In his new book, "Get Rich Carefully," CNBC "Mad Money" host Jim Cramer gives readers advice on how to evaluate growth stocks with strong fundamentals. As he explains, investors should assess market dynamics to find sectors with long-term potential. After that, it's time to use key hidden metrics to benchmark potential stock picks against others within the industry group.
Major themes built to last can be the ultimate antidote to the daily hazards that have driven so many people out of this asset class. If you listen to the pundits, they invariably return to the idea that all stock trading is short term in nature, and we have to accept a new world ruled benignly by central banks and maliciously by high-frequency traders and hedge funds that flit in and out of stocks, chasing whatever fad captures their fancy. I think these misperceptions erode confidence and make it seem impossible to get rich with any sort of prudent philosophy. That's why I emphasize long-term themes. These seven themes are built to last for years and years to come:
- New technology that embraces social-, mobile- and cloud-based initiatives will dominate a sector that's been decimated by the commoditization of so many yesteryear enterprises. Companies like Google, Salesforce.com, Facebook, LinkedIn and Amazon will be the dominant plays because they recognize the need to continue to pioneer in this new world of progress and innovation.
- If you can find companies that stand for wellness and health when it comes to the food chain, companies like Whole Foods, Hain Celestial, Panera and Chipotle, you will be able to surf a wave that can generate tremendous profits over time.
- The post–Great Recession consumer wants value wherever it can be found, whether in retail with TJX or vacations with Priceline and Cedar Fair or knock-off goods with Perrigo. You find companies that can save people money, that respond to the new frugality, and you will be able to beat other investors who simply can't spot this trend. Costco's the best long-term way of playing this theme.
- Companies can better themselves by merging either with competitors or with other companies that entrench them in their industries. Acquirers in the new world like Eaton, Gannett and B&G Foods are bold enough to transcend the meager growth that other companies just accept and therefore deliver subpar returns.
- The best money-making technology may no longer be found within the confines of that cohort once known for it. It's more lucrative to look for stealth technology in food, apparel and consumer packaged goods companies like DuPont, Under Armour, Colgate and International Flavors & Fragrances.
- Biotech has replaced traditional big pharma for growth and consistent profits. Celgene, Biogen Idec, Gilead and Regeneron have produced and will continue to produce superior returns for investors for many years to come.
- The revolution in oil and gas in this country has produced tremendous profits for the companies that have exploited it to date, including the likes of EOG, Pioneer Natural, Schlumberger, Anadarko, Noble Energy, Core Labs and Kinder Morgan Energy Partners. I believe these shale success stories are in their infancy and will produce bountiful returns for many years to come.
Text copyright © 2013 by J.J. Cramer & Co. From Jim Cramer's "Get Rich Carefully," reprinted with permission from Blue Rider Press, a member of Penguin Group (USA) LLC.