Cramer: Buy or Sell?—Your Portfolio Going Into 2011

With the end of 2010 fast approaching, and especially in this precarious environment for the markets, investors need to decide which stocks to keep and which to sell. Because we’ve all got losers in our respective portfolios. The only question is whether you cash out of those failed investments or double down in expectation of a rebound.

Whatever you decide, though, “nothing is dumber than succumbing to the mood of the crowd,” Cramer said Tuesday. “While nothing’s smarter than sometimes going against it, as long as the facts are on your side.”

Here are four examples, two a piece, of how Cramer epitomized each case. Maybe you can learn from the success and mistakes he made with his charitable trust when reviewing your own portfolio before the New Year.

First, MedcoHealth Solutions . Despite being a major player—one of just two with CVS Caremark —in the pharmacy benefit management space, a key business right now as the government seeks to rein in health-care costs, the Street sold this stock on what it saw as a disappointing quarter reported in July. MHS dropped to $43 from $54 “almost immediately,” Cramer said, as panic built on top of panic and investors cleared out. Also, a head-and-shoulders pattern in the chart of MHS’s action between 2007 and just after that report, which technical analysts believe is a bearish sign for any stock, only seemed to make matters worse.

Cramer wasn’t sure what all the fuss was about, though, because while there was going to be a lull in drugs going generic in early 2011, which is how Medco makes its money, the decline would have brought the company’s long-term growth rate to just 15% from 20%.

“Still very respectable,” he said.

Plus, Medco continues to work as a play on the lowering of health-care costs, regardless of the going trend in generics. That thesis is still intact. And CEO David Snow during a Mad Money interview upped his earnings estimates for the coming quarter. But for some reason, the stock languished near its 52-week low.

Given the fundamental case for MHS, that low wasn’t the time to sell, Cramer said, it was the time to buy, because the share price has steadily risen throughout September. And that new pattern, when you look at the chart going back to 2006, has eliminated the previously mentioned head-and-shoulders pattern.

So with the stock selling at a mere 12.5 times next year’s earnings on a 16.8% long-term growth rate, Cramer thinks MedcoHealth right now is just too cheap. He said this one’s a buy, and he’s been doing just that for his charitable trust all the way back up.

Investors fled Teva Pharmaceutical in a similar way as well. This time because of speculation from hedge funds and an analyst that the company’s industry-leading multiple sclerosis treatment, Copaxone, was threatened by both generic and branded drugs. The stock dipped to $47 from $54 on the news and, again, a head-and-shoulders pattern in the chart.

But Cramer did the research and found no fundamental reasons for abandoning Teva. He chalked up the move lower to a typical bear raid by the hedge funds and, like Medco, bought more. Sure enough, there have been multiple upgrades of the stock since then, and Teva is up more than $7. And also like Medco, Teva’s chart, too, has now changed from its head-and-shoulders pattern to a “pullback and rally monster” pattern, Cramer said, “befitting of a 14% grower that’s now selling at 12 times earnings.”

What about the losers, though? Cramer let the so-called “wisdom of the crowd” get the better of him with Goldman Sachs and BP . The former was under enormous pressure as both the government and public focused their rage on the company, leading Cramer’s charitable trust to sell it. Unfortunately for him, GS is up 20 points since then.

BP, meanwhile, was another investment overwrought with negativity, which is why Cramer’s charitable trust dumped it as well. And while he hasn’t missed much upside in the stock, the message here in the same: He let public opinion guide his decision-making, and you just can’t do that.

When this story published, Cramer’s charitable trust owned MedcoHealth Solutions and Teva Pharmaceutical.

Call Cramer: 1-800-743-CNBC

Questions for Cramer?

Questions, comments, suggestions for the Mad Money website?