How to Play Kimberly-Clark on Tuesday

Kimberly-Clark, maker of Kleenex, Scott, Huggies and Depends, among other products, has been “a real dog lately,” Cramer said Monday, but that doesn’t mean investors can’t trade the stock. Sometimes a laggard company like this can pop simply because expectations are so low.

That was Cramer’s thought process heading into Kimberly-Clark’s earnings report on Tuesday morning. While it was too late to trade the report itself, he said investors might be able to trade the company conference call that follows. But only if the company addresses these fundamental issues left over from last quarter’s 14-cent earnings miss:

First, management needs to reassure investors that it can pass along rising costs to consumers. Last quarter, gross margins—the percentage of every dollar of sales that becomes profit—fell 140 basis points because KMB lacked the scale or pricing power to do just that.

Second, KMB is losing market share to Procter & Gamble . Third, there’s also competition from private-label competition in the tissue and toilet paper space, further hurting KMB’s ability to raise prices.

Fourth, investors will need to hear about the company’s professional business, which was particularly weak last quarter. The U.S. washroom business fell double digits.

And most of all, Kimberly-Clark needs to show it has a plan to turn its business around.

Admittedly, Cramer said, these are not great expectations. But that’s why he thinks there’s a chance to profit here. So if the company can beat the Street’s numbers—$1.15 a share on $5.03 billion in revenues—and address the aforementioned concerns, “The stock gaps up.”

How? Because the analysts that cover the stock—five “buys,” 11 “holds” and two “sells”—should upgrade it. That is what KMB needs to fetch a higher share price. And Cramer thinks the stock could go up if Kimberly-Clark manages to pull off even one of the two, beating the Street or quelling those concerns.

The analysts will pay particular attention to Kimberly-Clark’s revised guidance for 2011, Cramer said. He thinks they’ll put a 12 or 13 price-to-earnings multiple on that revised guidance to determine their price targets. In order for KMB to move up in price, the guidance has to be strong enough to get those analysts thinking about an upgrade.

Now that said, Cramer isn’t expecting an upbeat report here. Many of these concerns may “linger for a very long time,” he said. Instead, he thinks this could play out like McDonald’s did on Monday, with the company’s report initially disappointing investors but the conference call later reassuring them, which helped the stock rally.

So if KMB comes down enough after the report and the market fundamentals look good, that could be your chance to buy ahead of the call.

“You now have your pre-game scouting report on Kimberly-Clark,” Cramer said. “Now you know how to analyze a quarter along with a stock’s reaction to it, and you'll know what to do when Kimberly-Clark reports tomorrow … I won't be there to hold your hand when it unfolds intraday.”

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