NEW YORK (TheStreet) -- Snap judgments lead to bad decisions and bad decisions lead to big losses, Jim Cramer told his Mad Money viewers Tuesday, as he once again urged investors not to trade off of headlines alone.
Case in point: JPMorgan Chase (JPM), which reported a magnificent quarter, only to see its shares trade initially lower as the headlines cautioned that the company's gains were only from tax benefits. Taxes played a part, Cramer admitted, but once investors truly learned about this terrific quarter, shares shot up 1.4%, as they should.
Why You Should Never, Ever Trade on Headlines
The same thing happened to another bank, Wells Fargo (WFC), a stock Cramer owns for his charitable trust, Action Alerts PLUS. Wells traditionally trades on its net interest margin metric, but this quarter, early traders decided to focus on revenue growth, only to be blindsided as the net interest margin bulls sent shares soaring.
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More mistakes were made with Johnson & Johnson (JNJ), another Action Alerts PLUS holding, which beat on both earnings and revenue but still suffered from paltry growth. Early traders sent shares higher, only to get overwhelmed by the bears later in the day who realized that J&J's problems were far from fixed.
Still need more proof? Pundits said oil would plummet on any deal with Iran but instead they rallied. Why? Because the markets have already been sliding lower in anticipation of a deal in a classic "sell the rumor, buy the news" scenario.
"Don't trade on headlines," Cramer concluded, "Know what metrics matter" and which ones don't.
Not Excited by Energizer
Now that Energizer (ENR) has successfully spun off its personal care division as Edgewell Personal Care (EPC - Get Report), are these two new smaller companies worth investing in? Cramer said he thinks not.
Energizer first announced the spinoff of its personal care products, which includes such brands as Shick, Edge, Playtex and Banana Boat, back in April 2014 and since then shares have rallied 19%, as they often do when a company announces a breakup.
But while the two companies are indeed smaller and easier to understand and model, Cramer noted that Edgewell says 2016 will be a transition year, and the company doesn't expect growth to resume until 2017. That's a long time to wait for a stock that trades at 26 times earnings.
Then there's the remaining Energizer, which is now a pure play on batteries and flashlights. Batteries, at least the kind Energizer is known for, remains in secular decline. Sales fell 3.4% in 2014 and management expects that trend to continue.
That makes neither of these resulting entities worth investing in, according to Cramer.