This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Cramer: The Fundamentals and How They Really Impact Stocks

Some stocks, like 3M, Honeywell and Emerson, are what we call growth cyclicals, hybrids that have the characteristics of both kinds of stocks. They hold up at times of mild acceleration and stability.

Of course, some companies are levered to individual cycles. Deere, Monsanto and Potash are all about the farm cycle, chiefly whether or not the farmers are flush. Boeing and Precision Castparts and to some degree United Technologies hug the aerospace building cycles and track world­wide aircraft demand.

Others have their own secular-growth themes, such as the renaissance of oil and gas, the desire to look and feel well, and the aging population. Those themes are myriad and pervasive, and I spend the next chapters describing the best ones to profit from over the long term and which stocks best fit the long-term winning theses.

But all stocks, whether they be cyclicals, growths or hybrids, get graded the same way by analysts: Are the underlying fundamentals of the enterprise better or worse than expected, as expressed by the consensus of the analysts' estimates? Consider this whole investment process as an Olympic diving match. The analysts are the judges, and they grade on many different inputs. The ones we care about are sales expectations, or the top line, and the earnings expectations, or the bottom line. Many people are fixated just on the top line, the revenues, as a way to judge whether a company is growing faster than the global economy or its own cohort.

I agree that the top line is a very important input. A company's stock will be walloped if it "misses" on the revenues. However, I think the bot­tom line is more important, and here's why: the earnings-what a com­pany has left after it takes out the costs of all of those goods sold, expenses, taxes and depreciation-certainly need to please the analysts, but on top of that, bigger earnings can lead to bigger dividends, which are such a huge part of a stock's upside over time and can be traced to about 40 per­cent of a stock's long-term performance, dating back to the 1920s. Profits matter even in this new, crazy world, because profits can put dividend checks in your hand and help propel stocks higher over time due to those ever-increasing dividends. Thank heavens something remains true to the old days!

2 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs