GO
Loading...

A Lesson Every Home Gamer Should Learn

Not all stocks in the same industry should trade together, Cramer said Thursday, because the underlying companies could be very different.

Take the technology space, for example. Last week electronic manufacturing services company Sanmina lowered its forecasts for sales and earnings. In turn, its stock fell and took other tech names down with it, including rival Jabil Circuit . Those who sold Jabil shares would later learn they made a mistake, Cramer said. On Wednesday, Jabil reported a strong quarter and issued better-than-expected guidance for the next quarter, as well. The news sent Jabil shares soaring.

"This is a lesson that more of you home gamers need to understand — some companies in a particular cohort are better than others, so they shouldn’t all trade in jackbooted lockstep with each other," Cramer said. "Sanmina can’t hold a candle to Jabil in the contract manufacturing business. Simple as that."

In the contract manufacturing business is about specializing in large economies of scale, so you can procure raw materials more cheaply, pool resources and improve efficiency, Cramer said. It's a low-margin business, where players are hostage to their end-markets. Both Jabil and Sanmina assemble products for other companies and have no control on where they go after that. Right now, it seems Jabil's customers are doing better than Sanmina's.

Selling at just five times next year's earnings, Sanmina's stock is cheaper than Jabil's, which trades at 8 times next year's numbers. Cramer thinks Jabil is a buy, though, because it's "best of breed." Needless to say, Cramer has put Sanmina on the "Sell Block."

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

Contact Mad Money

  • Showtimes

    U.S.
    Monday - Friday 6p ET
    Australia
    Saturday 8a, 1p, 7p SYD
    Sunday 12a, 1a, 8a, 7p SYD
    New Zealand
    Saturday 10a, 3p, 9p NZ
    Sunday 2a, 3a, 10a, 9p NZ
  • Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

Mad Money Features

  • Grab the latest CNBC gear from the NBCUniversal Store!

  • Get a behind-the-scenes look at how Cramer formulates his investment advice. "Inside the Madness" is a column, which features e-mails and more with Cramer and his researcher Nicole Urken.

  • You’ve always wanted to hit the “Hallelujah!” button. Here’s your chance.

Mad Money Moments

Cramer's New Book