NEW YORK (TheStreet) -- TheStreet's Jim Cramer says investors need to see money return to the highest-growth names, which have had a shrinking price-to-earnings multiple, as the market moves from the first quarter into the second quarter.
Cramer brings up the example of Celgene (CELG - Get Report), which has been mostly in decline from the $170 range to the $130 range. But he believes this company could have $15 to $16 in earnings power in just a couple of years and is cheaper than Merck (MRK) and Pfizer (PFE).
Cramer also suggests investors keep an eye on Salesforce.com (CRM - Get Report), which has had a shrinking multiple since it reported solid quarterly results. If these stocks turn around, then Cramer says money will flow back into the highest growth out of the best value.
"We rate CELGENE CORP (CELG) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, notable return on equity, reasonable valuation levels, expanding profit margins and good cash flow from operations. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- CELG's revenue growth has slightly outpaced the industry average of 14.9%. Since the same quarter one year prior, revenues rose by 21.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Biotechnology industry and the overall market, CELGENE CORP's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
- The gross profit margin for CELGENE CORP is currently very high, coming in at 96.51%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 12.21% trails the industry average.
- Net operating cash flow has increased to $550.70 million or 12.29% when compared to the same quarter last year. Despite an increase in cash flow of 12.29%, CELGENE CORP is still growing at a significantly lower rate than the industry average of 64.51%.
- You can view the full analysis from the report here: CELG Ratings Report