CNBC’s Jim Kramer on Thursday highlighted two features that dominate Wall Street, suggesting that investors can succeed by owning companies that exhibit both of them.
“It’s terribly hard to go wrong if you are betting on companies with strong sales growth and increasing gross margins,” said the Mad Money presenter.
These financial trappings are currently looking for institutional wealth managers who control large pools of capital, Cramer said. “Everyone loves earnings growth,” but the increase in margins, demonstrating the ability to achieve profitability, matters now, he said.
For example, Kramer said that thinking like that could explain why Nvidia has been in such a deplorable state of late, with its shares up 42.54% in the last month. Semiconductor Titanium “has the fastest growing revenue and one of the most outstanding gross margins I’ve seen of any major company,” he said.
Retail is once again demonstrating the power of growing sales and increasing profitability, Cramer said.
Walmart decided to offset rising costs, which led to a tightening of margins, and the retailer’s shares fell on Tuesday after it posted earnings, Cramer said.
By contrast, he said Home Depot and Lowe’s were backed by investors after home improvement stores reported earnings this week. “They can’t do anything wrong because they are shifting the growing costs onto the public and the public has no choice … because these two networks have already single-handedly destroyed the competition,” he said.
While Kramer acknowledged that companies can improve profitability in ways other than offsetting rising materials costs, he said this strategy is now being rewarded by the market. He said more than anything, Wall Street wants “companies that can make fortunes because they have very little competition, they have tremendous price power, and they can continue to raise prices for you at will,” he said. …
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