This column was originally published on RealMoney on July 14 at 2:24 p.m. EDT.
It's not the darned price targets that matter, sillies, it is the estimates! Or more important, the direction of the estimates and who uses them to lead!
Everyone went wild this morning about Lehman raising the price target for Google. I could care less about price targets. What mattered was that Lehman went to what is known as Street High on the estimates. He staked out new ground, boldly going where no other human has gone yet, namely $7.53 for next year.
That's $7.53 in profits, not revenue, not eyeballs, not unique visitors.That's a huge number. Before Lehman staked out the high ground, the highest analyst on the Street was at $7.18. He took his numbers well beyond that analyst, an unsuspecting formerly high man from Legg Mason.
That number bump, that new ground, enables guys like me to put a multiple on the earnings -- we have to pay something for them, that's what the stock-pricing process is about, paying for future growth.
Guys like me say, OK, if we are paying 60 times earnings for
, and Google is growing faster than Yahoo! -- which it most surely is -- why not pay 60 times earnings for Google now with $7.50? That equals $450 per share!! Remember, P/E times E equals price of stock.
Now why doesn't someone just use a $450 number? Too bullish, we are all too chastised.
That's why I say price targets don't matter. What matters is the earnings estimates, and that they keep going higher.
Let's use a less-supercharged example, but every bit as good:
This morning, RBC Capital Markets' Apjit Walia, the ax in Intel, the man who has had the highest
forecasts for Intel all year -- and has been dead right -- took his revenue forecast for the third quarter to $10.2 billion. That's much higher than anyone else. Much higher. Jefco is at $10.01 billion, J.P. Morgan at $9.95 billion, Bear Stearns at $9.84 billion and so on.
Now, you could say wait a second, that's not earnings, it is revenue. But Intel is a revenue times gross margin story. If you figure that Intel's gross margins are going higher, and revenue is going higher, then you get the possibility of earnings estimates -- currently at $1.45 for this year and $1.56 for next -- are probably
way too low
, and you need to pay more
for the stock.
Yes, estimates, not the targets, are what controls.
These numbers, Google's earnings and Intel's revenue, are going higher, that's why the stocks are going higher.
That's why you would be nuts to rent them, and you would be sane to own them.
Get long, stay long. Numbers are going up. That's what you need to know.
P.S. from TheStreet.com Editor-in-Chief, Dave Morrow:
It's always been my opinion that it pays to have more -- not fewer -- expert market views and analyses when you're making investing or trading decisions. That's why I recommend you take advantage of our
premium Web site, where you'll get in-depth commentary
money-making strategies from over 50 Wall Street pros, including Jim Cramer. Take my advice --
At the time of publication, Cramer was long Intel and Yahoo!.
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 by
clicking here. While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column by
clicking here. Listen to Cramer's RealMoney Radio show on your computer; just click
here. Watch Cramer on "Mad Money" at 6 p.m. ET weeknights on CNBC. Click
here to order Cramer's latest book, "Real Money: Sane Investing in an Insane World," click
here to get his second book, "You Got Screwed!" and click
here to order Cramer's autobiography, "Confessions of a Street Addict."