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TheStreet Open House

Jim Cramer's 'Mad Money' Recap: Bubbles vs. Valuation

Stock quotes in this article: AMZN, FB, HAIN, GILD, BAC, TNET, LTC, VTR, SCTY, FSLR, NDLS, PBPB, PFE, AZN, SWHC, MACK, IRBT, GE, EPD, AAPL, HON, JNJ, NS, COST, ALU, AA, RAD, XLNX, BMYTWTR, FSLR, TSLA, PXD, XEC, EOG

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NEW YORK (TheStreet) -- Don't confuse bubbles with high valuations, Jim Cramer said on Mad Money Thursday. Cramer explained that the two are very different things.

Back in 1999, in the heat of the dot-com bubble, Cramer said nearly 300 companies came public, most of which were totally bogus and had no hopes of ever turning a profit. When the money dried up, these companies folded. That was a bubble.

However, many of today's high flyers can turn a profit if they wanted to, but are instead taking a page from the Amazon.com (AMZN) playbook -- Sacrifice profits to grow quickly and the market will reward you, which it did with high valuations.

That strategy worked up until a few months ago, when the market changed its stripes and demanded both growth and earnings, sending these once-loved stocks plummeting.

Cramer said there are indeed bubbles out there, particularly in the software as a service names, along with early-stage biotechs and certainly in the IPO market. But that doesn't mean that stocks like Twitter (TWTR) or Tesla Motors (TSLA), which have received "cult status," should be lumped into these groups.

Many of the newly minted IPOs have huge lockup periods expiring soon, Tesla and Twitter no longer do.

Profit in the Oil Patch

So if the market is craving growth and earnings, where are the money managers putting their money? In the oil patch, where companies like Pioneer Natural Resources (PXD), Cimarex Energy (XEC) and EOG Resources (EOG) have been shooting the lights out, Cramer said.

Analysts were expecting Pioneer to earn $1.06 a share when it last reported but the company was able to deliver $1.26 a share based on a huge 15% rise in production growth. The company now expects to grow production between 16% and 21% a year.

Meanwhile, Cimarex, which also drills in the Permian Basin, was able to deliver accelerating production growth between 19% and 22%, which was enough to send its shares up 21% for the year.

Then there's EOG, with its finger on the pulse of the Bakken, Eagle Ford and other hot areas of the country. EOG was able to post a stunning 42% year-over-year production number. That company is not only finding the oil but has the infrastructure in place to get that oil to market.

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