The investing deck may seem stacked in favor of money managers, but that isn’t necessarily the case. Retail investors have a freedom to move that the big guys might envy.
Take a recent technical call on the energy sector, for instance. One of Cramer's favorite chartists predicted that the S&P 500's oil and gas stocks will start to outperform the index as a whole. Now, this isn't a prediction that oil or energy stocks go higher, but rather that the oil-related names within the S&P will generate better returns than the rest of its components. A typical Mad Money trade would include finding the best stock to play the trend and buying at the right price. But money managers, especially at mutual funds, use a different game plan.
These funds live and die by their benchmarks. Jobs are won and lost based on performance relative to the accompanying index, which often times is the S&P. So much so that instead of venturing out and buying non-S&P stocks, managers mostly shift between sectors among the 500 listed names as a way to hedge underperformance. The common wisdom is this: If you don't beat the benchmark but stay close to it, at least you won't be that far off. So the strategy is to be "overweight" the groups that are expected to do well while being "underweight" the opposite.
The downside here is that money managers have to buy bundles of stocks, taking the good with the bad. They don't have the luxury of finding the best of the best and leaving it at that. What is the best oil stock right now? Cramer endorsed Chevron, which the market just softened up after the company lowered guidance last week. Weak refining and tough currency translations hurt the stock, but the dividend yield is up to 4.1% as a result.
Chevron has the highest production growth in the industry, Cramer said, and it should register at 5% for the year. Wall Street values this part of the business more than all the others. The more growth there is the more these guys are willing to pay for the stock. The company's strong balance sheet means that there's cash around to make that happen, or boost the dividend or resume the stock buyback.
In the end, the lowered outlook was all but expected given every company's refining woes. That's why CVX has bounced back so quickly, Cramer said. And the revised guidance should have lowered the Street's expectations enough to set up an earnings beat next time around.
If you like energy for the technicals, Cramer said, then buy Chevron for the fundamentals.
Cramer's charitable trust owns Chevron.
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