Mad Money

Cramer: Apple is ready for a downgrade

Cramer: Apple too cheap to sell

Investors are always enamored by growth, and sometimes are willing to pay anything for it. However, in Jim Cramer's opinion—beauty is only growth deep, and that's how the averages plunged on Tuesday.

"Anything more substantive than that, anything that represents, say, value, quickly takes on the appearance of being worthless," the "Mad Money" host said.

Sometimes that truth can be painful, as was the case with four stocks that moved the Dow Jones industrial average down on Tuesday. United Technologies and IBM took a chunk out of the Dow during the day, and then Apple and Microsoft in after-hours trading.

United was once considered the bluest of the blue chips, and Cramer knew he could always count on it to deliver good numbers regardless if they came from aerospace, defense, heating, ventilation or Otis elevators. It always seemed to pull itself together.

"The mosaic always worked, and the disappointment wasn't in the vocabulary. Now, frankly, it's the language I've come to expect from United Technologies, as pretty much every single division disappointed, with Otis being particular egregious," Cramer said.

Customers looking at an Apple Watch in an Apple store in New York.
Mike Segar | Reuters

But to really point to a hated stock, Cramer looked to IBM. The tech titan was clobbered on Tuesday as it continues to transition to growth from value, and executives tossed around buzzwords like cloud, big data and cognitive intelligence, while avoiding legacy language.

In Cramer's opinion, the company is making progress, and the strategic imperative businesses are delivering some great growth. But the good part of the company just can't seem to outshine the decline in legacy businesses. It's in a real bind right now.

In fact, Cramer could argue that money could be spent much better on paying up for some big acquisitions to expand its cloud and big data offerings instantly. Service Now, Tableau or Splunk perhaps? But Warren Buffet loves buybacks, dividends and management, and that means embracing value, not growth.

After the bell, Apple reported, and Cramer still thinks the stock is incredibly cheap, trading at just 13 times earnings. But that is because investors are always worried that iPhone sales will be slower than expected, and on Tuesday they actually were slower.

The wave of investor shock took down any stock related to Apple, such as Avago and Skyworks. How low can it go?

"Tug of war. I say own it, don't trade it; the stock's too cheap to sell, but be ready for some downgrades based on a 3 million iPhone shortfall," Cramer said.

Read more from Mad Money with Jim Cramer
Cramer Remix: When to take a bite out of Apple
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Microsoft also had down revenues, but much of that pertained to currency and making adjustments to higher value added business for the cloud. However, its link to PCs still hurt the company, along with its Nokia write-off, which was bigger than expected.

GoPro rallied largely on its reported number, then fell on Apple's disappointing iPhone sales, and then soared again once investors figured out that its future numbers have nothing to do with Apple at all.

"This market has a double standard. If you have super growth then your stock will be rewarded with a super-premium valuation like GoPro or Chipotle. No price is too high for the priceless. But if your stock represents value then it's just plain valueless," Cramer added.

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