When Trust - Not Distrust - Can Make You Money
Tonight is part three of Cramer’s “Benefit of the Doubt” list. This is a list of retail managers you can trust even if they have a tough quarter or miss their same-store sales numbers one month. This little theory is predicated on the fact that quality managers can be trusted to turn their companies around when they say they will. We’ve given Home Gamers three names so far this week, and tonight you’re getting two more.
Now, keep in mind that this only works for retailers. Forget about applying this to a big industrial conglomerate or a semiconductor designer. Management plays a much more active role in deciding how a retailer’s going to do. So if a stock drops because of bad numbers one month, then banking on a trusty CEO to turn things around could be a good play for investors if the report is better the next time. Buy in when the Street is downgrading the stock for “poor performance,” then enjoy its rise back to the top when the CEO comes through.
Jim Sinegal, the CEO of Costco, is the first name tonight. His store sells everything from birthday cakes to books to crab claws to big-screen TVs – now it’s selling insurance – and it does so at great discounts.
A couple weeks ago, the Street was frowning over Costco’s drop after a not-so-great number. Sinegal had to adjust a mistaken TV return policy that was being abused the way customers have abused Sears for years with its return policy for Craftsman. It turns out American consumers were buying TVs specifically for the Superbowl and then returning them after! The costs were killing Costco.
But that’s all in the past, and the stock is still going down – just like it did last year on gas price concerns, which Sinegal said were ephemeral. He was right back then, and Cramer believes Sinegal can turn things around this time as well. So he’s giving him the benefit of the doubt.
Kohl’s CEO Lawrence Montgomery also made the list. He, too, deserves the benefit of the doubt, Cramer says. How many times have people said that Kohl’s should run out of gas? And yet it hasn’t. That’s because it offers great merchandise at low prices in a clean setting where customers know they aren’t getting ripped off.
How many times can Lawrence Montgomery tell people not to worry? Hopefully more times than a bad month can take this great stock down – five times in the last year. According to Cramer, that makes no sense whatsoever, but it keeps happening because nobody believes in Montgomery. Their lack of belief is making them miss out on one great opportunity in this stock after another.
Cramer says you don’t have to buy Kohl’s here. You can wait for the stock to come in – it always comes in. One day, when there’s a Kohl’s everywhere, and with 817 stores that day isn’t close, Cramer will freak out about this one. Until that time, he’s going to assume that Kohl’s, despite being the most consistent growth retailer in the country, never gets the benefit of the doubt because it’s not an “elite” store like Neiman Marcus or Nordstrom. Forget the snobs, Cramer says. Kohl’s model of great clothes at better prices works – and Lawrence Montgomery is a proven winner who deserves the benefit of the doubt.
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