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Even In an Up Market, Conservatism Can Pay

From: James Cramer
Sent: Monday, November 28, 2011 2:03 PM
To: Nicole Urken
Subject: RE: Movers

Can I see a list of the stocks that hit 52 week high today?


Nicole Urken, Mad Money Research Director

From: Nicole Urken
Sent: Monday, November 28, 2011 2:25 PM
To: James Cramer
Subject: RE: Movers

Cedar Fair (FUN), Markwest Energy (MWE), WellCare Health Plans (WCG), Papa Johns (PZZA), Spectrum Pharma (SPPI), Viropharma (VPHM), Hi-Tech Pharma (HITK), ONEOK (OKE), Panera Bread (PNRA), Altisource Portfolio (ASPS), GNC Holdings (GNC), Kinder Morgan (KMP)


From: James Cramer
Sent: Monday, November 28, 2011 3:07 PM
To: Nicole Urken
Subject: RE: Movers

52-week high list shows the stocks that have survived brutal year with aplomb. This is rare market where you don’t need excessive risk to get excessive reward. Working into top of the show


Nicole Urken, Mad Money Research Director

From: Nicole Urken
Sent: Monday, November 28, 2011 3:43PM
To: James Cramer
Subject: RE: Movers
Gotcha – and in addition to the hot stocks, chasing the new “hot” social media names hasn’t worked either…


From: James Cramer
Sent: Monday, November 28, 2011 4:03 PM
To: Nicole Urken
Subject: RE: Movers

NIGHTMARE



There is no question that the trifecta of positive news we received Wednesday support a more bullish posture: (1) The central banks announced a plan to provide liquidity to support the financial system, (2) China indicated it will loosen monetary policy by lowering the reserve requirement ratio for banks, (3) The ADP labor market report that showed private business hiring rising 206,000 in November—the largest monthly gain this year. However, the top of Monday’s “Mad Money” show—using the tool of the 52-week high list that day—revealed an important lesson for this volatile market: you can indeed reap gains from being positive. Other than speculative pharma stocks (note: a dose of speculation can be justified), dividend names dominated the 52-week high list—including three master limited partnerships—Kinder Morgan Energy Partners , Markwest Energy Partners and ONEOK —and under-the-radar dividend raiser Cedar Fair. Indeed, boring can be a winning strategy, particularly in this headline-driven market.

The “Defcon Three” strategy of this week on “Mad Money” has aimed to get investors in the defense readiness position necessary for this high degree of uncertainty. Of course, Wednesday’s news is positive, but because of the high degree of uncertainty with regard to Europe that has persisted (and continues to persist on a solvency basis), we have advocated the unfavorable risk/reward trade-off for companies that need credit, companies that do a lot of business in Europe or names with a steep valuation. And while Wednesday’s coordinated central bank efforts provide important patchwork, it is key to continue to manage your risk.

The lesson drawn from the fact revelation that a key portion of the 52-week-high list has come from more defensive names is one that can be extended to the renewed social media chatter. Murmurs of recently-IPO’d LinkedIn and Groupon offering attractive entry points have sprung up, now that both names are down 40 percent in the after-market, a decline we predicted after their initial pops. This now comes to the forefront, as we just heard that Facebook is planning an IPO next year at a level that would value the company at $100bn. Or that Zynga will kick off its IPO road show next week. There is no question that Facebook and its CEO Mark Zuckerberg have transformed the world of social media, with the company’s 800mm users presenting a compelling case for monetization. Or that Zynga is uniquely levered to the growth in social gaming. But, the intrigue of the “hot” names won’t necessarily offer the most upside.

Instead, look no further than Google , which was upgraded in a smart note by Citi on Monday. The stock remains cheap at these levels (At 12x P/E, it is near recession trough level), and it embraces the “holy trinity” of tech—social, mobile and cloud —with much run-room for growth.

It indeed is difficult to be a stock picker in this confusing market. But, if you maintain a defensive posture and pick out a couple of well-positioned names that offer strong long-term growth prospects with compelling valuations and long-term growth—like our stocking stuffers Home Depoton Monday and Tractor Supplyon Tuesday you can position yourself for upside.

The bottom line: In this embrace of conservatism that we learned from the 52-week high list, if the social media names excite you, think about Google. Revenues continue to surprise (reaccelerating +33% in 3Q)… and upside on the top line more than offsets high expense growth for this name, which is being strategically allocated.




"Inside the Madness" appears twice a week at madmoney.cnbc.com

Follow Nicole Urken on Twitter @nicoleurken

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Symbol
Price
 
Change
%Change
FUN
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HD
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KMP
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MOS
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OKE
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TSCO
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GOOGL
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GROUPON
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LINKEDIN
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