Watch Cramer's Riff on MasterCard
People keep getting MasterCard ( MA) wrong, Jim Cramer said on TheStreet.com TV's Wall Street Confidential Web video Wednesday. They've been using it as a proxy for American consumer spending, but that is a small part of its story. "The story here is that people worldwide are adopting credit cards," he said. "The credit card is being invented all over, whether it be Southeast Asia, Latin America or Eastern Europe, and MasterCard is the play." This adoption of plastic over paper is really driving the stock, and more than half of the company's business is from overseas, Cramer explained. U.S. consumer spending is a secondary factor. A fifth of the stock is short, and the company is buying back what could possibly be a fifth of the company, Cramer explained. Therefore, "two fifths of the company are going the wrong way, and that's why the stock has gone up 17%," Cramer said. "It's a thin trader to begin with."
Cramer typically doesn't like to recommend stocks because of the shorts having to scramble, because periodically the shorts are going to be right, he said. However, MasterCard is just a classic example of what he said he's seen over and over again in his career, and that is that people don't know what they are shorting.
"They are shorting a concept, not a company," Cramer said. "MasterCard is the master at delivering the earnings, so you can't look for a shortfall or expect one." He believes people were emboldened by American Express' ( AXP) "just OK quarter" to short more MasterCard. But people should understand that American Express is very different, Cramer said. While MasterCard is a pure play on the secular growth of credit cards, American Express is a wealthier play on upscale consumer spending.