"It's all about competition," explained Jim Cramer on Tuesday's Mad Money broadcast. "The companies that are doing the best this earnings period are the ones that have the least competition."
Cramer cited a slew of examples to support his thesis.
"United Technologies put up spectacular numbers. Why? Because it has little competition in it's aircraft parts business and there simply aren't enough parts out there to meet the demand of the big aerospace companies," Cramer said. "Same is true for GE."
For further confirmation, Cramer said look at CSX and Union Pacific. "Both generated monster qood numbers. No kidding. The rails don't compete."
Or look at Johnson & Johnson, Cramer added. They also posted terrific numbers and they have patents to protect them from competition.
By contrast, Cramer said the stocks that are doing terribly right now are stocks of companies in which competition is intensifying.
Looking at Alcoa Cramer asked, "Is anything more competitive than aluminum? Not that I know of." And as for Coca Cola, there are constant price wars in the soda aisle.
"Travelers is another text book case," Cramer added. "The stock was soaring all morning until news broke that Travelers sees the need to compete on price to get business." Google is another example, he said. "Worries about competition in the internet generated the weakness," he explained.
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Looking at these and other results, Cramer said he was confident that competition had emerged as the driving factor behind the disparity of results this earnings season.
If competition is robust, expect companies to talk about challenges. If competition is minimal, expect companies to talk about opportunities.
What does that mean for you?
"If you are about to buy a stock, ask yourself, how's competition? Is this company going at it tooth and nail against other companies? If so, just take a rain check. There are better investments elsewhere," Cramer said.
