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Jim Cramer is no stranger to earnings season on Wall Street, and he has five key takeaways for investors to maximize gains and minimize risk as companies deliver their reports.
"These are moments when the reports come fast and furious, one after another, with headlines blaring and pre-market trading all over the place, and are among the most challenging times for investors," the "Mad Money " host said.
The first takeaway is that when a stock rallies going into earnings, it is important to remember that some investors are only in it for the quarter. That means they have the discipline to sell the stock no matter what when there is a gain — even if that happens before the actual earnings are reported.
Second, when it comes to determining a stock's reaction to its earnings report, some people are more powerful than the company itself.
When IBM reported earnings, Cramer liked the quarter. However, Sanford Bernstein analyst Toni Sacconaghi said that IBM's businesses are decelerating and it could have a difficult time making the numbers for the second half.
"Toni Sacconaghi's name might mean nothing to you, but at this particular moment he is every bit as important as IBM's CFO," Cramer said.
The next piece of advice offered by Cramer was to remember that earnings are all relative. Goldman Sachs reported a strong quarter in absolute terms, but it simply wasn't as good as JPMorgan's. Citigroup did not do as well as Goldman, but the fact is that so little was expected by Citi and so much was expected from Goldman.
"Right now I think that Citigroup is the buy given how far it has come out, but I simply don't believe that Goldman Sachs is bad, either. It's just that it's not quite good enough," Cramer said.
Fourth, Cramer reminded investors that when it is bad, it is really bad. Netflix flunked with the stock down 13 percent on Tuesday. When a stock is down that hard, there will be multiple institutions that try to get out of it. They cannot do it one day because they own too large of a position, so the sell-off can continue for multiple days.
However, when it is good, it is so good there is simply no price investors won't pay for the stock. Johnson & Johnson's earnings were that good, Cramer said.
The last takeaway was to remember that headlines can be a fake-out. The most compelling headlines for Cramer were those surrounding UnitedHealth. However, when Cramer listened to the conference call, he heard another side of the story, and he found out the quarter wasn't as perfect as it seemed.
"At this point in earnings season, the market is in non-stop grading mode," Cramer said.