Top Stories
Top Stories

Cramer's game plan: Watch out for imperfect earnings reports

Key Points
  • "Mad Money" host Jim Cramer issues a word of caution to investors heading into the next leg of earnings season.
  • Cramer says a key market measure indicates that a correction is imminent.
  • Ahead of a week heavy with big bank earnings, even small imperfections can send stocks reeling, Cramer says.
Watch for imperfect earnings reports: Cramer

Stocks may have pulled back after weak nonfarm payroll numbers, but CNBC's Jim Cramer still noticed a somewhat dangerous rush into high-growth technology and cloud stocks.

"Does this make any sense? You know what, I don't even know anymore. Here's all I ask. The highest valued stocks are now making the big moves — 'highest valued' meaning the highest price-to-earnings, highest price-to-sales [multiples] — so I'm begging you to do something for me: if you're going to own these stocks ... please know what you're buying," the "Mad Money " host said.

Cramer pointed to an indicator that could mean trouble for the seemingly unstoppable market. The proprietary oscillator, a measure that tracks how overbought the index is, just crossed 5, a high level that often indicates that a correction is imminent.

The most important thing for investors now is to know what they own and do their homework on the stocks in their portfolios regardless of how diversified they are, Cramer said.

"I am urging you to be careful," he said. "At this point, the odds do favor a pullback. It could give you a better chance to buy. Notice I'm not saying, 'Sell.' I'm just saying I want you to be ready."

With that in mind, Cramer turned to the stocks and events he'll keep a close eye on next week:

Monday: Eyeing Europe

U.S. bond markets will be closed for Columbus Day, a historically tame day for stocks. In Europe, Cramer expects German industrial production data released Monday to be strong.

If those numbers show a meaningful pickup in momentum, that could play into a weaker U.S. dollar, the "Mad Money" host said.

Tuesday: Wal-Mart, Workday, Procter & Gamble

Wal-Mart: An analyst meeting at the retail giant must address how Wal-Mart will viably compete with Amazon through its business and online purchase offerings, Cramer said.

Workday: The company will also host a highly anticipated analyst meeting. Cramer likes the cloud play's value proposition, which is focused mainly on human capital and financial management.

Procter & Gamble: Tuesday will mark the final chapter in the drawn-out proxy battle between Procter & Gamble and activist investor Nelson Peltz, who seeks a seat on the company's board.

Shareholders will vote on whether Peltz should be added to the consumer goods giant's board. Cramer expects the stock to go down if Peltz loses, since many view him as an agent of change.

Wednesday: Kroger, Western Digital

Kroger: The string of analyst meetings continues with Kroger, which, like Wal-Mart, will also have to outline a strategy for bucking Amazon's growing influence in food retail.

"The quarters have been weak there," Cramer said. "I don't know if they've got a strategy."

Western Digital: Cramer hopes an analyst meeting at this computer storage and hardware play will shed more light on Western Digital's dealings with embattled Japanese conglomerate Toshiba, which will reportedly sell its chip business to Bail Capital instead of Western Digital.

"What I really think matters here is the pricing of their products, namely how much is Western Digital getting for its disk drives and flash memory chips," the "Mad Money" host said. "That alone could be a killer given that there's so much hot money in the stock."

Thursday: Citigroup, JPMorgan, Domino's Pizza

Citigroup: Cramer expects a healthy quarterly earnings report and good news about the bank's stock buyback initiative.

JPMorgan: The banking giant will report its quarterly earnings before the bell on Thursday. Trading at 14 times earnings, shares of the big bank are still priced too low, Cramer argued.

"If JPMorgan can break through $100 — it's at $96 and change now — then we've got some very good leadership to go to the next level. Given that most people now expect the Fed to raise [interest] rates in December, it's likely that this stock will get there on any positive commentary by CEO Jamie Dimon, " he said.

Domino's: A dip in international sales last quarter caused controversy around this delivery-meets-technology company. Cramer hopes this earnings report will prove different, but even if there is no re-acceleration in international business, he said the pullback will be small.

"I think it'll be shallow. Why? Because [CEO] Patty Doyle delivers and I don't think you want to fight the trend of Domino's, which is still very inexpensive given its humongous cash flow," Cramer said.

Friday: Bank of America, Wells Fargo

Bank of America: The wave of bank earnings will continue with a report from Bank of America, which Cramer thinks will be very strong.

"Remember, Bank of America has the biggest deposit base, so if you think that several rate hikes are in the offing — one this year, several next year — then Bank of America's probably for you," the "Mad Money" host said.

Wells Fargo: Cramer expects this scandal-ridden bank to be able to tell a good enough story in its earnings report that it may tag on to a larger bank rally, if one occurs.

Final Thoughts

"I don't want to over-dramatize my concerns here, but I have to tell you this market has been so unbelievably strong that it's natural to believe that there will be some profit-taking if the earnings aren't perfect when they start next week," Cramer said. "I'm going to be looking for places to trim, to raise cash, because I want to come into earnings season lighter than I am, so to speak. I'll be telling [] club members next week in our monthly call that you need to have some cash on hand for a decline — and a decline is what you should expect after we've become as overbought as we are at this time."

WATCH: Cramer's game plan for the banks' earnings week

Cramer's game plan: Watch out for imperfect earnings reports

Disclosure: Cramer's charitable trust owns shares of Citigroup.

Questions for Cramer?
Call Cramer: 1-800-743-CNBC

Want to take a deep dive into Cramer's world? Hit him up!
- Jim Cramer Twitter - Facebook - Instagram - Vine

Questions, comments, suggestions for the "Mad Money" website?