Mad Money

Surprised by This Season’s Upside Surprises?


This earnings season investors have been shocked – shocked! – by the number of upside surprises being announced. But anyone who followed this past quarter closely, Cramer said Monday, wouldn’t be.

Surprise, Surprise

Mad Money constantly highlighted the return in consumer spending, as evidenced by the great quarters from Netflix , Deckers , Chipotle and Whirlpool , and the rebound in emerging markets that helped Caterpillar generate an earnings beat of its own. But Wall Street has been downright awed by better-then-expected performance of these companies. That’s why WHR jumped $10 today alone.

So why the disconnect? Cramer blamed the analysts. Rather than updating their earnings estimates intra-quarter as market and economic conditions change, the Street is instead sitting on its calls from the previous quarter. They extrapolate what happened then and ignore what’s happened since. This in turn has institutionalized the upside surprise, leaving investors scrambling when the earnings beat is announced.

Consider Whirlpool. For months, management has touted its acquisition of Maytag, as well as the benefits of the incentives to buy new energy-efficient washers and dryers. And Brazil has become a huge market for this company. But still WHR held an almost 10-days-to-cover short ratio. Analysts never took into account the changes, both domestic and international, since Whirlpool last reported, and the resultant short squeeze is what propelled the stock higher.

Similar stories played out in all the aforementioned stocks – DECK, NFLX, CMG – even though the moves were telegraphed in advance, Cramer said. It’s just that the analysts weren’t listening. And it ended up costing the hedge funds and other big-money investors who follow their lead.

“I don’t want that happening to you,” Cramer said.

Call Cramer: 1-800-743-CNBC

Questions for Cramer?

Questions, comments, suggestions for the Mad Money website?