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Cramer on how investors should maneuver CEO buybacks

Elizabeth Gurdus

Jim Cramer has found that when CEOs repurchase shares of their own company, it's usually because they think the stock is headed up.

Wednesday's example was Tesla (TSLA) CEO Elon Musk's announcement that he would buy $25 million of Tesla's common stock in an effort to raise capital for the tech giant.

In February, Twitter (TWTR) CEO Jack Dorsey also bought back some $7 million worth of Twitter .

In light of these moves, the " Mad Money " host decided to cross-reference them with some past buybacks.

Cramer started with drugmaker Allergan (AGN), whose stock was beaten down after a failed acquisition by Pfizer (PFE) and Hillary Clinton's vows to tackle high drug prices when the election seemed to be leaning in her favor.

Watch the full segment here:

In November 2016, Allergan CEO Brent Saunders announced that he had bought $1 million worth of his company's stock, and since then, the pharma giant's shares have rallied almost 27 percent.

Earlier that year, JPMorgan (JPM) CEO Jamie Dimon made an even larger purchase in the face of a potential Clinton victory and no interest rate hikes in sight. He bought $26.6 million of his company's shares, and when that news broke, the stock jumped more than 8 percent in one day.

Same went for the CEOs of Restoration Hardware (RH) and Wynn Resorts (WYNN), both of whose buybacks led to months-long rallies in their companies' stocks.

But Musk's and Dorsey's buybacks might be different, Cramer argued.

"I am concerned that Dorsey's a rich part-time CEO. He is also the CEO of Square, which is really pretty ridiculous when you consider how poorly Twitter is performing. Maybe his buy is much ado about nothing," Cramer said.

As for the CEO of Tesla, the move is more sound than Dorsey's, but Musk tends to be a showman, according to Cramer.

"Let's put it this way: neither man needed to buy," Cramer said. "But with both, I want to wait and see because neither company's making money and there's a lot more that could go wrong with these two companies than the others we have gone over."

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