While media coverage may be reflective, Cramer said Friday, investors need to be predictive. Instead of simply reading today’s headlines, they need to figure out what the headlines will be six months from now. That’s the strategy he employed as a hedge fund manager, and he tries to teach viewers how it’s done on Mad Money.
First, foreclosures should peak, housing should bottom, and the biggest winners will be the banks. When the credit crisis was at its worse and homeowners were defaulting on their loans, their foreclosed homes weighed heavily on banks’ balance sheets. But as prices stabilize, and possibly even rise, those homes can be sold, fetching a decent market rate. That puts financials like Wells Fargo , which Cramer told viewers to consider buying, in great position for a rebound.
California, Florida, Nevada and Arizona comprise 50% of the US housing market, and they were the hardest-hit areas during the downturn. But over the past three months, prices in all four states have stabilized, and sales picked up significantly. That, too, is another reason to like certain banks, though Cramer thinks it also bodes well for NVR . This real-estate firm operates in the Washington, D.C. area, and it’s a play on increased hiring by the federal government. Cramer expects “huge upside surprises” from NVR, though he cautioned viewers to use limit orders when buying – NVR sells for $500 a share.