly, investors who roll over their CDs, from previously high interest rates to present low rates, are making “a very big mistake,” Cramer said. He recommended that they instead buy high-yielding stocks, such as Suburban Propane and others.

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