Earnings reports, or if youre like me, you hire someone to sleep for you during this period, only to fall behind terribly in the morning conference calls. This is the week where theres so much confusion. So much cacalf any of sound that the market stumbles under its own weight. Thats why you should have cash going into next week. Weve told the club that subscribes to the newsletter, raise some quash. Some things occur during this next week, the rush partner season. And they rarely earn much in the way of upside. In other words, its usually a very bad week for the bulls. Believe me, it wont start out that way. We kick things off on monday with the conkblom rat weve been raving about for years. Now you can expect the difficult to understand quarterly read. Because danaher just spun off a company. I expect an announcement that theyre about to use the hepatitis franchise, i know gilead doesnt like that its down. Texas instruments, quietly reliable company. Tuesdays huge. This ones always a day theres too much going on. We get caterpillar first. And i bet the machinery lamaker will have some many dplimers of hope and i think europe and china are stronger than expected. Maybe theres an ever so slight turn in that business. We also hear from mcdonalds, this stocks was sinking for weeks. The first from the relatively new ceo. Hes got to walk a fine line. Why . Because sales at the companys Japanese Stores have been boosted by pokemon go toys. Im not kidding. Thats something that literally turned the stock around, but it wont be included in these quarterly numbers, because the promotion didnt happen in time. Pokemon go is a phenomenon that wont affect the quarter thats finished. What about 3m . It seems unsustainable. I doesnnt know hwhat they coul possibly say. If you dont own 3m yet, please dont buy it. I wonder if verizon will give us any insentive for the iphone 7. Speaking of apple, were going to get a dose of my own apple philosophy. Because i think the companys going to have another nogrowth quarter, and i think the bears will be out in full force, saying negative things the moment that apple reports. Worse, the stock is now run up into the quarter on chatter that cant be all that bad a quarter. Believe me, it can be. Ive been waiting for the soft analyst, the ones who have the faux buys who dont like the stock. Ive been waiting for them to down grade the stock. Them you may be able to buy it at lower levels. Sure, maybe expectations are finally so low that apple makes sense, that thesis hasnt worked with the stock for a while now. I cant imagine it could work this time. I imagine it can hurt the overwhelm market. Wednesday we hear from boeing. And i think this is also suspect, given the sales of widebody aircraft sales. Boeings still one company with a stock that has ignored the Bloated Inventories of the bigger planes. I dont want you to own it going in, because in the stock market, ignorance is not bliss. Well, mohammnth leez, you mightt to take profits in norfork southern stock. I dont think norfork southerns ready to call a turn in the key cargo, something that hurt Union Pacifics earnings when it reported yesterday. After the close, we get reports from one of the most beloved, facebook and whole foods. Facebook has rallied so strongly, it is hard to maimag it will put up the kind of numbers. Meanwhile, whole foods will talk about the 365, smaller format, its going to talk about how that gamut is working, and i think were going to like what we hear. Plus theres less competition these days. We know the companys been vigorous in buying back stock. Then we get bristolmyers. And i recommend some before and some after. It is not as good as j j, but nobody is anymore. After the close thursday, were going to be judge being the two most difficult tech stocks, alphabet, former lly known as google and amazon. I like that the expectations, the bar was set low, however, almost every day since then weve heard it might be a better than expected quarter. Low bar goes to high bar. I hate that. Im very concerned that youre going to get a onetwo punch, bad apple troubling alphabet. Dont get me wrong, i love alphabet. I just wish it hadnt run up into the quarter. Although when it comes to running, amazon is the poster child. Im worried it might spin the jets. It needs to take share back online. The first serious attack on amazon its ever seen. As i told you on wednesday night, everything has to be perfect for the stock to be rally after the reports, and i dont know if perfection is attainable. Id simply be careful. Two more stocks, and again im concerned about, you see a pattern here, chevron and exxon. I say come on, you think that oils booming here, given these runs . Thats hardly the case. I want exxon to explain why its bidding for a Small Oil Company in new guinea. Why did they snap up some Oil Producers when they were so cheap. They believe the price of crude is going to go as high as david demshire told us. Boy, would that help the stock market. So heres the bottom line. I dont like the setup going into next week. This week of earnings season coming up has historically had subpar on stocks. You want to buy stocks, my advice is wait until the end of the week. I believe if we get better than expected numbers, well tread water. Lets go to joe in new jersey. Joe. Caller hello, cramer, im over here in ortly beach, enjoying the ocean breeze. Tmy question is on kellogg. I like the 2. 5 dividend, Balance Sheet looks good, should i hold onto it in . Absolutely. I think theyre getting more natural and organic. I think its a nice, steady Eddie Company thats not up to its potential of what it could earn. Next week, hold onto your hats. I dont like the setup. On mad money, the tools you need to keep your portfolio healthy in a wild environment like this one. Youre going to know, youre going to want to know what i have to say on this stuff. Plus, what role should a precious metal like gold play in yo your portfolio . Stay with cramer. Dont miss a second of mad money. Follow jimcramer on twitter. Have a question . Tweet cramer, mad tweets. Send jim an email at cnbc. Com or give us a call at 1800743cnbc miss something . Head to madmoney. Cnbc. Com. Hey there. Hi, im looking for a deal o an iphon. Was thinking, something alonthese nes. Oh, okay. We, how about this . Heres my answer. s just me with happhands. It jusmeans takit. Rit now, buy an iphone and get another one free when y add a second line. In the face of crushing declines, uproarious rallies and plain jane days in the market, we must always guard against our own Human Emotions which often get the better of us when everythings going well in the stock market. And when things are going badly, they seem to grip us totally. When things are too good, we tend to take too much risk. And when things are going terribly, we despair and leave the stock market entirely. Its a fact of life. And over the years, even as stocks have climbed and cleemed, there have been swoons, i mean, real swoons, that drove people out. And they wanted securities that give you little or no return. Then they watched the big gains from the sidelines. We have many reasons to be disenchanted. Theres the blight on stocks when they were cut in half from 2007 to 2009 or the facebook ipo or the insider tracing cases and the obvious situations where stocks went down, down, and down some more. And its clear someone knew something and you didnt. I validate all these feelings right here, right now. But the fact is, stocks remain the only game in town. Maybe when the economy gets Strong EnoughInterest Rates will go back to normal levels and we can own a smattering of stocks and bonds. But its not occurred yet. And until it does, we need to have our money work for us. We are like the old avis ad here, we have to work harder to make our money fgrow. Thats what tonights show is about, how to make your money grow in a more responsibly way. Its like get rich carefully. What suffuses this show for years and years and years is the notion of prudent, personal investing, but we call the shows episodes here, why . Because each one is written and thought about as a different entity on its own, and i recognize because its something that we, meaning me, are very proud about, this is an episode about better investing for you. Now, this show is about managing your own money, or being a better client, if you have a fullservice broker helping you. If you dont want to manage your own money, over the years ive become around to this view. Ive been perfectly happy with you buying an index fund, or one that represents the entire s p or has a smattering of all stocks. Ive become a little jaundiced about mutual funds. So many times theyre about earning money rather than working for you. If you dont have the time or incl inclinati inclination, i bless holding your hands up and buying an index fund, but i now maknow ma you tune in because you want to own individual stocks. Maybe its a way to grow wealth because you think you can do better than an index fund. In the many years that weve been doing this show, nthousand and i mean thousands of people have called me or emailed me, that theyve done better. The rise of twitter has validated this principle. What we are doing is giving you directions about how to pick your own stocks and not take on too much risk. Normally the way we say to do that is to be diversified. And usually in a way that could be easily derailed in a down turn. Now, you know that i cant cover all the stocks in the world. I mean, sometimes i think people think i try. But i cant. Thats why i often use shorthand to tell the story. Do i really want you to own five stocks . No. It would be better if you had a minimum of ten or no more than 15. We have done many shows about what homework entails, but you know it means knowing what the company does, what youre looking for, what the analysts are looking for, how its doing, and why its doing it. Homeworks timeconsuming. Thats not the purpose of tonights show. I want to give you ideas that there are classes of stocks within the stock market that arent just by sector. Im offering tonight a new kind of diversification that can help guide you toward what kind of stocks i want you to have if youre going to manage your money yourself. Like so many are, you wouldnt be tuning in. Lets go over your mind set. If youre going to manage your own money, you have to recognize the value of humility. So please repeat after me. Sometimes im going to be wrong. Come on, say it. Sometimes im going to be surprised, and not in a positive way. And one more. Sometimes my stock picks wont work out despite my disciplines. Look, i of all people understand that humility doesnt come natural to everyone. But staying humble is important. Other than greed, nothing has cost more money than arrogance. You have to accept that you are going to be wrong. Sometimes more times. Thats where i am coming from when i talk about this new diversification, diversifying among sectors isnt enough anymore. You need to work harder. My new diversification recognizes that to be a little new age we are at one with the world. Stocks around the globe trade, in good and bad times, and thats impacting our stocks in different ways. And electronic funds, etfs link ways in way i never thought of when i started mad money. You need ones that report the errors and pit falls of geopolitical events to our shores. Again, i have had to change. I never used to care about the machinations of washington. But its a great recession, we have had leaders who directly intervene with the markets and the worldwide lynn kanl, its not our politicians. Who would have thought that we needed to know what the European Central bank was . What it was going to do, rhet l alone the name of the person who runs it. Its been decades. Who would have thought a cold war would be back on the agenda. We need to protect ourselves against these new intrusions that we didnt concern ourselves with when i started the show. And its a changed world, and how to pick in a changed world. Five different areas that you need to have covered for maximum protection. You need some gold. I know, it can be a complete dog. Ive been there. Were going to talk about that too. It can function as insurance, if the world really goes bonkers and inflation really does come back as the hedge funds keep saying it will. You need a growth stock, something spectacular and something from a healthy geography. Cover all five bases and youll have a portfolio that can win in any market. Im going to teach you how to analyze stocks in each one so you can fill every position with the bestpossible names. The bottom line, a good investor in this new world always knows to expect the unexpected. That means keeping your portfolio diversified, and it means following the new diversification for maximum protection. You need gold, geographically safe stock. Stick with cramer, and ill tell you how to pick the best place. Diversification is the spice of life. You need a high yield, a safe stock. Im going to help you find the best of each on tonights special show. Stay with cramer tonight, im teaching you a novel, a novel way to fill those five slots in your portfolio that i always talk about, the five types of stocks that now represent what i call the new diversification, not just by sector but by style and strategy, so if executed correctly, youll always own something that works and holds your interest, keeping you in the game, even when it feels so excruciating that you dont want to continue playing. While at the same time making sure that you have some positions which can go much higher when times are good. Whats the most important category . Ive got no question about this. In a world where central bankers raise rates from low levels you cant get enough income from bonds or certificates of deposit to live on. You need a stock that gives you a good yield. You need to own a stock in at least one, possibly more, with a big, highyielding dividend, owning two or three, yeah, high yielders . But no more than that. It can actually be a good thing. Theyre not the same. I wouldnt go on five highdividend stocks, because then youd be extremely vulnerable. You could get hurt. On mad money, we always respect the bond market and the power it holds to influence stocks. If we dont, we being imprudent investors, and when Interest Rates rise, particularly if they rise fast, they will get smashed. Weve seen this time and again. With a new diversizatie cation,e seen that a Telecommunication Company like verizon you could have all three at the same time. The favorable tax rate on dividends could go away. And give the fixed income equivalences a real whacking as it did, biv ty the way, in the spring of 2013. If you own one stock with a really large yield and another yields decent dividends, thats not a bad thing. I know dividend stocks are not sexy, but they make you money for heavens sake, and to me, thats the definition of sex appeal. In reality, i have a pretty warped social life. So i might be a tad skewed. Reinvesting your dividends back into the stocks is one of the greatest, most reliable ways to make money out there, plain and simple. It allows your money to compound over time. Over time, the money from your past dividends pays dividends, provided you keep reinvesting. Theres a huge misconception. People think high yielders are only about safety or generating income in your retirement. If you go back to january of 1926. Do that about 40 , 40, from the s p 500 has come from the reinvested dividends. Wall street gibberish for growing your money. Dont i own it. I own a charitable trust. Where i have to give away my income at the end of the year. Hurt the fund, i dont get the money. Charity does. Dividend stocks arent merely a place to hide when the market gets rough, although they do represent a safe haven in difficult times. Theyre not just for retirees who carry about capital preservation. Investing in high yielders is first and foremost one of the smartest strategies for making money, and its laalso one of t safest. It eventually gets to a level where its too attractive for most investors to ignore. Thats why i like to talk about accidental high yielders, ahy their share prices fall so fast so far. It happened during a financial crisis, and weve seen it happen in Big Industrial stocks hammered by european woes and a debilitating china. Once the yield hits 4 , they have a magical way of stopping their down turn, and they often turn out to be fabulous, longtestimony blong longterm bargains. As a dividend hike, its one of the strongest significance nals a company can send about its business, and its a company you can be pretty darn sure wont be cutting that dividend anytime soon. Observati oh, come on, cult t it after yo raise it, that can cost a ceo his neck. Stability, which is why i always emphasize my love for what we call the dividend aristocrats. Johnson and johnson, long history of dividend raises. But other than accidental high yields and dividend boost, how do you analyze a highyielding dividend stock . Just when youre learning to drive, you have to think safety first. High yields are attack triracta. And, you know, it takes away, lets put it this way. You need a rigorous Safety Inspection of if the, if the dividend is sound, maybe the company can raise it too. But if it seems ep dangered, no, huhuh, it aint worth it, people, you got to stay away. Consider the cost of these bond ash traunlts funds. They were based on strategies that involved buying gigantic amounts of bonds with borrowed money when rates shrunk, these variable rates were crushed. Dont take the bait. There was nothing accidental about these high yielders. It was a red flag, sending a signal that payout would be reduced. Why risk losing . We saw that happen a few years ago with radio shack and supervalu. They had huge dividends. Supervalu was able to bounce back, but not before protestation by management. So given that i am biased against what seems to be toogoodtobetrue high yielders, we look at the earnings per share. We know it can sustain dividend, even in lean times, when you think the earnings are going to shrink. In that case, i think youre home free. If not, you need to go to step two. You have to look at the cash flow, especially in dealing with companies with a lot of machinery or heavy Capital Investments which leads to high depreciation and amortization costs. Think of verizon, at t. They cant afford that yield, wait a second. These depreciation amortization costs dont come out of a companys actual cash. The cash flow can give you a better idea about the health of the dividend. I know on twitter, people ask me how i can be optimistic about this. If you cant understand the concept of cash flow, please, i go over the drill. Maybe you need to stick to earnings over share. There isnt a lot of debt coming due. If moneys coming due in the near future and the company cant raise it with the bank or the public, it may necessitate a dividend cut. You need to know how to collect the dividend. On mad money, we care about one dividend. I call the mustown date. The last day you have to on a stock to claim a payout. Its the date before the x date. Thats all you need to know. Bottom line, if you want the oldfashioned sector kind, if you want to be prepared for every market out there, you must own at least one highyielding stock. Diffidents protect your stocks and are a terrific way to make money. Whats not to like . The discipline of a new diversified portfolio always, always trumps your convictions about where stocks are headed. By never having all your eggs in one basket, you wont have the agony of all your eggs being crushed when they get run over by a truck. It has nothing to do with parochial schools or the establishment clause in the first amendment, which you know i could live without. When a company has secular growth, it means unlike cyclical smokestack growers, so critical to stocks going higher, the earnings for secular stocks arent hostage to the economy. And theyll keep op ex papding even during a slow down. When you get your hands on a slowsector growing, they will go higher and higher, for as long as the stock lasts. Think of apple, google, facebook. How do you find out whats growing well . When we buy a stock, were paying for a companys projected future earnings per share. We have to learn the algebra. We know we need to understand this, pause we need to compare stocks on an apples to apples bases. Apples not worth less after a 71 split, is it . Heres the simple algebra price. The p equals the e, times whats no known as m. Whats the multiple were going to pay . The priced earnings multiple is the key, tells us what investors are willing to fork over for a companys future earnings. The vital ingredient that has the most effect on the size on the valuation special sauce is the companys growth rate, which is why im constantly talking about growth of sales and earnings. Well play a bigger multiple fo. Often youll hear people say this stock is cheap. That means its cheaper than the average stock in the s p 500, the bechbs mark for all stoblgs, and yet it grows faster or more special than the average stock because of a catalyst about to occur. We use this pe ratio as the backbone for much of what we do when we think of a stock being a bargain in mad money. As a general rule of thumb, when it comes to a highoctane seller, the stock can grow at a multiple twice the longterm growth rate, before it gets too expensive for the vast majority of Money Managers who determine the pricing, basically, so if the companys growing its earnings per share at a 20 clip, these guys would pay as much as 40 times earnings. Unless theres something seriously wrong with the fundamentals that we dont know about or wont find out about until later. Maybe were in a nasty market that soured on growth for the moment, even secular growth. It makes the multiples on all growth shrink. By the same token, lower rates make Growth Stocks more attractive and cause their multiples to expand. We call more for that. Or in the spring of 2014, when so much supply hit the stock market, in terms of new offerings and secondaries, particularly for Growth Stocks like biotech. The buyers were overwhelmed and what happened is the cloud internet and biotech stocks almost all familiar terltered. These stocks can soar to new high after new high, but remain cheap as long as the analysts who cover them keep raising their earnings per share estimates, and theyve got to do it quick. A stock like facebook can double in the course of a month. And thennin but be very, ver careful, paubecause youre play with earning momentum. If it looks like the growth is decelerating, i got to tell you, it looks like whats at the bottom of this. Its like driving a fast car right into a retaining wall. The moment one of the these companies stumbles, the stock could fall faster than you could ever imagine. Kwns the great chipotle dropping more than a quarter in a day. When in july of 2012 it reported a disappointing quarter that suggested the Company Might be more vulnerable to economic weakness. The bottom line, to build a portfolio that can work in every sector, its worth if to pay up for a company thats continuing to accelerate. Once the momentum of a stock slows down, it can shrink for ages before it bottoms. And most peoples patience cant hold out that long. You need a fast grower, preferably a secular growth stock. Stay with cramer. In a w held back by compromi, businesses neethagity too one thing anher. Compromi, only at t has the network, to hcompanies be. Peolopen secure. Rs tonight, im focussing on different types of stocks, and showing you how to put together a portfolio diversified by strategy, a toolbox with something that can work in any and every market, no matter how tough. So far youve talked about dividends and growth. What else is essential for a truly balanced portfolio . How about something to keep you focussed . Something to keep you interested. In my view, you always want to own something heretical, something speculative, speculative is expected to be a bad word in the business, except here in cramerica. Not only is it okay for you to open these tempting, risky stocks, its a necessity, as long as you follow my rules and speculate wisely. You need something speculative in your portfolio as a tonic against boredom, with a huge amount of upside if things break your way. Theres also an undeniable mystique to owning something that trades in the single digits. They allow you to stay engaged and make it easier to keep your head in the game. You always hear the speculation is the height of irresponsibility, but i say a portfolio without speculation, without a long shot is a portfolio that wont capture your fancy, one that la hawill you bored with your money. And youre just not focussed enough to do whats right with the rest of your stocks. Now speculation doesnt just keep you interested. When you do it wisely, with the right rules and disciplines, these stocks can generate enormous gains in the light of often more wellnone companies that are deemed safe. Did you know that in the home d failed the first time. These were brilliant specs. Some of the biggest wins in my career came from speculation. You can see some of them, i detail them in real money. Of course the corollary is true, too. When done wrong, swimming in under 10 waters can lead to truly gutwrenching losses. I am not crossing over the risk here. There are two kinds of stocks to trade in single digit territory. The hated stocks of troubled companies that have been abandoned and left for dead and the relatively undiscovered companies. You get a yn enormous j edge. Youre benefitting created by overly pessimistic worrywart Money Managers. They dont want to own single digit stocks. They think theyre too dangerous. They think they will be questioned by their clients about why they own this junk, why they risk money foolishly. They fear the stocks that look broken. Like sprint, which we identified at 2, rite aid. Th ramifications of owning singledigit stocks that go kerf lch ker sprint had so much debt and b buyers what trickled down, remodelled stores were doing better than the older ones, and we saw how well rad was doing with relabeled merchandise. It all came together with a spec. When the fundamentals start to turn, so many of the big boys wont come near them at low levels. I like it at 4, but what about at 8 . Were not trying to catch a turn around. Were trying to look for sectors that seem like they can capture the imagination of the crowd, the next hot fad. Thats okay. Were allowed to look at fads, too, that will sweep through the wall street fashion show. Sometimes the fad will be backed up with actual earning power. We saw it again in the tiny Oil Companies that turned out to be sitting on huge oil and gas holdings. Or fda approvals for important new drugs. These speculative situations do often have the life cycle of a m mayfly though. Dont get burned when interest wanes. Cut some of it down. Second, your losses, those, you got to cut before they become too large, when a speck you thought would work wasnt panning out, just leave it. When you speculate, youre not trying to find a stock you can buy and hold forever. You want something thats going higher. As long as you can ring the register, it doesnt matter if it comes down later. The essence of stupid speculation. We saltd for example we liked hi max and sell dex. When lightning struck, we said take all the gains, please. They subsequently cratered, and we never looked back. Although callers called my and said you loved it. We loved it for trade the. The bottom line, you need something thats a key part of the diversification. Something that will stave off boredom and potentially allow you to rack up huge gains. Just because a stock trades at 3, doesnt mean its threecard mon monty. It could be a triple waiting to happen. Mad money is back after the break. With liberty mual new r replacement™, about replacing your car cause youll get the full value back and if you he more tn liberty , qualiffoa multipolicy, savi youeyn your and home covage. Call liberty stands with you™. Lirty mutual insurance. Liberty stands with you™. Ileles performance t estreetlegal fthta lir limitetimeetreatyou™. Offers or complete lin of f sport performance vehicles. Athe lexus golden opptunity sales event. Great time for a shiny floor wax, no . Not if you just put the finishing touches on your latest masterpiece. Timings important. Comcast business knows that. Thats why you can schedule an installation at a time that works for you. Even late at night, or on the weekend, if thats what you need. Because you have enough to worry about. I did not see that coming. Dont deal with disruptions. Get Better Internet installed on your schedule. Comcast business. Built for business. All night ive been preaching and teaching, trying to help you build a diversified portfolio. You will always own something thats right for the moment by falling what im calling the new diversification. When i originally came up with the idea of the new diverse any ca diversification. I think weve got to do a little refining of the concept. What you really need is a stock in a safe geography. Im talking about an Actual Company thats based in a foreign country, but at other times when the rest of the world seems to be falling apart and the United States looks pretty darn good by comparison, you need a stock that gives you domestic security, something entirely confined within the borders of our country, because in those days, being exposed to the rest of the world can be down right dangerous. You can own a company like at t, verizon, con ed or duke. Dollar general, macys isnt overseas, or how about tan jer factory outlet. The whole point is that in times of international turmoil, this slide in your portfolio should be filled by something that is all domestic. In times of domestic turmoil, you want to own a foreign company. Heres the bottom line. Always own a stock from a safe jgeograph geography. And believe me, i think youre going to want to go domestic, at least for the foreseeable future. Mad money is back after the break. Pih you vestment opportunities. Iveot fantastic deal for you gold with t right po of investors, theres a lot money to be made. But first,nvestors must ask the right quesons d use the smarheck chaenge to make the rit decisions. Buyoure nveregisteredt im ne with you esons savvy investors eck their finciaprs backnd bvisiti smartcheck. Gov will your busiss be rey when groh estself . Amicanss on cards cann he you tb or fila g order or expand yourffice and take on whatever ces next. Nd out hmerican exprs cards and services there you have it, the new diversification. I promise theres a bull market somewhere, i promise to find it for you right here on mad money. Im jim cramer, see you next time male announcer the economy is going through tough times. Many hardworking americans blame wealthy ceos out of touch with what is going on in their own companies. But some bosses are willing to take extreme action to make their businesses better. Each week, we follow the boss of a Major Corporation as they go undercover in their own company. This week, americas oldest fastfood company, white castle, with its own restaurants, bakeries, and food preparation plants, it sells more than 500 million burgers each year. The boss is going to trade in his executive office and fast cars for a hair net and an apron