I think Cramer should be required to read this February 2000 speech on the air.
thestreet.com
You want winners? You want me to put my Cramer Berkowitz hedge fund hat on and just discuss what my fund is buying today to try to make money tomorrow and the next day and the next? You want my top 10 stocks for who is going to make it in the New World? You know what? I am going to give them to you. Right here. Right now.
OK. Here goes. Write them down -- no handouts
here!: 724 Solutions (SVNX:Nasdaq - news), Ariba
(ARBA:Nasdaq - news), Digital Island
(ISLD:Nasdaq - news), Exodus (EXDS:Nasdaq -
news), InfoSpace.com (INSP:Nasdaq - news),
Inktomi (INKT:Nasdaq - news), Mercury
Interactive (MERQ:Nasdaq - news), Sonera
(SNRA:Nasdaq - news), VeriSign (VRSN:Nasdaq -
news) and Veritas Software (VRTS:Nasdaq -
news).
We are buying some of every one of these this
morning as I give this speech. We buy them every
day, particularly if they are down, which, no surprise
given what they do, is very rare. And we will keep
doing so until this period is over -- and it is very far
from ending. Heck, people are just learning these
stories on Wall Street, and the more they come to
learn, the more they love and own! Most of these
companies don't even have earnings per share, so
we won't have to be constrained by that
methodology for quarters to come.
There, now that that's done with, can we talk about
the methodology that produced those top 10 so that
you can understand how, in a universe of a gazillion
stocks, we arrived at those, so you too can figure it
out? I hope we can because I have another 10 and
still another 10 and another. They all do the same
thing: They make the Web faster, cheaper, better
and easier to access anywhere, anytime. They
allow you to get on the Web securely anywhere in
the world. They make the Web economy the only
economy that matters. That's all they do.
We try to own every one of them. Every single one.
And if I had my druthers, I wouldn't own any other
stocks in the year 2000. Because these are the
only ones worth owning right now in this extremely
difficult, extremely narrow stock market. They are
the only ones that are going higher consistently in
good days and bad. I love every one of them, just as
I loathe the rest of the stock universe.
How did this stock market get like this, to where
the only people who can make a dime in it are the
people who are interested in the most arcane
subject, the moving of data from one space to
another, via strange new machines and software?
How did it get to the point where nothing else
matters, most particularly the 90% of the stock
market I have studied for the last 20 years? How did
all of that knowledge become totally irrelevant and
the only stocks that work are the stocks of
companies that didn't exist five years ago and came
public in the last two or three years?
Let's start with the world in the early 21st century, a
world where capital is abundant for a chosen few
and nonexistent for just about everybody else. It is
a world where the whole of Wall Street and Silicon
Valley is at your fingertips if you are creating the
infrastructure for the New Economy, and a world
where neither Wall Street nor Silicon Valley could
give a darn about you if you are using that
infrastructure.
Or in other words, we don't care if General Motors
(GM:NYSE - news) and Ford (F:NYSE - news) are
going with Oracle (ORCL:Nasdaq - news) or with i2
(ITWO:Nasdaq - news) for their new parts
procurement process. We don't want to own GM or
Ford on any occasion. In fact, we would rather own
the loser in that tech bake-off than the winner in
nontech, because in this new world, there is so
much business to be done for the i2s and the
Oracles that the capital will remain plentiful for
them, win or lose a particular piece of business.
Just yesterday I found myself wishing I had bought
i2 when it lost out to Oracle for the giant
business-to-business contract for the Big Three
automakers. Others had the same idea because i2,
the loser Friday, was up much more Monday than
GM and Ford could be this year. i2 can own the
world because the company with the access to
cheap capital always wins. And the companies with
no access have to lose.
Or, closer to home. We in the stock market don't
care that The Street.com Inc. (TSCM:Nasdaq -
news), a company I helped create, has built a
compelling new brand, has more than 100,000 paid
subscribers and has $100 million in the bank. We
just want to know which companies TheStreet.com
employs to publish each day. We want to know
who the host is, which publishing tool works best,
which wireless strategy TheStreet.com is adopting
and how does it automate its email? (By the way,
the answers are Exodus, Vignette (VIGN:Nasdaq -
news), Motorola (MOT:NYSE - news) and Kana
(KANA:Nasdaq - news) -- all at or near their
52-week highs as TheStreet.com languishes at its
52-week low, a triumph of the arms merchants over
the combatants if there ever were one.)
How did this bizarro world where nine-tenths of the
companies I have followed as a stock picker for the
last 20 years are losers and one-tenth are winners?
To answer that question, you have to throw out all of
the matrices and formulas and texts that existed
before the Web. You have to throw them away
because they can't make money for you anymore,
and that is all that matters. We don't use
price-to-earnings multiples anymore at Cramer
Berkowitz. If we talk about price-to-book, we have
already gone astray. If we use any of what Graham
and Dodd teach us, we wouldn't have a dime under
management.
So how do we sort through which stocks get bought
and which stocks get assigned to the waste bin?
We have a phrase on Wall Street. It's called raising
the bar. If you can raise the bar, or brighten the
outlook for your company, if you can see your
growth accelerating, your stock will go higher and
you will be given the currency to expand, acquire
and do whatever you want. That's the secret of the
quintessential New Economy stock: Cisco
(CSCO:Nasdaq - news). This giant networker has
the ability to control its own destiny. It can, as my
colleague Adam Lashinsky says at TSC, buy any
company it wants to. It can pay any price. Because
it has a currency that it better than U.S. dollars: It
has Cisco stock. It can do that because it raises
the bar every quarter!
But what about the Old Economy stocks? Can
Merck (MRK:NYSE - news) raise the bar? Can
Pfizer (PFE:NYSE - news)? Can U.S. Steel
(X:NYSE - news)? Or Phelps Dodge (PD:NYSE -
news)? Union Pacific (UNP:NYSE - news)? No,
no, no, no, no and no. So what happens to them?
Despite the billions in buybacks and the plethora of
strong buys that the Street has put out about these
companies, their stocks have no traction. They just
stumble along, rising and falling haphazardly with
every whim and quizzical speech of the Federal
Reserve chairman that still controls their destiny. If
Greenspan indicates that there is more tightening
ahead, these traditional companies, the ones that
you measure with traditional matrices, get
pole-axed as we worry about where the capital will
ultimately come from if credit gets choked off, while
the arms merchants in the Web war, with capital to
burn, just go higher.
It is no secret that the Dow, made up principally of
companies that can't raise the bar, is down 12%
while the Nasdaq, which is made up of companies
that can raise the bar, is up 12%. And in the
self-fulfilling jungle that is Wall Street, only growth
can maintain growth!
So how do we find what are the great growth
companies, knowing that growth and not cheapness
of stock to company is what matters? We have to
look for the fastest-growing industries and then
select the companies that can make the
infrastructure happen the fastest and the cheapest
in those industries. The growth must be positively
organic, if not viral. There must be heavy
technological barriers to entry. And there must be
an ability to scale without any thought to human
cost. These companies must be able to dominate
their businesses or be willing to become part of a
larger institution that dominates.
So, whom does that eliminate? First, any company
that is a commodity producer simply can't be
owned, no matter what. The New Economy makes
those be simply a function of low-cost producer with
no ability ever to raise price. This, of course, is the
crying shame of the way the Fed is trying to break
the economy because the only place that could
stand for a little inflation is in the deflationary
commodity industries. But their inflation revolves
around the ability to build inventory to anticipate
future price hikes and the Fed is taking short rates
to a height that makes it uneconomic to stockpile.
Second, it eliminates any bricks-and-mortar
company that doesn't embrace the Net. To not
embrace the Net is to give a cost edge to a
competitor who does. It does so because the Net
removes the middleman that was a product of the
regional economy. There is $4 trillion worth of
wholesaling that gets instantly eliminated by the
Net. Before only the largest orders could be
processed by the biggest companies because it
was too expensive otherwise. Now all orders can be
processed by the biggest companies through the
Web. There is no need for the jobber or the
wholesaler. Obviously, if you are still using that old
distribution network, you can't compete against
those who do.
Third, it eliminates any industry that does not have
a proprietary brand. This is one of those weird
features of the Web that people haven't woken up to
yet, but it will seem obvious a few months from
now. In the New World's economy, the desire to
"name your own price" is too great to squelch. An
outfit like priceline (PCLN:Nasdaq - news) will
change the very nature of brands in this country. It
won't destroy the premium brand, but it will force
everyone else out of the market. Why? Because the
way priceline works is that we are trying to buy the
premium brand for the price of the off-price brand.
That means the off-price brands, whether they be
Colgate (CL:NYSE - news) or Dial (DL:NYSE -
news) or Hunt's or Ralston (RAL:NYSE - news),
are simply doomed by the Web. Why would you
ever buy the second- or third-best when you can get
the best via priceline for the same price as the lower
tier? Ahh, that's a real killer. It leaves only the top
brands to vie for supermarket space. The others
won't be worth carrying. They won't move! Oh yeah,
same goes for the airlines and the hotels and just
about everybody else.
Fourth, it just destroys retail as we know it. Why?
Because the companies that embrace the Web
more vigorously will eventually be pitted against
other companies that embrace the Web more
vigorously, creating a virtual constant price war, the
kind of war that Marx, of all, actually predicted
would happen to capitalism. It will happen to retail
once everyone realizes that Amazon
(AMZN:Nasdaq - news) recreated Wal-Mart
(WMT:NYSE - news) online because it will forever
have access to cheap capital. Why do I say
forever? Because at a certain point, it will be done
with its buildout and will effectively be able to
cherry-pick whomever it wants to destroy while
having it be subsidized by other areas. It will be
Home Depot (HD:NYSE - news) vs. Wal-Mart vs.
Amazon in the end. Nobody else. And that's only if
Home Depot figures out it better get on the Web
and fast.
Fifth, it wipes out everybody who straddles the Old
and New Worlds. Let's take the brokerage industry.
If you are trying to preserve a price point, because
you need those margins, you can't and you become
roadkill. Same with journalism. If you are free online
and cost offline, you will eventually not be able to
charge offline. Why not? Because the
Hewlett-Packards (HWP:NYSE - news) and Intels
(INTC:Nasdaq - news) and Ciscos are bent on
making the online version far superior to the offline
version. And they will do it. They, too, have the
access to capital to make it happen.
I can tell you from TheStreet.com that we have
substantial cost advantages over our printed
cousins. We can come out around the clock. We
don't require paper, ink, delivery people or trucks. In
that sense, we are much more like television,
personal television, which is why we were wrong
initially to think we could charge for basic news,
and right to think we can charge a huge amount for
proprietary analysis that can make you money.
The struggle between the offliners and the onliners
in banking will also pan out just like these other
industries, with huge wins for those with a fresh
online culture and hideous losses for those who
don't see it coming or are slow to adjust. If you have
to preserve your giant branch network and the costs
that come with it while someone else perfects
secure wireless Internet transactions, you can
forget about it. You can't afford to compete. How
can Bank of America (BAC:NYSE - news)
compete with Nokia (NOK:NYSE ADR - news) as a
way to bank? How can Goldman Sachs
(GS:NYSE - news) compete with Yahoo!
(YHOO:Nasdaq - news) as a way to invest? Isn't
Nokia, with its wireless machine that goes
everywhere a better bank than one that needs
branches? Isn't Yahoo!, with its access to all of the
information and quotes in the financial world a better
place to buy stocks than Goldman?
Of course they are.
So, if you can't own the retailers, and you can't own
transports, and you can't own banks and brokers
and financials and you can't own commodity
makers and you can't own the newspapers, and you
can't own the machinery stocks, what can you
own?
A-ha, that just leaves us with tech. That's why we
keep coming back to it. That's why, despite the
80% increase in the Nasdaq last year, we are
looking at another record year now. It is by that
process of elimination that I have picked my top 10.
And my next 10 and my next 10 after. Only those
companies are worth owning. The rest?
You can have them.
Thank you. |
