Cramer on Monday said investors should view the market through the prism of companies that can pass on higher commodity costs, and those who can't.
"If the company you own can pass on the cost of the inflation — something that the heavy machinery, mining and industrial companies can do because they tend not to have much competition in their markets — then there is no impact to earnings and thus nothing to worry about," Cramer said. "If the companies can pass on higher costs, that's a sure sign that their end markets are growing and the demand from their customers is voracious."
Companies without pricing power, those companies that can't pass higher costs onto the consumer, are getting hit. With higher oil prices, the cost of gas will go up and act as a tax on the consumer. People will have less money to spend at retail stores. High-end names, like Coach , Polo Ralph Lauren and Tiffany & Co. , should remain unaffected though. Aside from proprietary concepts, like Chipotle and Panera , restaurants will also get hit. Supermarkets should also see a drop in sales, except for unique brands like Whole Foods and Hain Celestial .
In this market, Cramer said the shorts are laying it on thick. The short-sellers blindly go from one name to another. Yet, Cramer said the rally precedes on the backs of the money managers who bet against it. Now those traders are having to buy the very stocks they abandoned last week.
The bottom line: Disregard the shorts. Stick to the prism of who can pass on costs and who can't.
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