Nasdaq declining. We have entered the heart of earnings season. These moment where is the reports are fast and furious with the headlights blaring and free markets all over the place are among the most challenging times for all investors. What makes dealing with this cacophony of earnings so tough . Its subjective. I view the companies as being similar to the way teachers grade tests. We do have the occasional true or false quiz, sometimes multiple choice and the essay. The subjective essay that needs to be read beginning to end. You want to figure out how well the company did. While you often hear that such and such a Company Reported a good quarter i reserve judgment based on the kind of test being administered. Sometimes the answer is obvious. Johnson johnson delivered a monster quarter with a terrific top and bottom line beat. As stellar sales of all the new drugs stole the show. It was unassailable. Therefore, j js quarter was a true or false test. Im checking true to the line that says j j was fabulous. [ cheers and applause ] netflix on the other hand, reported a flop of a quarter. Boo with a big miss in subscriber growth as those who were grandfathered in with the price break reacted negatively when the price break came to an end or ungrandfathering as they called it on the call. Netflix isnt a true or false pop quiz. It is the answer to a multiple choice query about which company has had the worst quarter so far this earnings season. How about ibm . This is a paper that needs parsing. Ibm is subjective. It depends on who is doing the grading. I went through the quarter and i liked the growth in the proprietary cloud and cognitive data that involve watson. You have seen watson on tv. That business is becoming a larger portion of the company. At more than 30 billion in revenues it represents 38 of ibm total sales. I find that encouraging. However then you listen to the incredibly rigorous analyst at Sanford Bernstein who says ibms businesses are decelerating. So theyre going to be hardpressed to make estimates in the second half of the year. He thinks the company took a step back, not forward in the latest quarter and makes a compelling case to stay negative on the name. Sell, sell, sell. Given that ibm stock had run up i think the balance of evidence went to tony. An upside surprise turned into a stock that was big in after hours but actually fell 28 cents today in the wake of tonys prediction of the upcoming short fall. I thought b plus. Tony flunked it. Goldman sachs which completely clobbered estimates, company earning 3. 72. Wall street was looking for 3 flat. The problem is goldman went from 144 to 163 ahead of the quarter. In keeping with a much better numbers that we saw from jpmorgan, citigroup, bank of america. The quarter was good but still not good enough. Especially with the controlling of expenses which i regard as marvelous but the street didnt. I swear it was the quarter but goldman deserved an a in my eyes. It was graded on a bell curve and the a went to jpmorgan. Goldman sachs had a c. How can you tell the test you are being given and what can you do to maximize your gains while minimizing risk . First when a stock is run up the important thing to remember is there are people who are only in it for the quarter and they are going to blow out of the stock no matter what. Simply as a matter of discipline. When traders have a big gain they will take it, even if they end up selling before the actual test results come in. Second, there are people who are more powerful than the company itself in determining the stock reaction to earnings. Tonys name meant nothing to you but hes as important as ibms ceo who runs the call. If saganaki says they cant make the numbers or the business isnt transforming the way management says it is his voice takes precedence. Why . Hes what we call the ax. As demonstrated by his excellent appearance on the Halftime Report with scott wapner where he explained his critical and negative reasoning. Third lesson, this is a relative gain, people. Goldman sachs may report a good quarter in absolute terms but the quarter wasnt as good as jpmorgan. Yet the stocks are run a commensurate amount. To say goldman did as well as citigroup is crazy. But so little is expected from citi and so much is expected from Goldman Sachs. Right now the citigroup is the guy bo buy given how far its come but i dont believe Goldman Sachs is bad. Its not quite good enough. In a vacuum goldman will be soaring toward the book value but the grading is subjective and the teacher is over looking that objective fact. Citigroup is still a buy even though its up only a couple of bucks. Fourth, when its bad, its really bad. More than one day bad. Like netflix. When you see a stock down this hard you have to belief there are multiple institutions trying to get out and they cant dump everything in one day. They own too much stock. There werent enough downgrades and number cuts netflix may not be able to sustain these lower prices. When its good there are no price people wont pay. Johnson johnsons earnings were that type of good. Now you have to wait for the next brexit type of event before you can buy it at a discount though its up more than 20 points. Heres the bottom line. At this point in earnings season the markets in nonstop grading mode and you understand how this process works. You have a much easier time of it. Its always best to seek out the true or false and multiple choice test. They are much easier and much more lucrative ways to both trade and invest. Bud in ohio. Bud. Caller booyah, ski daddy this is your long time bud in beautiful akron, ohio. We love it there. Whats going on . Caller i was hoping you could help me manage a winning trade. I recall a feature a couple of weeks ago on companies that will benefit from political tv yes. Caller on the tuesday after the brexit freakout, i asked myself your favorite question. What the heck does brexit have to do with the price to earnings ratio of gray tv. It fell 8 from where you featured it. I bought some in the money november calls which captured the next two Earnings Reports. Im already in the black on this trade. I wonder if you could give me any suggestions on how best to manage it . Let it ride. Actually you did the calls and thats fine. Hold on to it. The people wont realize the great numbers until they see them. Thats when you can [ bell ringing ] well played. Isaac in new york. Isaac. Caller thanks, jim. Im calling about a stock you might be familiar with called bristolmyers. Bristolmyers yeah. Caller all right. I didnt say it the right way. I have two quick questions. One is its had a runup for the last two months. What would be considered a good entry point and second, all this political talk about price controls, does that concern you and should that make me hesitant to buy the stock . Okay. My next buy point for bristolmyers is during the Democratic Convention where im sure someone will bash drug companies. That may be your chance to pull the trigger. Otherwise its been in the bullpen waiting for it to come down. Youre right. It doesnt seem to want to budge. All right. You cant always grade stocks on a passfail basis. Get out the red pen and well Grade Companies this earnings season together. Find out the value di valedictorians. There is serious cash being spent in the animal kingdom. Sit, stay. Im eyeing what can help you make money. Has bro and netflix, two big stocks, two big declines. Which should you buy . And three weeks ago the worst twoday selloff in years. It may be gone but is it forgotten . Im tackling the techs to see if the recent rally is real. Stick with cramer. Announcer dont miss a second of mad money. Follow jimcramer on twitter. Have a question . Tweet cramer, madtweets. Send jim an email to madmoney cnbc. Com or give us a call at 1800743cnbc. Miss something . Head to madmoney. Cnbc. Com. Discover how a lexus master craftsman turns an ordinary experience into an extraordinary one. Get great offers at the lexus golden opportunity sales event. Lease the 2016 es 350 for 329 a month for 36 months and well make your first months payment. See your lexus dealer. On a relatively hohum day like today as the market is barely moving as it tries to digest the last few weeks of Monster Games i look to like for themes to help you make money for years to come. Use these as teaching days. Powerful, longterm trends and the stocks that allow you to profit off of them when the market drops back. Let me give you a perfect example. Right now one of the hottest themes out there is the sheer amount of money you and i spend on our pets. This shouldnt come as a surprise to regular viewers given that i pounded the table on the pet theme before. But the story has so much staying power i think it is worth going over it again with new companies. These days Many Americans treat cats and dogs less like animals and more like family members. We pay up to buy them the best, most organic food. Okay, well, some people pay up. Perhaps more absurd, we spend fortunes so our pets get the best medical care money can buy. Your average cat or dog might be Getting Better health care than people in less developed countries. What can i say . We love our animals. When you see an animated movie like the secret life of pets grossing more than 200 million in less than two weeks beating out the new ghostbusters remake this weekend, you know the pet care theme is multi generational so it could be a moneymaker for a very long time. Before we get into specific stocks let me give you some aggregate numbers so you can understand the scale of the opportunity. According to an Industry Trade group called the American Pet Products association, pet related spending in the u. S. Has exploded since the turn of the millennium. In 2001 americans spent 28. 5 billion dollars on pets. By 2015, that figure had more than doubled to 60. 3 billion. Overall pet spending should continue to grow at a 4. 1 clip this year. Much stronger than the gdp, housing starts, whatever number you throw at me. Roughly 65 of all u. S. Households own a pet up from 56 when apa started the survey in 1988. We have 86 million pet cats in this country. Nearly 78 million dogs not to mention 14 million birds, 9 million reptiles, 12 million various small animals and 7. 5 million horses. Aside from low maintenance freshwater fish, like goldfish, cats and dogs are the most popular pets out there. As i can tell you from personal experience it is expensive. Every year the average dog owner spends 551 on surgical visits and the average cat owner nearly 400 and they hate to go. Routine checkups cost 196 for a cat. Food costs hundreds of dollars a year and thats if you stop yourself from buying the good stuff. If you want to go on vacation, cant find someone to dog or cat sit, you have to shell out hundreds of dollars for boarding. We spend a lot of money on kennels. Put it together and there are a lot of ways to make money from this smoking hot pet care theme. Tonight i will cover one group. Its the Veterinary Care pet supplies and medicine space which all together accounts for half of petrelated spending. Well talk about pet food later this week. For now let me give you a rundown on the animal pet stocks starting with the maker of medicine, vaccines and tests for pets and livestocks like Companion Animals and commercial, the largest pet Health Company out there. Zts spun off by pfizer in early 2013. The stock had a lack luster first year but rallied in 2013, 11 in 2015 and is up 3 year to date. Including a very good Companion Animal sales line and they are inventive coming up with new medicines. Next up, cramer fave idexx labs. This is the maker of veterinary testing equipment, the worlds leader in diagnostic tools for animals. Idexx has been a tremendous winner going back to the financial crisis. Look at the chart. Stock keeps roaring year after year including a 20 plus gain in 2016. The Company Continues to churn out solid results. It is riding the pet theme. Most recently they reported a nice beat and raise quarter in april. It made good money if you bought the stock when john ayers appeared after the brexit thing. Of course pets had nothing to do with brexit but the stocks fell anyway. Third, vca, Victor Charlie anthony. Thats the aptly tickered woof originally short for Veterinary Centers of america, it runs 680 small animal vet hospitals in the u. S. And canada. They have their own nationwide clinical lab system called antech diagnostics. Vca benefits as people spend more on keeping pets healthy and ensuring they live longer. The stock is up 225 since the end of 2012. Including terrific little better than 24 gain this year alone. Thats when everyone is starting to get this thesis. En finally, pet med express or 800petmeds, americas largest pet pharmacy on it are as online and on the phone. Its up 14 for 2016 but i would rather have the drug maker than the pharmacist. Which of the plays are most enticin enticing . Whats the best way to play the pet care theme . I have to tell you. While idexx is a favorite in the space for some time, the stock is pricey, trading at 38 times next years earnings estimate. I like to buy edexx more on a pullback. Hmm. Okay. How about zoatis. The company shocked people last year im shaking because it looks like we have other forms of pets here. Oh, this is one of those thats booyah. Booyah is floating upside down at the top of the oh, no. Its phew. Holy cow. This is a much more inexpensive, Less Health Care oriented animal that i like, too. You dont have to get insurance on it. The company shocked people year over years declined reporting in february and shocked again with a bullish upside surprise. Booyah, thats the name of the fish. Baby booyah. What company do i work at that i dont know this . Its a staff pet. The pet named by me but i wasnt aware of it. By you, cramerica. You named it its cable access. Sometimes we get it wrong. When we do pet stuff my staff finds it hard to control themselves. Its almost pawfect. Ha [ rim shot ] i say if zts delivered a second robust quarter in a row when we hear from them august second thats worth buying. I like ceo juan ramon. Maybe pick up some now and then some after the report. Zts. That leads us to vca, the chain of animal hospitals. This is a stock that continues to outperform the competition. Its still trading a bit over 21 times next years earnings estimates. Not that expensive when you consider that vca is experiencing accelerated Revenue Growth or arg of late. I like vca. I was going to do a big piece about that but i wanted to keep zts and idexx in front of you. There are a ton of ways to play pet care. Tonight we scratched the surface with veterinary. If you want to benefit, own vca, maybe some zts now and after the quarter we are certainly buying idexx into the next pullback. Booyah. See . Its down there like a treasure. Much more mad money. Baby much more mad money ahead. Hasbro and netflix are in the business of entertaining but the stocks are anything but a barrel of fun. I will tell you if they are worth owning. This markets been enduring whipsaw volatility. Could we be settling in for a rally or is there more instability ahead . Ill go off the charts to find out. And im eyeing one of the biggest breakups of the year and its not taylor swift and calvin harris. This one is a more lucrative split. I suggest you stick with baby booyah blue booyah, whatever. Stick with cramer. In a world held back by compromise, businesses need the agility to do one thing another. Only at t has the network, people, and partners to help companies be. Local global. Open secure. Because no one knows like at t. What do you do with the misfits of earnings season . Companies that blew it and saw their stocks crushed . Like hasbro yesterday and netflix today. Can you buy either one . Buy, buy, buy. [ buzzer ] we had the toy ceo on last night and i found his explanations for the decline in hasbros stock to be compelling. Inventories were up more than 40 and the chatter was how it must be sitting on old star wars merchandise because they said sales were flat but brian said a great deal of that inventory buildup is for toys that arent released yet. This is how he put it. Inventories were up because we are ready to launch a third and Fourth Quarter business on Disney Princess and frozen. Its a great business for us this year. It will be bigger in the second half of the year. That accounts for a lot of the incremental inventories. How can that be bad inventory . To me it looks like good inventory ready for a big holiday season, one you want to get in on. Its true Jurassic Park is leaving and transformers was weak. I heard a lot away from that theme that i liked. And wasnt talked about enough on the call or in the media following the report. Plus, if you are selling the stock now, youre doing it ahead of a full movie roster including a new Star Wars Film this december that could help the company move a lot of merchandise. Throw in the fact that hasbro has a 40 million buyback and i would be a buyer. Not a seller of the stock of hasbro. I would buy it right here. I think this is simply a case where the stock had run up more than 25 running into the quarter and a slowing in the category spooked people. Im not in denial about the weakness. I believe it is transitory and the stock represents great value. Perhaps more important, look back at when mattel reported. It was a total miss by the keystone barbie franchise. Mattel is above where it was reporting the weak quarter and nowhere near the number of catalysts hasbro enjoys. I think you can buy, buy, buy. Hasbro. How about knicnetflix . Im baffled with the ungrandfathering thing. What are you seeing with the ungrandfathering members is they have different pricing options. In terms of the ungrandfathering issue where are you in the u. S. It didnt face a grandfather choice. Ungrandfathering. Ungrandfather. Ungrandfathering. Im wary of words spellcheck wont check off on. It dominated everything on the call last night. As price increases were about to hit longtime subscribers who were grandfathered at a lower price, they didnt reup. Price mattered. In other words it seems like fewer of a pending price increase made netflixs u. S. Numbers weak. I found myself thinking at least they didnt lose any from ungrandfathering. The price never mattered before this. Netfli