Looking at the current environment, Jim Cramer sees too much of everything. Too many companies try to compete against one another, and consolidation will come for the retail, food, technology and pharmaceutical cohorts.
"We have too much of pretty much everything in this market. We need more last-man-standing situations and fewer dogfights if we want stock prices to go higher," the "Mad Money" host said.
The food companies have such little growth that even the strong players like General Mills hope for flat earnings next year. Fierce competition has hit nearly every aisle of the supermarket, and it made Cramer question if Campbell Soup or Kellogg need to stand alone. Mondelez clearly has the capital to buy another company, and he expects it will.
Retail has faced tremendous pressure, with only brief breaks when the stocks get too low. Macy's recently announced it would close 100 stores after Christmas, a big deal considering it only has 769 total locations. Cramer believes the U.S. clearly has too many stores.
"Capacity must be taken out through mergers if that cohort is ever going to come alive again in a sustained fashion," Cramer said.
Technology desperately needs the mergers most, Cramer added. A significant number of companies make components for electronic devices, and the balance of power seemed tilted to big customers like Apple and against the companies that supply it.
Citigroup's recommendation to buy Broadcom on Tuesday stunned Cramer. Citi estimated that Broadcom has $15.50 a share in peak earnings power, and predicted that Xilinx could become the next takeover target for the company. A potential Xilinx deal could add 10 percent to Broadcom's earnings, the firm said.
"This kind of research report makes it clear that there is so much obvious consolidation coming, it's become so accepted … that it's just too logical for Broadcom not to buy Xilinx," Cramer said.
The pharma group also displayed signs of a need for consolidation when Pfizer shelled out $14 billion to buy Medivation last week. Big pharma companies desperately need new products, and the biotech pipeline offers that.
"It's a natural hunting ground. I have to wonder, though, if these biotechs shouldn't be looking to merge with each other," Cramer said.
Energy stocks may also need takeovers to stay appealing. Cramer said the exploration and production companies that have sold stock to acquire additional acreage in the U.S. are red hot.
On the other hand, competition benefits consumers because it drives down product prices. Additionally, some groups like railroads and banks cannot merge because they face too much competition.
"From our perspective as consumers, though, we have to hope that these deals get blocked before they allow the companies in question to raise prices," Cramer said.