You can't turn around on Wall Street without hearing that the S&P 500 printed 2,000 on Tuesday, making yet another all-time high. Those same superlative-loving investors are also quick to tell you that the S&P 500 is on track to have the best August in 14 years.
Although the S&P 500 is widely considered a proxy for U.S. stocks, rather than look at the index as a single referendum on sentiment, Jim Cramer prefers to dig down into the index.
He says, by identifying the top performing stocks within the index, investors can learn much more about the rally. That is, if gains are driven by fundamentals, the rally should endure. However, if gains are generated by special circumstances, then they may not.
Following are Cramer's insights on the S&P 500's top stocks for August.
Monster Beverage
"While Monster has been a monster mover, up 30 percent in August, I think it can go higher," Cramer said. However, the lion's share of the advance was due to a stake taken by Coca-Cola. Therefore, the "Mad Money" host views gains as due to a special circumstance. "Although I think it can grind higher from here, the big advance is probably over."
Mohawk Industries
As a maker of carpet, Cramer said the sharp advance in Mohawk reflects the Street's interest in catch-up housing plays, as a play on improving economic fundamentals. "Despite its 17 percent run this month, Mohawk is still down for the year. It could just be beginning its move," Cramer said.
Gilead
Although Gilead turned lower on Tuesday after a 17 percent gain this month, Cramer thinks this stock has more room to run due to the success of its Hepatitis C drug. "It is the cheapest drug stock I follow, selling at only 11 times earnings." Given these fundamentals, Cramer said, "I think it can go to $125 before it even gets as expensive as the average big pharma dinosaur."
Dollar General
Cramer believes gains in Dollar General are due to a special circumstance; its bid for Family Dollar. "And I suspect that gains could be rolled back if rival Dollar Tree is successful in arguing that there are serious antitrust concerns with the merger."
Ross Stores
Cramer said Ross Stores was somewhat of a coiled spring, having fallen well behind the market. "Pros wanted a better than expected quarter and they got it," Cramer said. Looking forward, if the company keeps executing (a tenet of fundamental investing), Cramer says it's reasonable to think, despite its 14 percent gain this month, Ross could take out its old high.
Gap
"If gasoline keeps going down and expectations remain low I believe Gap could rally further, simply because it's not expensive versus the historical average," Cramer said. For August shares have already rallied 14 percent.
Netflix
Up 13 percent in August, Cramer remains bullish on the long-term business prospects. "Netflix got enough publicity from its Emmy nominations that I can see them easily winning more subscribers."
Southwest
Although shares have climbed 13 percent this month, Cramer said Southwest is all about bookings and the price of jet fuel. "The former is still going up while the latter is still going down. That's a terrific combination." And as long as these fundamentals remains intact, Cramer sees shares continuing their ascent.
Tenet Healthcare
Up 13 percent for the month, Cramer believes the advance in Tenet is due to Obamacare. "Say what you want, the health care legislation has been terrific for hospitals and health maintenance organizations."
Masco
With gains of 13 percent for August, Cramer says the advance in Masco represents better than expected demand for home goods. Although he thinks the stock seems extended, he also thinks the advance should continue as long as interest rates remain low.
Home Depot
With a monthly advance of 12 percent, Cramer again views gains in Home Depot as another play on better than expected demand for home goods. Again, as long as rates stay low, "it should have more room to run."
First Solar
Even with gains of 12 percent, Cramer says, "First Solar is way too cheap even after its run and I expect it to lead us throughout the rest of the year. "
Kinder Morgan
Kinder Morgan's 12 percent advance in August is largely due to news that the company is rolling up its MLPs into a conventional corporation, in an attempt to more efficiently make acquisitions and invest in new pipelines. "I suspect the 12 percent gain is just the beginning of its move which is why my charitable trust has been amassing a position in the name. This is a core holding for all who are watching with much more room to run. "
Keurig Green Mountain
Gains of 12 percent this month in Keurig Green Mountain are largely due to a recent licensing agreement with Kraft. "However, like Monster, Coca-Cola is an owner of Keurig Green Mountain. I continue to believe that in the end, Coke, which is very earnings challenged, just buys the whole thing."
Urban Outfitters
"Urban Outfitters has been depressed for so long that when it didn't report a disappointment it rallied and has gone up 12 percent for the month. I think that this was the first quarter of what could be many good ones and it has another ten percent in it without much difficulty," Cramer said.
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The bottom line
Although Cramer concedes that some of the biggest gains in the S&P were generated by special circumstances, largely he believes the majority of the advance was due to fundamentals. "That's a terrific sign and while we have every right to be wary of any red hot market, these August leaders hardly seem like they are fly by nights and are certainly, for the most part, not even all that expensive. In short, there's not much to fear here, and like the rest of the market, there's a ton to embrace."
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