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Wall Street’s Great Expectations (and How to Play Them)

General Mills right now may run a much stronger business than Procter & Gamble, but that didn’t matter to investors on Thursday. They rewarded General Mill’s superior execution with a mere 36-cent bump but pushed up P&G a healthy $2.28, or 4%, to just over $56. The latter’s move accounted for 17 of the Dow’s 80-point gain today. Why?

It’s all about expectations.

“They trump pretty much everything else out there,” Cramer said, “when you’re trying to forecast short-term gains.”

Wall Street likes to be surprised, and that’s just what Procter offered on Thursday. After reporting a disappointing quarter in August, the company announced it would meet analysts’ expectations this time around. That’s it – simply meet them – and investors swarmed to buy PG. Cramer likened it to “praising your kid for getting a B- after that last D,” but the Street always responds positively when a company breaks out of a slump.

At the same time, General Mills continued its run of outperformance by pre-announcing a better-than-expected number for the quarter. Here’s an A student telling us that we should expect yet another A and what does Wall Street do? It yawns. GIS spent most of the day in the red and then later rallied for pennies only when much of the rest of the market sprang to life.

He, too, is bullish on P&G, pointing to the company’s weak-dollar exposure and lower commodity costs. Cramer also likes the 3.2% dividend yield. General Mills, on the other hand, is more likely to acquire than be acquired in the mergers-and-acquisitions market, and the stock already has run up on continued takeover talk after Kraft Foods’ bid for Cadbury. Given that, he doesn’t think GIS “has much juice.”

The bottom line for Mad Money viewers, though, is that Wall Street pans the expected but rewards the unexpected. Today’s action in PG and GIS was a perfect example.

“Remember,” Cramer said, “on Wall Street we bet on the kid at the bottom of the class who is making progress, not the A+ champ at the top who has nowhere higher to go.”

Right now that kid is Procter & Gamble.

Cramer’s charitable trust owns Procter & Gamble.

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