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Cramer’s Strategy to Avoid Disappointing Stocks

Chipotle restaurant
Source: Chipotle.com
Chipotle restaurant

If ever there was an ugly earnings season, it was this one.

Although most companies beat estimates, profits were dismal and forecasts even worse. In an environment such as this, how can you possibly put money to work in stocks?

"Management doesn't conquer all, but boy it can conquer a lot," said Jim Cramer.

And identifying companies with strong managements, Cramer thinks, is a critical component as investors decide which stocks to buy – and which to avoid.

According to Cramer the proof is in the pudding – or at least the proof is in the latest results from Home Depot and Dick's Sporting Goods.

"Much of what was good this quarter can be placed right at the feet of the people who run these companies, Frank Blake and Ed Stack, two remarkable CEOs that are worthy of exuberant praise," said Cramer.

In the case of Home Depot, the Mad Money host said to note the 2.9% increase in average ticket price, to $54.55, an important metric because it suggests that shoppers are spending more at the store than they did before. And the average number of customers shopping at Home Depot showed a hefty increase, too. Read More: "Home Depot Earnings Beat, Raises Outlook"

"However, CEO Blake took no credit whatsoever for the amazing numbers. Instead he said the strength was because of the start of the path of healing of the housing market," Cramer said,

What Blake didn't point out, but Cramer will, is that Home Depot performed incredibly well when the housing market was awful.

"These numbers should be put in the context of the consistency that Home Depot's given you during the entire Blake reign," he said. In other words, the company is executing well due to strong management. Year to date Home Depot has climbed 50%.

Dick's, said Cramer, is a similar story.

Typically when things are slowing down in the economy people don't buy expensive sneakers or luxury sporting goods.

"But CEO Stack, at Dick's triumphed over the suddenly beleaguered consumer and delivered a terrific 5% comparable store gain and forecast more good things ahead," said Cramer.

And again, Cramer said, he puts that level of performance at the feet of management, "because a somewhat related company, Cabela's, failed to deliver during this period." Read More: Dick's Sporting Goods 3Q Net Income Rises 21 Percent.

What's the bottom line?

"We've seen a ton of companies disappoint this earnings season. The common theme of the ones that haven't? Awesome management," said Cramer.


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Questions for Cramer? madmoney@cnbc.com

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