Cramer: It's Hard to Stay With Winners

 | May 16, 2017 | 3:50 PM EDT
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Why is it so hard to stick with winners? Lots of people have been opining on how Amazon (AMZN) , on its twentieth anniversary of going public could have eluded so many.

It's worth it on a day like today to ponder such an issue, but let's leave Amazon alone, you either caught it or you didn't. I still like it, I think it could go higher, but I want to talk about the process of why it is so hard to stay in a good stock by addressing the here and now, and what's going on at this very moment in the market.

Let's look at why today's winners may have eluded you and whether it is too late to make a move on them and we have to say, "well, we missed it, that's just too bad."

Let's start with Home Depot (HD) , up huge today, because this stock has been a great one for the ages. Over the last few weeks I have heard the drumbeat over and over that Amazon's gotten to Home Depot, too, and that things that people might have bought at Home Depot are now being bought on Amazon.

That's certainly the case for some aisles. But this morning Home Depot reported the best quarter of any retailer versus expectations, 5.5% versus 3.9% and it's exhibit A in the here and now of why people sell winners.

I think the Home Depot isn't you're your typical retailer that's been eviscerated by Amazon. First, it's not in a traditional mall, which we know has become the kiss of death for most companies in retail.

Second, it is levered to the do it yourselfer but also to the professional; in fact the professional drove the upside this quarter. I think the professional may very well want to buy things on Amazon that Home Depot sells but in this instance, with the pro having the means to pick up large bulky items when he needs them, Home Depot's better than Amazon.

Finally, Home Depot is levered to the value of your home and the scarcity of homes. The amazing CFO, Carol Tome, pointed out on the call a statistic that can crystallize the real trend here: "there are 76 million owned households in the United States and of those there are only 3.2 million that have negative equity in their home.

And you go back to 2011, 11 million of those households had negative equity in their home." So, she calculates, since 2011 homeowners have enjoyed a 113% increase in wealth which amounts to $50,000 per household. Given that increase and the fact that there are only 3.8 months of inventory -- we used to have double that in the great recession -- Tome concludes "I think that actually leans into people thinking remodel versus move."

So now first let's ask what kept people from owning Home Depot from the bottom of the Great Recession when it was at $19 versus now at $160. I would say that at every turn you had a stock that got ahead of itself after good news and then pulled back causing concern about some ephemeral event or moment or quarter. In other words, I think the action, literally, the decline in the stock after a huge jump, caused a lot of people to jump out of it, grateful for the big gain.

We have endlessly heard that Amazon was taking its business away and I don't think that will be any different next quarter. If you own Home Depot now you are never going to get rid of the Amazon worry even as I have explained that it is levered to household formation, wealth, scarcity of homes and remodeling, not to on-line convenience.

And then there's what may be the biggest reason people are selling stocks: Washington. That's right. I hear all of the time now that I am crazy to like stocks with all of the nuttiness that's happening with the Russians and with Comey and with intelligence leaks.

If you listen to some media you would think that Trump's the Manchurian candidate doing the Russians bidding against our own allies. If you listen to other media outlets you think that the Washington Post should be prosecuted under the espionage act for covering the story.

Either way, I don't care. It is not a reason to sell Home Depot. Moreover, if the stock were to go down on Trump's tweets, or whatever investigation is occurring or whatever headline is troubling people, it's a reason to buy Home Depot because it is levered to housing NOT the White House.

Okay, how about the stock of Advanced Micro Devices (AMD) ? It was at $4 this week last year. Now it's $12 and is the biggest gainer in the S&P 500 today. Why was that move so hard to catch? Multiple reasons. First, when it started its move the company had a terrible balance sheet. As the stock went higher it had to issue a lot of equity and sell off assets. Neither was something that makes you want to own the stock.

But it worked.

The company has had a terrible reputation for faltering just when you think it's all good and that, too, made you feel circumspect about owning the stock through the move. Its rival in personal computers missed numbers a couple of times and that knocked some people out of the stock and the prowess of its gaming competitor, Nvidia (NVDA) , drove out others. Finally, just recently it reported a totally disappointing quarter and the stock fell from $13.60 to $10 and change and it was hard to believe it could recover or even if it should recover.

But I think the last quarter represented a shakeout and the stock's now come back to life. It's no Nvidia which has a lot more going for it. Nevertheless it's not a bust and it can go higher.

Let's try one more, Alphabet (GOOGL) . Here's one that has been almost impossible to hold on to, as difficult as Apple (AAPL) , which I wrote about earlier today. Just in the last few months think about what's been thrown at this company. First, we have heard endless chatter about how its whole ad business might be falling apart because big advertisers are pulling out as they don't want their ads to appear against hate and porn videos on Youtube. This controversy lasted for weeks. I told anyone who would listen that Alphabet said it would have the situation under control. It didn't matter. We got downgrades, we got negative commentary we got number cuts.

It turned out to be all for naught. The business is more solid than ever.

At the same time that Alphabet was being hounded for ad placement issues, we have heard that it continues to spend too much money on its other bets and they are detracting from how much money is being made from search. Now in the other bets is a self-driving car company, Waymo. I have said over and over again that Alphabet is way ahead of everyone else in this business. Way ahead. Last night we learned that Ford Motor (F) is willing to partner with Waymo if something can be worked out. The item has been completely ignored by almost everyone. It is huge news especially as CNBC's auto expert Phil LeBeau points out, the overture comes from Raj Nair, the company's global product chief.

Right now Ford is spending hundreds of millions of dollars to develop self-driving cars. If it partners with Waymo it can save additional hundreds of millions. More important, it takes Waymo out of the other bets department and makes it into an entity that could be one of the biggest profit centers for Alphabet. In fact, it's a reason to own the stock in itself.

Home Depot, AMD and Alphabet: three examples of winners that have been so hard to stay in that I think you can still buy.

So here's the bottom line: yes, it's hard to find winners and more important to stay in winners when they keep going higher. But as long as the story stays good or in the case of Alphabet actually gets better, it's a clarion call to buy not sell. Keep these three stocks in mind next time you decide you have had enough and can't take the volatility any more.

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