Mad Money

Taking Obama Out Of The Equation

Cramer reiterated to investors the need to factor in political risk when evaluating different stock sectors.

“In the midst of earnings season, suddenly politics has become just as important as revenue growth or market-share gains or earnings beats,” Cramer said. So investors need a new prism for valuing stocks. 

It seems that stock holders are suddenly President Obama’s enemy, as seen from an Obama-induced sell-off last week that caused stocks to correct more than any time in recent memory.
Cramer said with this in mind  shareholders need to be ready for anything that might come their way in the State of the Union Address on Wednesday. For that reason, Cramer has a new methodology for analyzing stocks based on how vulnerable investors are to attacks from the administration.

Remember, the value of a company’s stock is its future earnings stream. The price of a stock simply equals the earnings times the multiple that investors will pay for those earnings-P equals E times M. And investors pay more or less for those future earnings depending on a number of factors like growth, consistency, market share and now Obama-related political risk. “Because, make no mistake, this President has the power to wreck the earnings of companies, or at least the expectations about those earnings," Cramer said, "making investors want to pay less for many sectors that are now in the administration’s crosshairs.” And it’s not just about what Obama will do, it’s about what he might do. Cramer said the very uncertainty surrounding his agenda alone is enough to damage many sectors and send buyers to the sidelines.  

Now, don’t forget that 50% of all stocks’ performance is determined by their sector. Those sectors that Obama doesn’t like are now going to become bad neighborhoods. Cramer said he would rather be the worst company in a neighborhood that Obama “has no beef with” because of the vitriolic nature of the President right now.

The bottom line: look at the market through the prism of which industries Obama will try to punish and when calculating what to own, “It’s Obama onus first, earnings second,” Cramer said. 

Call Cramer: 1-800-743-CNBC

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