Do not overreact to the post-earnings decline within the inventory

The latest round of corporate earnings reports demonstrated the importance of staying true to comprehensive stock analysis without reacting to initial price action, CNBC’s Jim Cramer said Friday.

“You can’t assume that something is wrong just because a stock sells in response to profits, but that’s exactly what so many traders do,” said the Mad Money host. “The truth is that winning season is a confusing time and the initial market reaction is often wrong.”

DraftKings, which released results on Friday, and Penn National Gaming, which reported Thursday, are the two most recent examples, according to Cramer.

“Both companies reported significantly better than expected sales. Both companies are well on their way to dominate one of the strongest and fastest growing areas in this entire economy, which is gambling,” said Cramer.

However, Penn National stocks fell sharply on Thursday, as did DraftKings on Friday.

Rather than focusing on the initial stock movement, Cramer said he had stuck to his routine of reading conference call logs and was “convinced the sellers are actually not on the ground,” while revealing he had previously did some work for DraftKings.

Penn National made up some of its losses from the previous session on Friday, up more than 3%. It’s up 0.3% since the start of the year, while DraftKings is up 4% so far in 2021.

Health insurance company Centene and steel maker Nucor are also reiterating the need for investors to be prudent when evaluating earnings reports, Cramer said.

After interviewing Michael Neidorff, CEO of Centene, following the company’s results last week and reviewing the financials, Cramer said, “I independently concluded and told you that Centene should be bought.”

After Centene shook off selling pressure, it bounced back, Cramer said. “Boom, the stock is now up 18% since it settled.”

“The next time you get shaken about the action, remember examples like Centene and examples like Nucor. Trust your instincts, people, not the direction of the stock,” Cramer said. “Most of the time, when you do your homework, your judgment should be better than the market’s.”