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Why Wall Street Looks Forward, Not Back
Wall Street doesn’t care about a company’s earnings last quarter, Cramer said Tuesday. The only thing that matters is the performance going forward. That’s why a consistent, stable firm like Bristol-Myers Squibb [BMY
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] can lose 4.3% in a single trading session, despite reporting solid numbers today. At the same time, Fortune Brands [FO
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] cut its dividend, but that stock finished the day higher by 3.9%.
What’s going on here? Wall Street sees signs of an economic recovery, so it is abandoning so-called safety stocks like Bristol-Myers for early-cycle plays like Fortune Brands. The focus is shifting from defense to growth because money managers expect a much better business environment six to nine months from now. That is what’s driving this market, and it’s the reason a seemingly undeserving stock like FO is rewarded with buying.
Cramer emphasized how important it is that viewers understand this trend. If investors wait for Fortune Brands to increase its dividend again or beat its earnings estimates, then they will pay $58 for the stock rather than $38. Sure, you could sit on BMY’s 6% dividend yield, but there’s no real capital appreciation to be had with that strategy.
The bottom line, Cramer said, is that come fall FO could be in much better shape, while Bristol-Myers will be about the same as it is now. That means Wall Street, addicted as it is to growth, is going all in on stocks like Fortune. Smart investors should do the same.
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