I forgot about this 2000 article.
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 Quote), Ariba (ARBA Quote), Digital Island (ISLD Quote), Exodus (EXDS Quote), InfoSpace.com (INSP Quote), Inktomi (INKT Quote), Mercury Interactive (MERQ Quote), Sonera (SNRA Quote), VeriSign (VRSN Quote) and Veritas Software (VRTS Quote).
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?
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 Quote). 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 Quote) raise the bar? Can Pfizer (PFE Quote)? Can U.S. Steel (X Quote)? Or Phelps Dodge (PD Quote)? Union Pacific (UNP Quote)? 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 Quote) 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 Quote) or Dial (DL Quote) or Hunt's or Ralston (RAL Quote), 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 Quote) recreated Wal-Mart (WMT Quote) 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 Quote) 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 Quote) and Intels (INTC Quote) 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.
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Buffet is the richest still and Cramer is a carnival barker still. |
