Follow The Mutual Fund Leader
What should you be thinking of doing when you have a bizarre, mechanical sell-off at the end of the day? Cramer says you should simply follow the money! If you know where the money’s flowing, you know which stocks are going higher—and Cramer says that sometimes it’s downright simple to figure out where all that cash is headed.
One mutual fund that stands out from the pack is called American Growth Fund of America, which is up 9.5% year-to-date. The fund is run by James Rothenberg and Gordon Crawford, and has managed $126 billion.
Whenever one fund beats its competitors across the board, management will get an influx of cash from people interested in riding the hottest mutual fund out there.
AGTHX will be rolling in dough—a lot of dough, says Cramer, he points out that in April, equity mutual funds experienced the largest monthly in-flow of cash in 12 months, receiving $20 billion.
So what happens when the fund gets all this money from new investors? Cramer says it’s simple: they buy more of the stocks they already like, taking their biggest positions and investing even more money into them. They tend not to buy different stocks, they just buy more of what they like and the money coming into this one fund has the potential topropel its largest holdings higher for the rest of the quarter.
So what are they?
The fund’s number one holding: Google , AGTHX owns $4 billion dollars of it. The fund could easily double the size of its position without a problem, and when a mutual fund buys that much it is guaranteed to move the stock, no matter how big the company may be, says Cramer.
The fund’s second largest position: Oracle , with $3 billion invested in the company, a consistent quarter-beater, and 13% grower selling at just 13 times earnings. Cramer thinks this stock is particularly cheap, given its consistency and the possibilities for it to make more acquisitions.
The fund is very tech-heavy, owning a stake in Cisco . The fund’s third largest holding at $2.57 billion. Cramer says that Cisco, with some earnings visibility, has upside around $23 or $24.
Fourth largest position: Apple, with a $2.54 billion holding. Cramer thinks the fund could triple their position in Apple - which has an 18% growth rate and trades at 23 times earnings – and you could also clean up on some profits.
Microsoft is the fifth largest holding, and Cramer thinks it’s questionable and wouldn’t suggest buying it, but demonstrates how heavily invested the fund is in tech.
What’s the real takeaway here? Cramer thinks AGTHX has the potential to drive some of these names up by increasing its stake. He says you can take your pick of Google, Oracle, Cisco or Apple from this valuable insight to a fund which is leading the pack and making the right calls. The stocks they own are historically very cheap, and Cramer thinks their earnings are ripe for acceleration. The icing on the cake: these names are also weak dollar plays, an economic move Cramer has been warning people about for some time.
"Remember, we like to buy stocks not just because of the fundamentals but also because of our co-shareholders. Here, our co-shareholders are going to be deluged with money, and their likely course is simply to buy more of their winners and not to get less concentrated," said Cramer.
Cramer’s bottom line: Follow the leader in American Growth Fund. It’s making the right moves with the right companies with the right fundamentals. “Don’t buy the mutual fund, buy the stocks and let the mutual fund’s purchases take you higher,” Cramer said.
Cramer’s charitable trust owns Cisco.
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