CNBC’s Jim Cramer on Thursday highlighted two characteristics that are prevalent on Wall Street, suggesting that investors can find success by owning companies that exhibit both.
“It’s terribly hard to go wrong when you bet on companies with strong sales growth and rising gross margins,” said the “Mad Money” host.
These financial qualities are currently being sought by institutional money managers who oversee large pools of capital, according to Cramer. “Everyone loves revenue growth,” but expanded margins showing an ability to achieve profitability also mean something now, he said.
For example, Cramer said this mindset may explain why Nvidia has been on such a tear recently, with shares rising 42.54% over the past month. The semiconductor titan “has the fastest revenue growth and some of the most excellent gross margins I have seen of any large company,” he said.
The retail industry further illustrates the strength of rising sales and expanding margins, Cramer said.
Walmart decided to absorb cost increases, leading to tight margins, and the retailer’s stock struggled Tuesday after reporting earnings, Cramer said.
In contrast, he said Home Depot and Lowe’s were embraced by investors after home business stores reported earnings this week. “They can not do anything wrong because they are transferring rising costs to the public and the public has no choice … because these two chains on their own have already wiped out competition,” he said.
While Cramer recognized that companies can improve advances in ways other than simply transferring rising material costs, he said the particular strategy is what is being rewarded by the market right now. He said more than anything that Wall Street wants “companies that can make a fortune because they have very little competition, they have tremendous pricing power, and they can keep raising prices on you at will,” he said. .
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