Cramer: 4 Amateur Mistakes to Avoid
In this incredible bull market, Cramer on Thursday said it would be "tragedy" to miss out on future gains because of an amateur mistake. To point investors in the right direction, the "Mad Money" host addressed some of the more common, misguided arguments.
Cramer is most frequently asked whether a select stock has topped out. A stock may have found its top when the company's fundamentals are deteriorating, sales are decelerating, margins are being compressed, end markets are getting weaker, execution is sloppy and competition is heating up, he explained. In this market, however, Cramer said not too many stocks fall into that category.
Yet, investors often ask Cramer whether this is a top for Caterpillar . Being as its gross margins are improving and sales are strong, he doesn't think this stock has found its top. That's not to say Caterpillar shares won't go down, Cramer added. For reasons out of its control, it's likely the stock will trade lower eventually, but a temporary decline doesn't make a top.
Meanwhile, Cramer said people often call winning stocks losers. Some investors think Lululemon is a losing stock because they think its an overpriced company with products made of fibers that are getting more expensive. The problem with that argument, Cramer said, is that it could have been made when LULU was selling at $50, $60, $70 and $80 a share. Therefore, none of those criticisms have been valid.
Lululemon, Cramer said, is a high-growth stock and money managers will pay up for it. As long as Lululemon hits its high growth benchmarks and the money managers model a lofty earnings estimate that's less than twice the company's growth rate, Cramer said the funds will keep buying. The only way LULU will go down is if it fails to hit those benchmarks, he said.
In another question often asked of Cramer, investors want to know why he doesn't like Advanced Micro Devices . He explained that the stock only slightly higher than where it was two decades ago. Treasurys, he noted, have produced a larger return than this stock.
Finally, investors ask Cramer why he continues to like high-growth names like Netflix or Chipotle Mexican Grill . It would be "reckless," Cramer said, to miss out on these moves. Some people are able to retire on rallies and he's looking for stocks that could help people do just that.
When this story was published, Creamer's charitable trust owned Caterpillar.
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