How Execution Matters

Even in a volatile market environment, the companies that execute well are able to see their stocks push higher, said Jim Cramer on CNBC’s “Mad Money.”

Jim Cramer
Jim Cramer

To illustrate his point, Cramer called attention to the technology sector, which has struggled lately. Last week, two technology companies gave two very different outlooks.

Infosys, an information technology outsourcing and consulting services provider, reported disappointing quarterly results. In turn, its stock fell sharply. On the same day, though, enterprise software maker SAP pre-announced strong earnings and its stock pushed higher.

Infosys and SAP aren’t in the same exact business, Cramer admitted. But both companies serve the same end-market and are part of the same enterprise food chain.

So how can one company be thriving while the other seems to be in trouble? Infosys does have more exposure to troubled financial services companies and Europe's debt crisis, but Cramer thinks those are poor excuses. After all, he said it's hard to blame Europe when SAP is a European company.

Infosys' real problem, Cramer said, is "lousy execution" pure and simple. The company has missed its own forecast three quarters in a row, Cramer complained.

Photo: Bloomberg via Getty Images

"Clearly management doesn’t have a handle on how the business is doing. To make matters worse, Infosys said that they’re no longer going to provide quarterly guidance because of uncertainty in client spending," Cramer said. "Management’s only going to give annual guidance, something that makes no sense because Infosys has a lot more visibility into the next quarter than it does into the next year."

To Cramer, it seems as though Infosys had been pricing its outsourcing and consulting services at the high-end of the spectrum. But as it's been losing market share, Cramer noted it's had to lower prices to keep up with the competition. In turn, margins have taken a hit.

SAP Headquarters
SAP Headquarters

SAP is also facing shrinking IT budgets and a sluggish European market, but Cramer said it's "stellar" management team hasn't let those problems stop it from posting strong numbers.

So what’s the bottom line?

“Even in the hardest hit sector out there, you can still find winners as well as losers,” Cramer said. “When it comes to enterprise technology companies, stick with SAP, which has proven it can execute when the rest of the space is flailing, and stay the heck away from Infosys.”

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