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KATE v KORS: Cramer’s smackdown for stock supremacy

(Click for video linked to a searchable transcript of this Mad Money segment)

If you're looking at retail winners, there's a good chance you're looking at either Kate Spade or Michael Kors.

At a time when many other retail contenders are down for the count, both of these accessory makers have been champs.

Since Michael Kors came public in 2011, the stock has been on a steady trajectory higher due in large part to the success of Kors' luxurious signature accessories. "They sell a ton of handbags that range anywhere from $200 to $800, along with some small leather goods, footwear and women's apparel," Cramer explained.

The brand seems to be gaining a real foothold in the ultra-competitive luxury market with Michael Kors posting a 26% gain in overall same store sales in the last quarter.

Viktor Kitaykin | E+ | Getty Images

Like Kors, Kate Spade has also been a big winner, with shares up 75% in about a year. However, on Wall Street, this champ used to go by another name.

"Until a couple of years ago, this company was known as Liz Claiborne, Cramer said. And as management shed weaker brands to boost profitability it changed its name to Fifth & Pacific, "to focus on just three brands, Juicy Couture, Lucky Brand Jeans and Kate Spade. Then, last year, they finally sold off Juicy and Lucky in order to focus almost exclusively on their best brand, Kate Spade."

Today, the company is firing on all cylinders with a rapidly growing retail business. "In the latest quarter, their overall same store sales grew at a 43% clip."

Clearly both companies are executing well, but which is the better stock?

Although Cramer says both companies are facing big opportunities, the thing that sets these two stocks apart, for him, is the multiple.

"Michael Kors is a heck of a lot cheaper, selling for just 19.7 times next year's earnings estimates despite its still excellent 23 percent long-term growth rate," Cramer said.

Rival Kate Spade sells for 53 times next year's earnings. "To me that says, if KATE stumbles or drops the ball in any way, the stock could get obliterated. Conversely KORS, with its lower-multiple, has more of a cushion, especially with the average stock in the S&P trading at 17 times earnings."

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Therefore, if Cramer were to put money to work in the space today, he would buy KORS over KATE.

"Again, they're both good companies, so if you're willing to take the risk that comes with owning a high-flier, then Kate Spade might be the accessories play for you. But as for me, I prefer Michael Kors, because its much cheaper stock."


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