Investors have to be wary of companies that are facing cutthroat competition in their industries, CNBC's said on Thursday.
"Competition may be the lifeblood of capitalism, but it is an anathema to making money," the "Mad Money" host warned. "As an investor, you want to own companies with as little competition as possible."
The most recognizable names in the stock market — names like Amazon and Apple, which reached $1 trillion in market value on Thursday — have been strong performers because their businesses "appear to be unassailable" by prospective rivals, Cramer said.
But when it comes to sectors rife with competition, owning stocks within them can be downright "treacherous," he explained.
Consider the stock of Wynn Resorts, a hotel and casino operator that recently issued a disappointing earnings report. Intense competition among the casino operators in the autonomous region of Macau, a Chinese gambling haven, crunched Wynn's results and sent the stock plummeting.
And Wynn wasn't the only one — casino stocks all hit session lows on Wednesday after Caesars Entertainment, a Wynn competitor, issued less-than-bullish guidance.
"The market share gains are waning, and so are the earnings," Cramer said.
Or take Red Robin Gourmet, a burger-focused casual dining chain that saw its stock sink nearly 20 percent on Thursday after the company preannounced a drop in same-store sales, a key metric for retailers and restaurants.
"We don't need a weatherman to know which way the wind blows: this is about the burger wars," the "Mad Money" host said. "Even McDonald's is being hurt."
Cramer acknowledged that some companies can rise above the competition. T-Mobile has been growing rapidly, with 1.6 million net new customers, he said. But even the magenta mammoth feels the need to merge with Sprint to fend off its few, powerful rivals.
"So, if you want to know why some stocks tend to get hot while others are decidedly not, remember, it's all about competition," Cramer said. "The unassailable franchises tend to give you larger gains than the stocks of companies that actually have to fend off rivals. Of course, capitalism doesn't work without competition, but your portfolio can certainly live without it."
WATCH: Cramer's concerns about competitive stocks
Disclosure: Cramer's charitable trust owns shares of Amazon and Apple.
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