Cramer: Window Dressers Eyeing These Beauties

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

It's getting to be that time of year when big money dresses up their holdings.

What happens is this. "Hedge funds and mutual funds that own them do some buying in order to mark up their merchandise," Cramer explained. "And the funds that don't own them do some buying so they can show their investors how smart they are because, look, they have the quarter's best performers in their portfolio."

"And when you have a bunch of funds all doing that to the same stock at once, they can really make that thing move." On Wall Street the phenomenon is known as window dressing.

At the end of June window dressing can move quite a few stocks because pros not only look at the best performers of the quarter, they also consider the best performers for the first half of the year.

Earlier in the week, Cramer talked about the quarter's big winners. (You can read more about those stocks in the post titled "5 Stocks with Strong Tailwinds".)

And on Friday, Cramer identified the best performing stocks of the first half of the year. As of June 21st they were Netflix, up 134% ytd, Best Buy up 125% ytd, Micron up 118% ytd, Hewlett-Packard up 69% ytd and AMD up 65% ytd.

Although Cramer thinks the phenomenon of window dressing should drive gains in the near term, unless you're a nimble pro, that's not a good reason to buy.

For retail investors, Cramer thinks window dressing provides a different kind of opportunity. That is, stocks that are subject to window dressing are the best performing stocks.

Therefore they're worth some homework; ask yourself 1) why are they doing so well –and 2) can the momentum continue?.

Following are Cramer's thoughts on the best performing stock of 2013 year to date:

Marla Teljeiro | Digital Vision | Getty Images

Netflix

"Roughly two years ago, investors jumped ship after Netflix announced plans to separate its DVD rental business from its streaming service and, at the same time, put through a big price increase," Cramer explained. Although customers were initially enraged Netflix was able to quell the discontent. As it turned out, people who wrote off Netflix made a big mistake. "Today, the company is producing its own content and adding subscribers like crazy—in the first quarter, Netflix added over 3 million streaming members, bringing the total to 36 million. I believe this fabulous growth story has more room to run," Cramer said.

Best Buy

Cramer sees Best Buy as a company that could be in the early stages of a turnaround. "At its worst, the company's woes drove shares down to $11 and change at the beginning of 2013. But since then Best Buy has been roaring back, mostly because the stock never should have been that low in the first place," Cramer said.

In recent months the company has grown much more efficient. "They're cutting costs aggressively, closing underperforming locations, and focusing on improving the customer experience in the store," Cramer said. Therefore, the Mad Money host believes Best Buy could go higher yet.

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Micron

"Old school tech names are pegged to an improving economy, so as business gets better, I'd expect Micron to go higher," Cramer said.

The Mad Money host believes just release earnings confirm the thesis. "Micron just reported a stellar quarter last night after the close, they actually beat by a penny delivering their first profit in two years. Plus, Micron has been a huge user of cash, but suddenly in this latest quarter, the cash flow is very positive."

Hewlett Packard

Cramer thinks the moves in Hewlett-Packard are all about the prowess of CEO Meg Whitman. "She has cut costs, dramatically cleaned up the balance sheet, restructured a bloated workforce, and rewarded shareholders with a higher dividend," he said. I believe this is exactly the kind of tech that should work in the forthcoming environment of higher rates and a stronger economy."

Advanced Micro Devices

"A few months ago, people were worried that Advanced Micro Devices, which is very much tied to making processors for the ailing personal computer market, might be on its deathbed," Cramer said. "However, sentiment shifted after AMD announced that they're making the new processor in Sony's PlayStation 4, which is expected to launch this holiday season."

"Revenues from the PS4 should start to really ramp next quarter, and at the same time, we know that AMD is also powering Microsoft's next generation XBOX. Therefore, you have my blessing to buy AMD into this weakness, because the mark-ups will take it higher still."

What's the bottom line?

Although window dressing can drive stocks higher in the short term, unless you're a pro, trading the moves can be tricky. If you're an individual investor Cramer thinks you're better served to ask yourself why these stocks are top performers year to date. If it's because they have strong fundamentals then despite the big gains, there could be even more upside.

Therefore, "if you're looking for stocks that you can buy right now, take a look at the S&P 500's best performers for the year, that's Netflix, Best Buy Micron, Hewlett Packard and AMD," Cramer said. "Take your pick."

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