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Instead of panicking, “Mad Money” host Jim Cramer thinks investors can actually profit from selloffs. After all, a down day provides investors the opportunity to buy high-quality growth stocks at discount.
Investors should look for companies with “powerful long-term, secular growth stories; the kind of rapid yet consistent growth that’s coveted in an environment where economies around the globe seem to be slowing,” Cramer explained. These stocks have growth stories so robust they bounce back harder and faster than the rest of the market so when the market tumbles, investors can confidently buy into weakness. In other words, Cramer would only buy growth stocks on a pullback. “The market will always give you a price break if you’re patient,” he said.
Cramer compiled a list of his Ultimate Growth Stocks for 2012. To identify the “great growth stocks of the era,” he developed a 10-point growth rubric. The criterion include whether the company has a clear growth plan, sizable market for its products and opportunity for international expansion. The company must also be competitive, return capital to shareholders and have a strong management team. He also wants to see a strong balance sheet, as well as secular growth and margin growth.
Each stock had to fit the criteria to get on the list. Read ahead to see what stocks made his list, as well as three web extras.
By Drew Sandholm
Published 19 April 2012
When this slideshow was published, Cramer’s charitable trust owned Apple and TJX.
To Cramer, Apple is “the greatest growth stock of our lives.” The technology giant has built itself into one of the world’s most respected brands, with a massive following of loyal customers. Here’s how it sizes up to Cramer’s growth rubric.
1. Clear Growth Path: Cramer noted that from the iPad to the iPod and iPhone, Apple has many popular products that present multiple revenue streams.
2. Market for Products: Apple has a lot of upside because many of its products still aren’t dominant, Cramer said. Barring the iPod, all Apple products are still ramping up and taking market share.
3. Competition: Apple is so innovative it will remain competitive, Cramer said.
4. Capital to Shareholders: Last month, Apple gave in to investor pressure to pay a dividend after the company's cash pile grew to almost $100 billion.
5. International Expansion: When it comes to technology companies, Apple is “further than most” in terms of international expansion, Cramer said. It still has work to do, though.
6. Balance Sheet Strength: Cramer thinks Apple has the “best balance sheet in the world.”
7. Is It Expensive?: Expected to earn more than $50 a share in 2013, Apple is “absurdly cheap” at 12.75 times earnings — especially considering the average stock sells at 14 times earnings.
8. Strong Management: Cramer said Apple’s management team has been doing a fantastic job in the wake of the passing of founder Steve Jobs.
9. Secular Growth: Apple has built such a strong brand that it does well, even in a sluggish economy.
10. Margin Growth: Raw costs won’t constrain Apple, Cramer said. He expects Apple to grow margins.
Starbucks is far and away the world's largest coffee store chain, with locations in the U.S., Canada, the U.K., China, Germany and Thailand, among other international locations. The Seattle-based company provides various coffee and tea products, and licenses its trademarks through other channels such as licensed stores, grocery stores and national foodservice accounts.
Here’s how it sizes up to Cramer’s growth criteria.
1. Clear Growth Path: Starbucks has a long-term growth rate of nearly 20 percent, Cramer said. It is expanding in emerging markets and is moving into new product categories such as single-serve coffee for Green Mountain Coffee Roasters’ Keurig single-serve coffee maker.
2. Market for Products: Coffee is big business, Cramer said. The at-home coffee market alone is $50 billion, while the ready-to-drink beverage business is worth $60 billion.
3. Competition: Starbucks has practically become synonymous with coffee, Cramer said, so competitiveness is not really an issue.
4. Capital to Shareholders: Last year, Starbucks increased its dividend by 31 percent. Cramer thinks it will continue to give its shares a boost.
5. International Expansion: As mentioned, Starbucks is expanding around the world. The company plans to triple its store count in China to 1,500 locations from 500 by 2015.
6. Balance Sheet Strength: Cramer thinks Starbucks has a terrific balance sheet that boasts a strong net cash position.
7. Is It Expensive?: Starbucks is trading at about 25 times next year’s earnings estimates, which Cramer doesn’t consider expensive considering its 19 percent long-term growth rate.
8. Strong Management: Cramer praised CEO Howard Shultz for turning the company around in recent years.
9. Secular Growth: To Cramer, Starbucks is a secular growth story. He thinks it can continue to expand, despite the global economic slowdown.
10. Margin Growth: As Starbucks expands around the globe, its margins should rise sharply, Cramer believes. With the cost of coffee declining, Starbucks has the ability to lock in lower prices for next year, he says.
Chipotle Mexican Grill is yet another stock that can be added to Cramer’s list of favorite growth stocks. Since the beginning of the year, the restaurant chain operator’s stock has been skyrocketing. It had been very difficult to get this stock at a discount, but investors now have an opportunity to buy it at a slight discount thanks to the recent selloff. Cramer wouldn’t buy all at once, though: He suggests buying just a few shares at a time as the stock falls with the greater market.
So what’s to like about Chipotle? Cramer went through his 10-point system for evaluating high-growth plays.
1. Clear Growth Path: Management is forecasting strong same-store sales, Cramer said. It also plans to open up to 165 new locations this year.
2. Market for Products: The fast-food market is huge, Cramer said. Additionally, people are willing to pay up for what they perceive to be healthy food. Chipotle definitely addresses both markets.
3. Competition: Cramer thinks Chipotle will remain competitive because it practically invented the “healthy eating” concept, at least in the fast-food world.
4. Capital to Shareholders: Chipotle doesn’t offer a dividend, but Cramer said management will likely continue to invest in the business, which should ultimately create value for shareholders.
5. International Expansion: The restaurant chain is expanding internationally with plans underway in Europe, Cramer noted.
6. Balance Sheet Strength: Cramer said Chipotle has a very strong balance sheet, which will support growth.
7. Is It Expensive?: Chipotle sells for around 38 times next year's earnings estimates, which might sound expensive, but given the company has a 22 percent long-term growth rate. It means Chipotle has a PEG ratio of 1.72. To Cramer, that’s totally reasonable for such a “high-quality business.”
8. Strong Management: Cramer said the company’s management team, including and especially CEO Steve Ells, is more than capable of executing the growth plan.
9. Secular Growth: Chipotle is a play on healthy eating, which is a strong secular trend.
10. Margin Growth: Cramer thinks Chipotle will be able to maintain its margins, being as its restaurant-level margins increased by 20 basis points last quarter despite higher food costs.
Cramer listed Ross Stores as one of his favorite growth stocks. The Pleasanton, Calif.-based company operates off-price retail apparel and home fashion stores under the Ross Dress for Less and dd's Discounts brand names. It has more than a thousand locations throughout the U.S. Like the other secular growth stocks he's recommended, Cramer thinks Ross Stores' story is far from over. He outlined a checklist of 10 reasons why he thinks ROST has lots of growth potential and upside to come.
1. Clear Growth Path: Ross Stores has been posting terrific numbers lately, Cramer said. In March, it delivered a 10 percent increase in same-store sales, or roughly double analysts’ expectations. It also plans to double its store count by opening another 1,000 locations in the future.
2. Market for Products: The end market is certainly big enough, Cramer said. Off-price retail was one of the best performing segments of the retail sector last year, he noted.
3. Competition: Cramer thinks this retailer can remain competitive — it's really in a two-horse race with TJX, which operates off-price retailers TJ Maxx and Marshall's brands.
4. Capital to Shareholders: Ross has a great track record of raising its dividend, Cramer said. In February, it upped its dividend by 27 percent.
5. International Expansion: Cramer said Ross is purely a "domestic story" right now, because there is still a lot of room to grow in the U.S.
6. Balance Sheet Strength: Ross' balance sheet boasts a lot of cash and little debt, Cramer said.
7. Is It Expensive?: Ross currently sells for 15.6 times next year's earnings, with a 13 percent growth rate, which Cramer thinks is "pretty darned cheap."
8. Strong Management: Cramer praised the company's current management team, especially CEO Michael Balmuth.
9. Secular Growth: As an off-price retailer, Ross is not being held hostage to the economy. In fact, it's actually thriving in this environment because customers are looking for opportunities to save money on quality merchandise.
10. Margin Growth: In the latest quarter, Ross saw its gross margins expand by 10 basis points. Cramer thinks they can keep growing.
For those interested in ROST, though, Cramer doesn't recommend buying when it's up. As with all stocks on his list, he wants investors to wait for a pullback.
Allergan is an Irvine, Calif.-based company which specializes in many areas of health care. It develops and sells a variety of products, such as pharmaceuticals, Botox, silicone breast implants, Juvederm Voluma, and Latisse eyelash thickener. Cramer thinks it has great growth prospects, as outlined below.
1. Clear Growth Path: Almost all of Allergan’s products address issues faced by the U.S.’s aging population, which includes 72 million baby boomers.
2. Market for Products: Allergan enjoys a big market for all of its products, Cramer said. The glaucoma market alone, for example, is worth $5.7 billion globally and is growing at a 5 percent clip.
3. Competition: Cramer thinks Allergan can remain competitive because it’s very innovative. It continues to invest in research and development to invent new products, and continues to rejuvenate its existing product line.
4. Capital to Shareholders: Allergan pays a small dividend yield of around 0.2 percent, but Cramer noted it mainly spends money on research and development to fuel future growth.
5. International Expansion: This company has already expanded internationally, accounting for 40 percent of sales, Cramer said. It continues to expand into emerging markets, as well.
6. Balance Sheet Strength: At the end of the fourth quarter, Allergan had $2.6 billion of cash and slightly less than $1 billion of debt, Cramer reports.
7. Is It Expensive?: Allergan currently sells for 19 times next year’s earnings estimates, with a 14 percent long-term growth rate. It sells for less than 17 times expected 2014 earnings, which translates into a PEG ratio of 1.35 on next year’s numbers. Cramer thinks that’s reasonable for a growth company.
8. Strong Management: Cramer praised Allergan CEO David Pyott, adding he’s done a “terrific job.”
9. Secular Growth: Health-care businesses typically do well in good times and bad, Cramer said.
10. Margin Growth: Cramer doesn’t think Allergan will be overpowered by raw costs and believes there are plenty of margin expansion opportunities.
Celgene is a Summit, N.J.-based biopharmaceutical company that discovers, develops, and commercializes various treatments for cancer and immune-inflammatory related diseases. Here’s how it sizes up to Cramer’s growth rubric.
1. Clear Growth Plan: Celgene has the fastest growth rate among large-capitalization biotechnology companies, Cramer said. From last year through 2016, it’s forecasting annual revenue and earnings growth in the mid-teens. Cramer thinks those numbers could be too conservative, though, because analysts expect it to deliver an average of 24.5 percent earnings growth for the next five years.
2. Market for Products: The market for its products is certainly big enough, Cramer said. For its cancer drugs alone, for example, the market is worth $50 billion.
3. Competition: The patent on its Revlimid doesn’t expire until 2019 and the company may be able to extend the protection through 2023, Cramer said. It also boasts a strong pipeline and has a great track record of making smart acquisitions.
4. Capital to Shareholders: Cramer doesn’t expect Celgene to pay a dividend any time soon, because the growth potential from investing in research and development while expanding its sales team is “just too good to pass up.”
5. International Expansion: Celgene is already an “international powerhouse,” Cramer said. It is fully integrated with affiliate structures in more than 50 countries.
6. Balance Sheet Strength: The drug company has a “rock solid” balance sheet with $2.6 billion in cash at the end of the third quarter. It also had just $1.25 billion in senior debt.
7. Is It Expensive?: Celgene currently sells at 13.8 times next year’s earnings, despite having a 25.5 percent long-term growth rate. To Cramer, that’s cheap.
8. Strong Management: Cramer praised CEO Bob Hugin’s performance.
9. Secular Growth: Celgene is not held hostage to economic growth because people still need pharmaceuticals, whether or not the economy is doing well.
10. Margin Growth: Cramer thinks Celgene can grow its margins. He noted it already has a 90 percent gross margin, which is still increasing.
Based in Vancouver, British Colombia, Lululemon makes athletic apparel, particularly yoga wear and related supplies. It operates retail stores in Australia, Canada, New Zealand, and the U.S. Cramer still considers it a “relatively small” company, though, with many years of upside to come. He outlined 10 reasons why it’s among his favorite growth stocks.
1. Clear Growth Path: Lululemon generates strong same-store sales numbers. It increased by 26 percent last quarter, while the average retailer posted a 4 percent to 5 percent increase. The company is also expanding locations and growing its online business.
2. Market for Products: Athletic apparel is a huge market and Cramer believes it will continue to grow.
3. Competition: Lululemon will remain competitive, because it has built a respected brand with stores that people love to shop, Cramer said.
4. Capital to Shareholders: Right now, it makes more sense for Lululemon to invest its cash in its expanding business, Cramer said. The decision will ultimately reward shareholders by way of a higher share price, he explained.
5. International Expansion: Lululemon already has 19 stores in Australia and New Zealand, Cramer said, but it plans to expand into various international markets.
6. Balance Sheet Strength: Cramer called Lululemon’s balance sheet “pristine” as it ended last year with $409 million in cash and no debt.
7. Is It Expensive?: Lululemon sells for 35 times next year's earnings estimates, which Cramer doesn’t think is too bad considering its 30 percent long-term growth rate should translate into higher earnings in a few years.
8. Strong Management: Cramer had praise for CEO Christine Day’s performance.
9. Secular Growth: As a retailer, a healthy economy helps Lululemon, but Cramer said it’s built itself into a “lifestyle brand” that can’t be daunted by a sluggish economy.
10. Margin Growth: Cramer thinks Lululemon can grow its margins by making existing stores more productive. It also curbs increased cotton costs by using synthetic fabrics.
For those interested in Lululemon, Cramer suggests waiting for a pullback. The market will almost definitely provide an opportunity, so just be patient.
Headquartered in Corona, Calif., Monster Beverage makes, sells and distributes a variety of beverages, including energy drinks and iced teas. Although Cramer didn’t include Monster on his televised list of favorite growth stocks, he recently had high praise for it.
“This is probably one of the great growth stories of all-time,” Cramer said on CNBC’s “Squawk on the Street.”
Watch the full segment here.
When it comes to Cramer’s fave growth stocks, Nike didn’t make his televised list, either, but should get honorable mention.
Cramer thinks Nike’s stock could be trading much higher if investors would stop holding the company’s latest quarterly results against it. On March 22, the sporting goods and apparel maker reported earnings that some analysts and investors deemed disappointing. In turn, the stock took a dive the very next day. It has since climbed a bit, but Cramer thinks it deserves to go much higher.
“Nike's last quarter wasn't so much disappointing as it was misunderstood,” Cramer said. “The stock has been penalized enough for its so-called bad quarter, which was in fact quite good, and I think it should be bought here.”
Cramer argued that the worst is over for Nike, because things were never that bad to begin with. Future orders, a key metric, were very strong. In addition, the company has a lot of positive catalysts going forward. To Cramer, all of this means it’s time to consider buying shares.
McDonald’s is another name that didn’t make Cramer’s televised list of favorite high-growth stocks, but definitely gets honorable mention. Cramer has long been bullish on the fast-food giant’s stock and continued growth prospects.
“We know that McDonald's still has a ton of room to expand overseas, especially in India, China, and Eastern Europe,” Cramer said, adding that the company executes very well.
Trading at 15.4 times earnings with a consistent 10 percent long-term growth rate, Cramer thinks McDonald’s is worth considering.