Riding the Janus Twenty Coattails

Editor's note: The following column was based on the mistaken assumption that the Janus Twenty fund was open to new investors. A subsequent story, Janus Has Changed for the Better, addresses this error and its implications in the interest of clarity and balance. The original text of this column follows.

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Big chicken-and-egg story developing in our business: Is the Janus Twenty fund picking great stocks, or is the Janus Twenty propelling its own stocks with its buying?

In the 1990s, one thing I followed obsessively as a hedge fund manager was the Janus Twenty fund. Here's why: When it gets on a roll, the stocks it owns go higher and higher. As more money comes in, the fund buys more of its own stocks, and then more money comes in again. It is the ultimate virtuous circle. Janus (JNS - commentary - Cramer's Take) exacerbated the problem in the previous era by allowing so many of its funds to piggy-back off the same stocks that Twenty picked. That caused the stocks to go ever higher until, of course, the market collapsed, taking with it most of Janus' money and revealing the buying to be more of a pyramid scheme than portfolio management.

Now a new team runs Janus, a team that has the respect of Wall Street. The issue is, however, will Janus have any choice but to take its stocks up? What else is it going to do with its money? Because, alas, Janus Twenty is up 9% and that's about the best of any mutual fund out there. That means there will be a series of articles in the next few weeks at the halfway point that say "Janus Twenty is back," and that will cause more money to flow in, and allow its stocks to continue to levitate.

So, given that scenario, which stocks could levitate off of the coattails of the Janus Twenty?

Let's take a look at the largest holdings, according to Morningstar's most recent tally.

First is eBay (EBAY - commentary - Cramer's Take). And you wondered why this stock never comes down and is the bane of so many short-sellers? eBay, of course, is ridiculously overvalued, but so what? As long as Janus Twenty holds on to its stake, you have an inevitable short squeeze, and on 2007 earnings, the stock may not be outrageous anyway. But given the huge nature of the position, if you think Janus is going back into the process of anointing its own equities, you have to believe that eBay could double from here rather easily -- that's right, double -- and it won't matter one whit to these guys.

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As originally published, this story contained an error. Please see Corrections and Clarifications.

At the time of publication, Cramer was long UnitedHealth Group.

James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS. While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to [e-mail]. Listen to Cramer's RealMoney Radio show on your computer; just click here. Click here to buy Cramer's latest book, "You Got Screwed!" Click here to order Cramer's autobiography, "Confessions of a Street Addict."