Mad Money

Cramer: Market bubble missing 2000-era ingredient

Cramer: Don't confuse bubbles and high valuation

(Click for video linked to a searchable transcript of this Mad Money segment)

Jim Cramer is hearing a lot of talk about froth in the market. Although he doesn't disagree, he also doesn't like the conclusions that are being drawn.

That is, the "Mad Money" host is hearing too many pundits predicting a terrible end for companies caught in the bubble.

Skeptics argue that because events bear a strong resemblance to market events of 1999-2000, that the outcome of this bubble will be the same as the outcome of the dotcom bubble almost 15 years ago.

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Although Cramer sees the similarities between then and now, and has even talked about them on "Mad Money," he doesn't believe the aftermath must necessarily be identical.

"Now let me be real clear about this," Cramer said, noting that in some ways events are very similar, but they're not carbon copies.

"Back in 1999 and 2000 companies that came public showed the promise of growth but also showed little hope of profitability in the short-term. At first, the appetite for the stocks of these companies was robust, but ultimately it waned. In the end, hundreds of newly IPO'd companies went from hero to zero in a very short time as the bubble burst."

In fact, in the aftermath of the dotcom bubble, more than 300 public companies went bankrupt.

Will that happen again?

"No, and here's why," explained Cramer. "Unlike those 300 companies from the 1999-2000 era, some of today's newly public companies that have fallen out of favor could actually be profitable if they wanted to be. Believe me, if decided it wanted to slow its growth, it would be profitable next quarter. Same with Concur Technologies, Workday or so many of the others I talk about."

That, Cramer says, is a critical difference.

Some 15 years ago, newly IPO'd growth companies didn't show profits because they didn't have profits, he said. Today, newly IPO'd growth companies don't show profits because they don't think they have to. They're following a trail blazed by Amazon, reinvesting their profits back into growth.

"So, a terrific software analytics company like growing at an 80 percent clip didn't think that it would need to show a profit," Cramer said. "That's what happened."

As growth stocks sell off, Cramer suggests paying attention to which companies could be profitable.

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Cramer says those companies shouldn't go out of business.

"Sure they'll swing, but it won't be into bankruptcy, it will be into undervaluation," Cramer said. "At some level, the stocks will become too cheap and either buyers will step in or the companies will become affordable enough to be acquired."

That doesn't mean, of course, that none of these companies will go under. "Companies that came public that stand little chance of profitability could fold. So be it," Cramer said.

But in this market, there are many growth companies that are able to slow growth and generate profits.

It's a major difference between now and then, he said, "Recognize it."

Call Cramer: 1-800-743-CNBC

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