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Cramer: The No 1 stock traders reach for as the Dow approaches 20,000

Cramer: The No 1 stock traders reach for as the Dow approaches 20,000

As the Dow Jones industrial average approached a historical new high Tuesday, Jim Cramer knew exactly what was happening behind the scenes at trading desks around the country.

It's a mad scramble to buy a big capitalization stock, especially one in the Dow like IBM that hasn't had much action.

"This environment is starting to remind me of all the great bull markets of yore, what I can clearly call my youth, when we would study the tape looking for stocks to buy that were way behind both their peers and the market," the "Mad Money" host said.

Back in those days, he would bet that the stocks would climb simply because once they were in motion, they would stay in motion. When Cramer ran his hedge fund though, he used a catalyst driven approach and looked for good news or any cue that would send a stock higher.

A round number like 20,000 also didn't matter back then.

Virginia 'Ginni' Rometty, CEO, IBM
Andrew Harrer | Bloomberg | Getty Images

"It's an atavistic index, but it's still top of mind and any money manager knows it will make the front page of the papers and your investors will see it and wonder what the heck you were doing if you didn't own an obviously winning Dow stock," Cramer said.

IBM was the perfect example of a stock Cramer would reach for. It has lagged the broader market, and it is even up 22 percent for the year. Yet, four years ago IBM was 50 points higher than it is now.

It also has a huge buyback, with the company repurchasing 500 million shares in the last decade and sells at just a mere 12 times earnings. IBM is also transforming itself into more of a cloud play, and its last quarter unveiled good acceleration in artificial intelligence.

"It would be a huge beneficiary of Trump's proposed lower corporate tax rates. It is a terrific play on a stronger economy, and IBM's got the backing of Warren Buffett," Cramer said.

Newer hedge fund managers and analysts just don't get it anymore, Cramer said. They don't get the concept of buying a stock that is lagging behind the market. They only focus on how IBM has disappointed repeatedly.

Cramer argued that if growth is going to accelerate globally, a company like IBM will have an immediate improvement to its top line.

Additionally, he thinks it is unlikely that IBM will pre-announce a shortfall, and 15 out of 26 analysts have a "hold" rating on the stock. Four have a sell so there are a lot of people that could upgrade.

Cramer hasn't seen this kind of activity since the old days in the 1990s, and he says it's real, and it's been happening every day since the Trump rally began.

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