rainforest films. anyway, great -- >> we associated it with him because everything he does -- >> tomorrow is a great show. i'm jim cramer and welcome to my world. you need to get in the game! firms are going to go out of business and he's nuts, they're nuts! they know nothing! i always like to say, there's a bull market somewhere -- "mad money," you can't afford to miss it. hey, i'm cramer! welcome to "mad money." with welcome to cramerica. other people want to make friends. i'm just trying to save you some money. my job is not just to entertain you, but to educate you. so call me at 1-800-743-cnbc. you can't ask whether it's fair on days like today when the market's down big, dow falling 102 points, s&p giving up .84%. you can't ask if it's fair. so many of you want to know how europe came back into the driver's seat. why is it so important? why should it matter? now, we've got to spend some time addressing this issue, because the very question

presumes a level of rationality, honesty, rigor, and precision that stock markets simply aren't capable of. they're not. we're presuming in short that what matters to companies actually matters to their stocks too on a daily basis. but it's just not true. before i delve into what to do with this kind of market, i want to start this debate, the whole debate over the rationality of stocks versus companies, by examining the curious case -- oh, curious case -- of ross stores. okay, we've anointed this off-price retailer as the quintessential retail growth stock of this period. the one that should be bought if we get any macro weakness, meaning weakness from europe. simply because the connection to europe isn't just tenuous, it's nonexistent. think about it. here's a lower priced apparel merchant that has consistently put up the best numbers of any retail chain. i understand it's doing well

now. it combines all the trade down characteristics of a dollar store with the renewing expanding component of a small retailer, because it's not in all states yesterday. it's born and made in the usa. the company has zero international exposure. yeah, it got clubbed at the opening today. yeah, falling a dollar, right at the opening. why? guilt by stock association. not company association. because while ross dressed for less trades in merchandise in the mall, rost trades in the stock market. therefore it goes down from the get-go, because it's an unfortunate member of the s&p 500. and there are hedge funds that do nothing but trade s&p 500 futures. when the futures are down, everything in, the s&p 500 gets taken down with them. except for stocks where there's very specific news, a takeover, some big, big upgrade, and ross didn't have any of that news

today. now, there was a time way back before 1983 when companies traded as companies. believe it or not, there were no futures stocks. when you go back to when people first thought of creating the futures, the big resistance was from companies who thought their stocks' destinies would be controlled by the futures, and therefore by other stocks, rather than by the performance of management. that turned out to be dead-right. unfortunately, it didn't matter. no one stood up at the time and said, maybe this is a bad idea. because investors large and small looked at this new idea, s&p futures as a great way to hedge, rather than blow out all their stocks on fears of an economic slowdown, they would instead just sell a future, or maybe a couple of futures, and then hold on to their stocks, which are often much less liquid than they are now. but in the late '80s, futures became an offensive weapon. you want to get short quickly, you sold futures.

you want to get really negative, you shorted the futures over time and then you came in with guns blazing and you knocked them down. perhaps based on a rumor, and then were able to cover and profit from the short sale. that kind of behavior became common. approximate cause of so much what went wrong in the recent crisis. if you doubt the power of the futures, remember the flash crash, where we declined 900 points in less than a half hour. let's go a step further. if you're a big hedge fund running billions and billions of dollars, which there are many more of than when i was in that big business ten years ago, you may not even be able to own many individual stocks, because in order to profit from them, you need to be able to own a huge block of shares. and unless the company is worth north of 10 billion smackers, a hedge fund would end up owning more than it's possible to move in and out of. so these big funds tend to make big bets on the market as a whole, not individual stocks like ross stores. given that the market itself is sensitive to europe, meaning lots of companies are there, the

link is palpable enough to make it stick. plus, financials are the largest component of the s&p. so to these short sellers, you're getting a twofer. they're selling a sector which has a big weakness in it. of course, most of the banks in the s&p sector, they're not about europe at all. and an s&p component like ross stores, it definitely isn't. that's why ross should be bought on a futures-related tip, not sold. so should a lot of the regional banks that have nothing to do with europe. that's what should happen. hey, it finally happened at the end of the day here today. however, ross still couldn't finish higher, even though i could argue that it's having a great spring, and it should. but that positive line of thinking, however, presumes that somehow stocks are in line on a daily basis with the underlying businesses they're supposed to track. you know what, that's a preposterous assumption in the year 2012. it's ridiculous, it's clownish, even. at least over the short-term. the reason is simple. the hedge funds that control the day-to-day action don't sit

there and think about what might happen to ross stores as the futures put pressure on our entire market. they're thinking they could just beat other sellers to the punch. that's what their game's about. they're just trying to beat the other guy. they're thinking they can make a bet against america, the futures you see at the opening will be lower than they were when the hedge fund sold them. they sold them at 9:00 in the morning, maybe they get to cover them much lower. it's about beating the other guy, and the trading is actually quite compelling. most of these people look at the futures the way you might look at a baseball game. these players look at the european markets as the first few innings between the durham bulls and the bad news bears. they figure if the bears are winning in europe, well, you know what, they're going to win here. >> hallelujah! >> so let's say the bears are ahead 3-0, meaning the european markets are down about 3% as they work at the close over there. and that's like coming into the bull/bear u.s. contest, same contest! it's the same contest to them. we're down three runs at the top of the fourth inning. if you are a bull, which means you will most likely lose,

because you're behind. you're down three runs. now, i can't emphasize how -- emphasize enough how right this analogy is, that if you're down three runs in europe, then you come in and you start in the hole here. so what the heck do you do? you bet on players who might get hits even if the bull team loses. hence the growth stocks i've been talking about. starbucks and of course ross stores. these players can can have standout games because their businesses don't really have that much to do with europe or nothing to do wit. but here's the tough the part. we almost always have a double header here, means europe gets weak and stays weak the next day. which suggests the bears will come in with a couple of run lead tomorrow. which means our growth stocks could get hit again. which is why i recommend buying them in stages on the way down. because the futures put you in the hole from the get-go. ever since the futures became stronger than the individual stocks and hedge funds got so

big, they can't have -- they can't have an impact unless they trade futures, any company that's in an index, even companies as big as allergan or starbucks is now at the mercy of the futures. you have to be willing to take a beating with these growth stocks until the bulls oncegain get the upper hand, perhaps in europe, at least for a couple of days, and the futures stop dragging everything down. here's the bottom line. you can use this bogus linkage between the u.s. and europe, but only if you recognize that as long as europe gives the bears an edge, they will keep pressing your best stocks down. and you'll have to take some pain before those stocks return the pleasure. can i go to nathan in minnesota, please? nathan? >> caller: hi. yaba daba doo. >> i'm liking that. what's on your mind? >> caller: xerox. finally, what's going on with it? >> well, you know, they did better than expected, so people got very excited about it. i think the fact that it was up a penny on a really horrible day tells me i've got to do more

work and xerox is maybe finally at an inflection point where it could start going higher. i've not liked the stock, i've been right. let's go to stafford in oregon. stafford? >> caller: hey, jim, how you doing today? >> i'm doing real well, how about you? >> caller: good. my question is regarding china mobile. i know they were near a 52-week high and had a sell-off today. i wanted to get your opinion? >> we do not recommend chinese stocks on this show other than baidu. why? it's very simple. we've seen so much money lost investing in china that we're going to say we don't want to invest there. does that mean we're going to tar some good stocks with a broad brush? yeah. that's the way the game is played. big money is calling the shots. your stocks are being whipped around by the futures. use the futures to buy high-growth stocks when they get hit. that's how we're going to profit from the situation. "mad money" will be right back.

coming up, industrial powerhouse? eaton beat the street this morning, but investors turned a blind eye as the market sold off. with their technology supporting business from main street to mars, could it soon be ready to rocket higher? cramer's earnings exclusive with the ceo is next. and later, bentonville bombshell. the world's largest retailer is under fire after allegations of corruption. but is today's pullback a temporary markdown or just its new everyday low price? cramer decides if you should put it in your cart or leave it on the shelf. plus, ipo no. with facebook fever spreading like wildfire, investors have been buying up ipos at a premium. but are they worth it? tonight cramer takes on the red-hot market to separate who's hot and who's not. all coming up on "mad money." [ male announcer ] tom's discovering that living healthy can be fun.

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on a nasty day like today, where we were dragged down by european worries, i like to point out all the things that are going right. not just the things that are going wrong. i'll let everybody else do that. and so far this earnings season, i've noticed a very bullish pattern. one that shouldn't be obscured by this hideous action. great american industrial companies keep reporting terrific results, courtesy of what? of strength right here in the u.s. take eaton, the best industrial manufacturer that makes everything from aerospace components, power train and drive train gears for cars and trucks to hydraulic and electronic systems. eaton gives you exposure to multiple bull markets, trains, trucks, automobiles, and power management, and gives you a juicy yield which is one of the reasons why my charitable trust owns it, actionalertsplus.com. it makes me think this stock could be like a coiled spring

here if we get a couple of good days from europe. and then we get this excellent quarter. this morning eaton delivered a two cents earnings beat with revenues that came in a little light. company also raised its full-year earnings and revenue forecast again. eaton specifically called out their north american electrical business and their aerospace division as being in great shape. when we drilled down into the quarter for my charitable trust, what we saw over and over again was the strength here in the u.s. and it's more than offsetting weakness abroad. i think that could be the big story for 2012. let's check in with sandy cutler, the fabulous chairman and ceo of eaton. mr. cutler, welcome back to "mad money." >> thanks very much, jim. >> i've got to get right to the heart of it. you said some things here that seemed like they're nascent, but they could matter. nonresidential, u.s., starting to show some very good gains. even residential coming back.

big swing for you. how important? >> well, very important. our largest segment in the company is our electrical americas business. as we shared before, the single biggest driver is nonresidential construction. in the quarter, up some 10%. but perhaps more significant than the sheer number is the breadth of the recovery. 11 of the 14 segments in u.s. private put in place nonresidential construction were up and up solidly in the quarter. residential, still not back at the numbers we saw many years ago, but starting to see attractive gains, and we think that's something that will build not at a rapid pace, but it's up some 20% this year, year over year. >> how come i'm not seeing it? i interview a lot of bank ceos, dave cote, from honeywell on friday, he's not seeing anything along these lines. it's just nascent, maybe, a little bit. but you sound like you've got something really going here in construction. >> well, again, if we shared last year, we made the call that we would see u.s. nonresidential construction go positive in the second quarter of 2011 and it did.

and part of the reason why is that we see these orders some six to nine months ahead of them actually materializing. that gives us a big window into this market. we think there's a multiple-year run here in non-residential construction, which helps power our biggest segment. >> you also called out very positive analysis for both aerospace and automobiles. that's continuing. >> yeah, automotive market, we think up some 16%. the aerospace market, while not up as big as sheer percent, remember the mini boom that is more than overwhelming the contraction in military. as you said in the introduction, the real big story, i think, out of our view on the economy is that we now think for eaton's end markets, they'll grow at about 5% on a global basis this year, but it's 9% in the u.s. and 2% outside of the u.s. a real reversal of what we've seen the last couple of years. >> but you did confirm something. we've got some chinese pmi numbers last night that were weak. you're out and out, frankly,

pushing out what you think is going to be the recovery of china. you were not that positive about china in this conference call. >> no, we said both on china and europe, where we had, if you took us back three months ago, our view was that we might start to see some recovery in the third quarter of 2012. we're now saying we think prudently, we need to push that out to the fourth quarter. we've not seen the rate of improvement in china and frankly the european situation each day, i think we each hear another piece of news that says this is a difficult, difficult challenge there. >> and you also did not sound as bullish as you have in the past about truck build. >> well, on truck build, our forecast has been 300,000. and this is for nafta, heavy-duty truck here in the u.s. we remain very positive, about 300. there were a couple announcements that came out of the industry a couple weeks ago that i think people misinterpreted. the actual build plan has been higher than 300 in the industry. we think it's been adjusted back to 300. the only area where we have some concern on the truck build is brazil. where there was a prebuy in the fourth quarter of last year.

there's been some weakness, down 31% in the first quarter of this year, and we think that means for the full year in brazil, it's probably down 10%. >> i'm not used to hearing weakness in brazil. what i was surprised by, let's go back to china for a second. i understand europe. they're in chaos. the chinese are a command economy. is it not surprising to you that they are not able to say, you know what, we're going to get this thing back on track by q3? >> you're exactly right. that's our view as well. that typically when they've pulled the levers, things have moved quite quickly. the levers have been pulled a couple times, both on lowering interest rates and on loosening credit, but we have not yet seen that response. we don't know if it's a function of the economy continuing to get bigger and more complex, or if it's this tuning, trying to develop a little bit more of a consumer economy versus an investment or industrial economy. it's still growing, just not quite as attractive as it was several years ago. >> given the fact that you've raised twice, given the fact

that the u.s. continent has come back, that it would not be beyond the realm that we might see still one more dividend boost from eaton in the year 2012? >> generally we do this once a year, and as you know, we had a large, attractive increase that was effective for our shareholders in february. but i think as you step back and you look at the year for eaton, we're now saying sales up 7.5%, profits up 14%. we've raised our guidance twice this year in this uncertain environment, so we're fairly confident we're going to have another record year here in 2012. >> well, that's what matters. sandy cutler, once again, terrific quarter. thank you so much for coming on "mad money." >> thanks, jim. always good to talk to you. >> that's sandy cutler, chairman and ceo of eaton corp. i got a little greedy there hoping for even more dividend, but that would be unusual. so many good things are happening at that company. i'm surprised it wasn't up large today, because it sure should have been. stick with eaton, stick with cramer. coming up, bentonville bombshell. the world's largest retailer is

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it kills heartburn fast. let's start with car insurance x. this one does save people a lot of money and it's very affordable. it was very delicious. could you please taste car insurance y? this one is much more expensive. ugh. it's really bad. let's see what you picked. oh, geico! over their competitor. you are a magician right? no., oh. you're not?, no., oh, well, give it a shot. i am so, so sorry. it was this close.

look, almost everything was down today, so it wasn't that easy to figure out how much of the decline in walmart stock was

because of some real bad publicity in the papers, or because of weak chinese pmi data, or because of a french presidential election. looks like a socialist is on the verge of winning. or because of a dutch budget dithering, or the fact that a recession has officially been declared in spain. but i think most of walmart's $2.91 decline or 4.66% can be traced to the story in "new york times" this weekend about how the company bribed officials in mexico and tried to cover it up. "the times" piece can be read in two ways, the first really cynical and dismissive. it goes like this, it happened a long time ago, they've been taking the investigation seriously lately. something "the times" didn't point out, it wasn't a financial or balance sheet disaster a la enron, lehman, worldcom. now let's flip that logic for a second and choose to be skeptical.

the much ado about nothing track that i heard most of the weekend has to do about how a market participant may view this mexican investigation. the investor tries to figure out the potential hits to earnings per share, and why not? that's the way it should be played. by looking at previous foreign corrupt practices prosecutions, and from there, the only conclusion is that the hit will be minimal for the world's largest retailer. based on the worst violation i've seen, $1.6 billion for siemens, you can argue that walmart, it will be fine. in the case of kbr, the old halliburton construction division now spun off, you've got 402 million in fines for 182 million in bribes. the bribe number for walmart is by all accounts smaller. so maybe it doesn't that much at all. you still aren't going to get a gigantic amount of fines. in fact, i wouldn't be surprised at all if walmart's legal bills exceed the fines. but that's not the issue.

see, the real issue is the prism, the prism with which you look through this. sure, an investor might say these violations won't ding the earnings, so therefore they shouldn't ding the stock very much, but i say we shouldn't be looking at this through the eyes of investors at all. we should be examining this case, not this newspaper article, this case through the eyes of a prosecutor. because a prosecutor is the only person who can hurt walmart in a way that can't be quantified. prosecutions are always hard to figure. because their work doesn't fit into the earnings per share lexicon that dominates wall street thinking, both from the buy and the sell side, the analysts who opine. first, we know that both the s.e.c. and the justice department are almost certainly going to examine what's happening here. it's right in their faces, for heaven's sake. front page, "new york times." second, we know that both organizations take the foreign corrupt practices act very seriously. a cruel bit of irony, by the way, the chief executive of kbr at the time of the payoffs to nigeria to build a liquefied natural gas terminal, he just

began his 30-month jail sentence two weeks ago, nine years after the investigation of the payments began. we have no idea how rough the mexican authorities will be on walmart, as it's the nation's largest employer. so booting them from mexico, not an option. but if you're a dogged and determined prosecutor on either side of the border, you know you can make a real case against walmart's current executive team just based on "the new york times" article. and given the unfortunate circumstances for walmart, it's an election year, both here in mexico, you've got to believe the fallout could be huge. how huge? to start, an aggressive u.s. justice department prosecutor, one who's willing to make his career, can easily bring charges against mike duke, because he was in charge of walmart's violations were brought to management's attention. if duke and former ceo lee scott at that moment had simply obeyed sarbanes-oxley and turned it over to the audit committee for a full-blown outside

investigation by a forensic investigative accounting firm as well as a big-time can't be swayed international law firm, then the problems might have stopped right there. but the times is very clear that walmart considered and rejected that course of action, choosing to handle it internally. guys, that's not how it's done. under sarbanes-oxley, it's easy to make a case right there against both management and conceivably the audit committee itself for dropping the ball, for letting that happen. second, it doesn't take too much of a leap of faith to think that the justice and the s.e.c. can say walmart hid a material matter from the public. given that mexico is walmart's largest international market, that alone could be worth prosecuting, particularly because lee scott, ceo, was still on the board, and mike duke, the vice chairman directly in charge at the time, so now running the place. if either had left the company, it could be a different story, it could be considered old news, but they didn't and it can't. third, because of that potentially material cover-up, prosecutorial discretion will play a massive role here. now, that's a totally, totally subjective issue.

but it's also the single most important question that walmart investors will face. let's play this one out. let's play out what's really going to happen versus the 5, 10, 16, 3 cents a share issue that i heard bandied about today. walmart, it's not a loved company. many of the scofflaws and the banking scandals think lehman execs or angela mozilo of countrywide, they got away with their actions during the crisis. so you can see how in an election year, president obama might call for justice to launch a full investigation, just based on the story in "the new york times." in fact, it's rather hard to imagine a scenario where that doesn't happen. you want to take on "the times" on this? after all the ink they developed? all the ink they used? i sure wouldn't. at the same time, you can see how the mexican government could easily revoke the banking license it gave walmart four years ago. it's also possible that one of the presidential candidates south of the border might call for a partial expropriation of walmart to mexico.

hey, you and i might think that's outrageous, but is it anymore outrageous than what argentina did with its largest oil company, ypf last week? $10 billion seizure. ypf didn't even do anything wrong. but i think the odds of such an action are pretty low. it's very difficult to run a business when your top people are being investigated. witness how worldcom fell apart during the investigation into its business and the decision by the government to go after individual board members as well as management for the complicity. given the competitive world that walmart finds itself in, with the dollar stores nipping from the bottom, costco and target nipping from the top, management distraction here could be horrendous and enormous. even barring a worldcom-type deal, think about how off track avon got during the ongoing chinese investigation, $244 million in acknowledged costs so far. i think the pressure on justice to bring a big case is too great to resist. therefore i believe walmart's board, particularly audit committee members, including james cash, a heavyweight harvard professor emeritus,

could demand that duke and anyone else who touched this one resign. i could totally see duke being thrown over, simply on word that justice wants his head. the bottom line, in a competitive world, with justice breathing down the company's neck, but the ceo, i'm sure, having no desire to step down, the distraction will be too great to recommend walmart on "mad money," even if it's down a lot, and it isn't down a lot yet. the uncertainties here are too great, the political pressure is too heavy to make it so you want to be in a stock that was just 18 cents off its high coming into today's session. sure you can hold it for a bounce, but i think it will be an uninformed bounce, as likely there won't be a second major takeout of walmart in "the times," people might get excited, they might get jiggy, but you can't buy it. and i want to sell it. there are much better retailers out there that are cheaper and much more scandal free. let's go to karen in my old home state of pennsylvania. >> caller: hey, jim. >> hey, karen, what's up?

>> caller: is the reselling of amazon supply a reason to get back into amazon? >> i think jeff bezos is a tnp guy, meaning take no prisoners. he's trying to wipe everybody out. if he makes a huge amount of money, it would shock me. because he's basically told me he's not. so i'm not a buyer of amazon right here. but i do want to go to janet in new york. >> caller: yes, hi, jim. with the news today, should i be concerned with companies like southern copper that have a large exposure to mexico? >> no, i think that -- do all companies take actions that we don't want them to do in these foreign countries? i think it's very tough for miners to do business. we just saw newmont being told that it has to pay people more. we saw freeport in indonesia get hit, but i'm not going to generalize. it's a different kind of story. let's go to josh in arizona.

josh? >> caller: boo-yah, jim! >> boo-yah, chief. >> caller: and thank you for taking my call. >> my pleasure. >> caller: and no matter what, the cramericans are behind you. >> thank you! i'll take that, and don't forget to weigh in @jimcramer on twitter if you feel that way, because i love to see it. go ahead. >> caller: my question is about the recovering american economy. >> mm-hmm. >> caller: and what you thought was the best of these three stocks. >> okay. >> caller: limited brands, macy's, and nordstrom's. >> all right. i'm going to go for macy's there, because it represents the mass move and they're still doing so many things right, but that's a tough call, because limited's doing a lot right, and nordstrom's, only because it's run so much, i do not say that one would be first. okay, bad publicity is still bad publicity. there are too many uncertainties surrounding walmart right here. i want you to sell the stock into any strength. we can revisit it lower if we

feel more comfortable about what happened, but with all these great other retailers, why are we even messing around? stay with cramer. coming up, ride the lightning. take a nonstop thrill ride as cramer goes stock after stock. all your calls taken rapid fire on the "lightning round." and later, ip oh-no? with facebook fever spreading like wildfire, investors have been buying up ipos at a premium, but are they worth it? tonight, cramer takes on the red-hot market to separate who's hot and who's not. all coming up on "mad money"!

before we get to the "lightning round," i've got some big news for those of you following me @jimcramer on twitter, and for everyone else that we'll call soon to be followers of @jimcramer, this is exciting. i'm coming up on a big number, 500,000 followers. cue the balloons! no balloons. well, anyway, we're celebrating the occasion by having a little sweepstakes and the winner and a guest will fly to new york and join me right here in the studio for an actual taping of the show. that's right, you'll come here to visit me on my turf, for a taping of "mad money." here's what you need to do. follow me on twitter @jimcramer

and send me a tweet, "i want to meet @jimcramer #cramersweeps." "i want to meet @jimcramer #cramersweeps." we're going to select a winner at random and i'll tweet you personally to let you know you've won. i know, dream come true, right? again, all my current followers are welcome to join the sweepstakes and any new ones who are looking to get in on the action are welcome too. and now, it is time, it is time for the "lightning round" on cramer's "mad money." this is when i take your calls, i don't know the callers or questions ahead of time. when you hear this sound, then the "lightning round" is over. are you ready, skee-daddy? it's time for the "lightning round" on cramer's "mad money." i want to start mike in hawaii. >> caller: big boo-yah from hawaii. >> sweet. what's up? >> caller: nothing. i want to see how you feel about sprint. >> actually, there's some corporate bonds that i like that i think will be better than owning the common stock. the stock is an option and it's little -- you know, as long as

you recognize it's just an option, that's fine. it's not really much of a common stock. let's to go to ron in michigan. ron! >> caller: mr. cramer, big boo-yah from metro detroit. >> perfect. what's on your mind? >> caller: what's your opinion on gci, jennette? >> no, i don't like the new paper stocks. i know they seem cheap on a valuation basis, they're not for me. i like meredith publishing. let's go to michael. >> caller: boo-yah, jim! how is att doing as a major stock player? >> i think adt's going to have a good quarter, but i prefer verizon to at&t because they're signing up for more people for the iphone as a percentage. let's go to mark in hawaii. mark? >> caller: boo-yah, south side in the house! >> yeah, what's on your mind there? the second hawaiian. >> caller: jimbo, my stock is faro technologies. >> computer aided design has

been very, very strong. i tell you, don't buy. i don't want to own a new tech stock here. i just don't want to. let's go to ed in new jersey. ed! >> caller: good evening, jim, a big boo-yah from summit, new jersey. >> right around the block! hit me. >> caller: also a big boo-yah from williams college, where both of my kids just graduated from over the last few years. >> congratulations, sir. >> caller: the stock is hess, jim, should i hold it, sell it? >> i think hess has underperformed and are undermanaged and i'm not going to recommend it at a time when a lot of oil companies are coming in. i'm going to say no. i need to go to david in california. david! >> caller: hi, jim, thank you for sharing your decades of successful investing with us. >> thank you. >> caller: one of my pipeline investments is down 20% from purchase and down 40% this year is pen growth energy an accidental high yielder? >> i think you should buy. it's down a huge amount. i think it's an overreaction, i think it's a buy.

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in a turbulent market like this one, you've got to be able to resist the allure of seductive stocks that have grown too hot to handle. and that goes double for ipos. lately it seems as though every time a company goes public, its stock just shoots through the roof. that's definitely been the pattern. and just about anybody who's gotten in on these deals has made a boat load of cash almost instantaneously.

but once the stocks actually begin trading, they're much more of a hit-or-miss proposition. it's only the initial pop that seems to be virtually guaranteed in this market. in other words, right after a company comes public and its stock soars 50% or even 100%, right when it's getting maximum exposure and maximum hype, that's when you have to stay the heck away from it. granted, there have been a handful of companies that came public with a big pop and they continue to see their stocks rise inexorably higher, but those are the vast exceptions the rule. the rule is you never buy a fresh faced ipo in the after market. especially if it's had a huge first-day spike. not ours. consider two smoking hot ipos from last week. on thursday, twome became public as the same time as splunk. i may have to take this home. tumi soared 47% in its debut on

thursday. that made it the eighth best stock debutante this year, but splunk, which is a big data play, a provider of software that businesses use to search, analyze, and monitor the data on their networks, that put everything else to shame, 109% gain on its first day of trading, the best ipo of the whole year. >> that was easy. >> hallelujah! >> all right, i want to make it very clear that i think tumi and splunk are both terrific companies. but we're not talking about companies here, right? the problem is, after these incredible first-day moves, there isn't much room for either of the stocks to go higher. at these elevated prices, the risk/reward becomes terrible. you have stocks that have a lot of room to fall, but not much room to run. that's why tonight i want to give you a reality check on these red-hot ipos, because they've surely become too hot for this guy to handle. when you see something rocket 47% higher on its first day,

like tumi, i mean, 47% higher? in the end, it is luggage, then you hear about how great the fundamentals are, it makes you want to buy the stock. and to make matters worse, because those ipos were both massively oversubscribed, it's unlikely that any of you home gamers got in on that action. they're feeling like you're missing something, like you need to get in on the action. it makes people buy these stocks in the aftermarket when they really should be selling. it's why i didn't bother to profile either company ahead of time. i knew you couldn't get in, plus, they're probably holding the stock because they want to get as much facebook as possible. so let me lay it out. i'm going to start with splunk. yes, it's a play on big data, which has become one of the hottest areas in tech, perhaps the hottest. it's growing like crazy, because just about every area of human activity is now producing data, and companies want to find a way to use this data in realtime.

splunk software plays a key role in this process. the company has a fabulous management team. the ceo took over in 2008 during the height of the financial crisis. he's seen it all. he's been in this business longer than mark zuckerberg has been alive. meanwhile, splunk is growing forward revenues at a 35% clip. that's phenomenal. you'll hear all of those things about this company, but i need you to remember, it doesn't matter how attractive splunk sounds if the price of the stock -- not the company, the stock, is wrong. and boy, oh, boy, is it wrong. splunk may be growing revenues real fast, but the company isn't expected to have any earnings until 2014. meanwhile, splunk is trading at 20 times sales. that's insanely expensive salesforce.com, that sells at only nine times sales, and salesforce is established, a player that will be very profitable this year. i think splunk is due for a pullback.

however, if splunk is risky, this one is downright dangerous. as expensive as splunk seems, you could make the case for its valuation based on the fact that it's growing faster than anybody else in the group. i think it's a stretch, but there are hedge fund managers that would be willing to pay up for splunk. with tumi, it's run by some very smart people, however it's a tiny $1.7 billion people that lacks the resources to compete with some competitors like the $22 billion colossus that is coach. and it's selling at 32 times next year's earnings. this could be like michael kors come again. kors sells for 43 times next year's earnings, so it's cheaper. but they're increasing the store cap by 40% per year, versus 12% at tumi, and kors posted 35% sales growth, tumi, 20%.

tumi's valuation is closer to lululemon, but lulu is growing much faster, about double the rate of tumi. we know what people are willing to pay for accessories and apparel companies. we know what they're willing to pay for retailers. it's not pie in the sky. tumi grows earnings over the next three to five years. with the stock trading at 35 times earnings, i think it's at the high end of what could be considered reasonable. i would rather own stock like coach. that trades at 18 times earnings, 16% growth rate. it's safer, okay? here's the the bottom line, like most ipos that run a lot on their first day, tumi and splunk are both way too hot to handle. tumi is more overvalued. at the end of the day, the price is wrong for both these stocks. i think you need to sell, because they're much more likely to pull back from here than to rally. "mad money" is back after the break.

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after a nasty session like this one, a few things are more important than yield. it's just like insurance. you don't think you need it until something goes wrong. today many things went wrong. slowness in china, weakness in germany, declaration of recession in spain, and the fact that a socialist is like to be elected in france. these are true firestorms. some would say arson in europe,

as the germans remain committed to a punitive no-growth policy that's frustrating any improvement whatsoever on the continent. just like you need fire protection when you buy a house, you need to have some dividend protection for your portfolio. with so many stocks being knocked around for 2% to 3% to 4% declines, what did i find? how about this? stocks that were off maybe 25 cent max, some less. now, these stocks have underperformed for the most part of this year, as the market had animal spirits driving it first quarter. but we could have a brutal european-related sell-off. there's no doubt in my mind that europe will be more than a head wind again this year. if china regains its strength maybe fourth quarter, as of last night's economics numbers, it hasn't happened, but it hasn't collapsed either. we should do fine. but here's the rub. when you buy a house, you should

most likely not have a devastating fire, right? what are the odds? we have so many safeguards against fires, tough code standards, smoke alarms, well-equipped fire departments, but you can't possibly take delivery of that home without insurance, you're an idiot. sometimes they won't let you. you can't have a portfolio made up of all housing stocks, along with financials, low-yielding cyclicals. you can't just jam your portfolio with those. you need to add the insurance of some stocks with big yields, to protect you against days like today. where do you go for yield? first we know these drug companies have it, pfizer, by selling that infant formula business today, that assures you that the dividend can go higher. verizon reported a terrific number last week, yet people just yawned. verizon has no exposure to europe, while pfizer has a lot, but pfizer's european business held up pretty well. let's not forget a stock like a duke, which yields 4.8%. it's doing everything right including trying to merge with progress energy. if the government won't let it,

duke will still do just fine. yield, it's insurance. you must have insurance. or else in these days when the world's on fire, you're fighting the conflagration with nothing more than a fire hose. and if it fails, it will take your portfolio down wit. stick with yield, stick with cramer. [ male announcer ] when do you take 5-hour energy? when i'm on the night shift. when they have more energy than i do. when i don't feel like working out. when there isn't enough of me to go around. ♪ when i have school. and work. every morning. it's faster and easier than coffee. every afternoon when that 2:30 feeling hits. -every day. -every day. every day is a 5-hour energy day. [ male announcer ] 5-hour energy. every day.

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all right. netflix saying everything wrong after the bell. texas instruments, more importantly, saying everything right. calling it trough and semis, we've been there before, but the stock is inexpensive. don't forget, they are a big supplier to apple, so maybe that is a forerunner. you know i don't want you to trade apple, but you probably can't resist. i want you to own and invest in apple.