For most stocks, earnings matter. Good earnings make share prices go up, and bad earnings make prices fall. But for a select group of high-profile growth stocks, earnings don't seem to matter at all. Jim Cramer told his Mad Money viewers Monday that he's dubbed these stocks the "magnificent seven."
The magnificent seven have become household names during the pandemic, Cramer said, and as long as we're waiting on a vaccine, these stocks will continue to rise.
First on the list were Netflix (NFLX) - Get Report and Roku (ROKU) - Get Report, the two go-to names for streaming entertainment. With movie theaters still in limbo, investors continue to buy these stocks regardless of their earnings. Next up were a pair of fintech favorites, PayPal (PYPL) - Get Report and Square (SQ) - Get Report. Cramer said these companies are democratizing money and are synonymous with the small business economy.
Then there's Tesla (TSLA) - Get Report, a perennial cult favorite. Cramer said shareholders of Tesla are convinced the company will grow into its sky-high valuation and quarterly earnings will not dissuade them. The same applies to Peloton (PTON) - Get Report, the exercise equipment maker that's taking the fitness world by storm now that gym memberships have become hazardous to your health.
Finally, there's the leader of the magnificent seven, Zoom Video (ZM) - Get Report. Cramer said it's a Zoom economy and we're just living in it. No matter what the company reports, only its staggering growth rate seems to matter.
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Off the Charts
In the "Off The Charts" segment, Cramer checked in with colleague Larry Williams to learn about his latest trading insights about the market as we approach the election.
Looking at historical data, Williams noted that over the past 22 years, buying in mid-October and selling into the first profitable opening has been a winning trade. He also noted that buying the S&P 500 futures between Oct. 19 and 22, selling eight days later has been a wining trade 20 of the past 22 years.
Williams also looked into what the charts predict about the election. He said in years where the incumbent loses, the markets typically peak in July and drift lower going into November. That's not what the charts are predicting this year. However, the pandemic has thrown a significant wrench in our typical patterns.
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Try Defying Gravity
The "magnificent seven" aren't the only stocks with stratospheric valuations. Cramer examined a group of 15 cloud stocks he called the "red hots," which also continue to defy gravity.
At the bottom of the list, trading at just 30 times sales were some familiar cybersecurity names, CrowdStrike (CRWD) - Get Report and Okta (OKTA) - Get Report, both of which have been huge winners this year. Next were a few recent IPOs, including Ncino (NCNO) - Get Report, Lemonade (LMND) , Amwell (AMWL) - Get Report and ZoomInfo (ZI) - Get Report. Cramer advised waiting for this segment to fall to lower levels.
At No. 3 on the list was Datadog (DDOG) - Get Report, a stock that's tripled this year and now trades at 44 times sales. At No. 2, Zoom Video, which now trades at a whopping 52 times sales. Finally, there was Snowflake (SNOW) - Get Report, the data and analytics platform that continues to soar. Cramer was a fan of all three of these stocks.
Cramer Does His Homework
In his "Homework" segment, Cramer followed up on two stocks that stumped him during earlier shows. He said that Nano-X Imagining (NNOX) - Get Report, the Israeli medical imaging company, has been a controversial stock. The company came public in August at $15 a share before rocketing to highs of $66 before the short sellers questioned the company's technology.
Cramer said Nano-X has a great story, but as an investment, it's simply too early and too hard to know whether its imaging technology can deliver on its promises.
Next was Shift4 Payments FOUR, the digital payments company that sells, among other things, touches payment systems for restaurants. Like Nano-X, Shift4 has been a wild ride, with revenues soaring and falling along with the pandemic. Although the company also tells a terrific story, Cramer said he'd rather stick with best-of-breed companies like Square or PayPal.
American Industrial Stocks
In his "No Huddle Offense" segment, Cramer said investors are hungry for American industrial stocks. The only problem, there aren't that many left.
America hasn't been a manufacturing economy in ages, Cramer said, and that's how a stock like Caterpillar (CAT) - Get Report has risen to 32 times earnings. They're simply one of the few high-quality companies left to buy. Deere & Co. (DE) - Get Report has been another winner, with shares gaining 37% so far this year. Cramer was bullish on Nucor (NUE) - Get Report, with its 3% yield, and he said Emerson (EMR) - Get Report makes sense at 21 times earnings.
Here's what Jim Cramer had to say about some of the stocks that callers offered up during the "Mad Money Lightning Round" Monday evening:
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At the time of publication, Cramer's Action Alerts PLUS had a position in CRM.