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You may have noticed, if you stayed up late to watch the show or turned in early and read the recaps, that the 10-point scale we've developed to rank companies has varied somewhat from sector to sector. So I want to give you a brief outline of how we decided to allot points to companies in different sectors, and then shed a little more light on how you can apply the Mad Money company scorecard--I wish I'd come up with that earlier in the week--on your own.
For every two stocks we compared, the first five points were always for its sector. That was constant. But because money managers value different qualities from companies in different lines of business, the other five company specific points weren't awarded on such a cut and dry basis. We didn't use the exact same metrics to compare Coach [COH
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] with Tiffany [TIF
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] that we did when comparing Procter and Gamble [PG
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] with Unilever [UN
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]. But we mostly stuck to the same criteria: We always started with growth. We also graded all the companies we looked at on consistency, the quality of management, the company's strategy and execution, and its ability to deal with input costs. We also compared dividends for most of the stocks, but where they were a push--one dividend as good as another--we sometimes left that out of our evaluation. You shouldn't omit dividends from your analysis, because over time half of a stock's return comes from its dividend, but this is a work in progress and we were pressed for time.
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Now, sometimes we compressed two of these categories into one. For example, when we looked at Procter and Gamble compared to Unilever, we evaluated their growth and its consistency at the same time, but when we looked at Coach and Tiffany, or McDonald's [MCD
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] and Burger King [BKC
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], we evaluated growth and consistency separately. The reason: For soft goods-stocks like Procter and Unilever, investors aren't looking for high growth as much as they're looking for consistent growth--consistency is more important when you're looking at secular companies, meaning companies that are supposed to deliver consistent earnings no matter the state of the economy. For Coach and Tiffany, both high-end retailers, their growth rates are more important to money managers, and the value of consistency has more to do with the company's management, and their ability not to stumble.
If we'd been comparing two utilities, say, we would have put more stress on their dividends, because they're stocks that people like to own for the dividend income.
Within the head-to-head comparisons it's important to focus on the key metrics for the company's industry, not dogmatically cling to a rubric that's set in stone for all companies, no matter what business they're in.
Cliff Mason is the Senior Writer of CNBC's Mad Money w/Jim Cramer, and has been that program's primary writer, in cooperation with and under the supervision of Jim Cramer, since he began at CNBC as an intern during the summer of 2005. Mason was the author of a column at TheStreet.com during 2007, which he describes as "hilarious, if short-lived." He graduated from Harvard College in 2007. It was at Harvard that Mason learned to multi-task, mastering the art of seeming to pay attention to professors while writing scripts for Mad Money. Mason has co-written two books with Jim Cramer: Jim Cramer's Mad Money: Watch TV, Get Rich and Stay Mad For Life: Get Rich, Stay Rich (Make Your Kids Even Richer). He is 100% responsible for any parts of either book that you did not like.
Mason has also had a fruitful relationship with Jim Cramer as his nephew for the last 23 years and will hopefully continue to hold that position for many more as long as he doesn't do anything to get himself kicked out of the family.
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