Where to Buy in 2014: Part I

 | Dec 06, 2013 | 11:30 AM EST
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(The following is text from Jim Cramer's keynote speech at The Deal Economy Event on Dec. 5.)

When I heard I was coming back to orate at The Deal conference this year, I knew I was in big trouble.

Last year I spoke at a time of incredible turmoil in the stock market. Washington had gone off the rails, hedge fund managers were shorting stocks left and right, individuals were rushing to sell any winners to lock in gains ahead of new taxes and the economy looked very tepid.

Into that breach I came here with some break-up and takeover ideas that I look back on now and think, "wow, what a genius." The reality? The talk came at pretty much the lows for the era. That's how you could catch doubles with recommendations like Deckers (DECK), the maker of Uggs, or Alliant Tech (ATK), the government's bullet maker, without takeover bids. It's how Johnson & Johnson (JNJ) could rally 40% or Hess (HES) could rally 70% percent from last year's speech, just on the talk of a break up, not on the reality.

And it's why almost all of the picks I made handily beat the market year over year. I have always said it is better to be lucky than good and maybe last year's talk is Exhibit A of that adage.

But we are in a what-have-you-done-for-me-lately profession and that means I have to give you a whole new crop of stocks that I think can beat next year's market, too.

That's no mean feat with stocks up  25% on average this year and only five stocks in the Dow having rallied fewer than 10%. Amazingly, only two stocks in the venerable index are actually down, IBM (IBM) and Caterpillar (CAT), and their declines are pretty imperceptible. It's just the opposite of last year's scenario.

It's been a banner year for fund performance, unless you work at one of the considerable number of portfolio managers who fought the rally tooth and nail, which, thank heavens, we didn't do for my charitable trust, my principal way of keeping my hand in the market these days.

The Market's Changed Dramatically

This year I want to do something different. In 25 days, I will have a new book out, "Get Rich Carefully," and it's about looking at stocks from some totally different perspectives. Over the five years since I wrote my last book, I believe the market has changed in some dramatic ways, particularly in relation to methods of trading, as well as government intervention.

It's a market that looks sublime and placid on the surface, but underneath lurks a seething Washington bear that hibernates and then springs up every few months to wreak havoc on stocks, clawing them down 5%, 8%, 10%,  sometimes almost as much as 20%. The market's become a bucolic farmer's field to make hay when the sun shines, except when the hidden landmines of Washington appear underfoot and blow up those who have been lulled into thinking that all is well in the republic.

"Get Rich Carefully" is born of that tension, a confidence-crippling political environment layered on top of a pretty decent earnings story and the polemical challenge from Washington, I think, is responsible for so many people staying away from this glorious bull market (or at least fleeing from it at the worst possible moments, every time a Washington IED explodes in their faces, vanquishing hopes of participating in the riches this market's producing for those who don't have one foot out the door at all times).

That's why I wrote "Get Rich Carefully." Because between the mechanical failures of the market that make a mockery of the asset class known as common stocks and the internecine warfare between Democrats and Republicans that I actually think will be worse this time around as we approach the 2014 elections, we are going to have still one more year with deep fissures that will present terrific buying opportunities.

And let's be sure of one thing before I get into the stocks and themes I like. I don't care if you are for big government, small government, no government or single issues that keep you from thinking beyond those parochial concerns, I just want you to make money.

To do so means to expect the unexpected and attack it with a strategy involving NOT stocks specifically, but long-term themes that enable you to take advantage of Washingtonian-inspired bear raids to put money to work at lower prices than you should otherwise be able to get.

The book's pretty much tightly under wraps. I don't even have a copy in hand. But I want to give you the first preview of one of the most important sections, the top themes for 2014 and beyond, and the best stocks to play them with, including ones I do expect to have difficulty in staying independent when the D.C. bear romps on Wall Street and takes all stocks down.

The New Holy Trinity of Tech

The first theme is the need to embrace the new Holy Trinity of tech: social, mobile and the cloud. Right now only a few companies actually see the vision of what's happening in tech. You need to have recognition that the old way of doing things, the client-server way, which excludes the on-the-go-tablet-toting-smartphone-utilizing individual, both at home and at the enterprise, is now a thing of the past. You need a strategy that captures the strengths of those devices to do everything on a cloud-based platform, not a soup-to-nuts offering provided by EMC (EMC), Cisco (CSCO), IBM or, most importantly, Oracle (ORCL), all of which I expect to be losers in the coming year.

Those four companies have become dinosaurs in the face of the social, mobile and cloud revolution.

Who has the smarts to harness these three? First is Salesforce.com (CRM), which has become the de facto new Oracle, the platform that all different functions can operate on. Workday (WDAY) for human capital and finance, KenAndy for enterprise resource supply, Veeva (VEEV) for global life sciences, Concur (CNQR) for travel and Facebook (FB) and Yelp (YELP) for social and mobile are all based on a Salesforce.com platform that allows for open solutions that cost so little for enterprises to adopt, once they have ripped out the legacy database plumbing.

Watch for LinkedIn (LNKD) and Yelp to storm the gates as they are armed with both subscription and advertising models for recruitment and leisure respectively, and I am a huge believer that you need both advertising AND subscription sales in a world where advertisers are paying less and less to reach an increasingly mobile audience. 

Yelp's been heading down of late and I think that it's the most likely candidate to be purchased by a larger company trying to get immediate access to social, mobile and the cloud. It was pursued by just about every major tech company in the space before it came public and I don't think it is trading at a level that's too expensive for Google (GOOG) or Facebook or Yahoo! (YHOO) or even Twitter (TWTR) to pull the trigger on.    

Don't want to venture into the ultra-expensive world of cloud-based systems, where the best acting stock is the 90x-earnings Workday? Then go with the way Action Alerts PLUS, my charitable trust, is investing in the new social and mobile world: Google. Here's a company that has quietly become the hottest business on earth, a company that's known for its superior search function, but should be known for its dominant advertising franchise, its best-in-class personal computing AND smartphone franchises, as well as an endless stream of popular devices that have not yet even begun to be monetized. I think that in 2014 you will see YouTube be commercialized in a shockingly positive and additive way and Google estimates are simply way too low. It could easily rally 25% when those numbers get bumped in early 2014.

Sometimes you can judge a company by the desire of young people to work there. Google's probably the toughest ticket to get a job of any company in the country. Go ask your kids, they know. I can't place a soul there.

Wealth from Health

Second theme? Companies that keep us healthy. Lots of times we must invest with the future in mind, meaning the future of what younger investors are compelled by and they are all about trying to stay healthy, even more than aging baby boomers.

This sector's become crowded with the recent advent of public companies like Sprouts Farmers Market (SFM), The Fresh Market (TFM) and Fairway (FWM), all of which are giving the primary health and wellness supermarket chain, Whole Foods (WFM), a run for its money. But I think that Fairway and Fresh Market have over-expanded badly and I don't like their prospects at all. Sprouts has done well so far and it's kind of like a public Trader Joe's. But the winner here? It's simple: Hain Celestial (HAIN). It's the dominant natural and organic food purveyor for all of these stores and it is in an endless land grab to snap up the hottest and the best of the lot.

Irwin Simon's Hain is the utimate arms dealer to all supermarkets trying to catch up with the fastest-growing segment in the pantry. It's a stock that's up 40% from when I spoke about it here last year and I still like it very much, as the earnings, aided by some new killer products and the entry into Wal-Mart (WMT), have exploded and far exceeded anyone's expectations on Wall Street.

For the long haul I would still go with Whole Foods because I think it can trump all of these other stores with its presentation and relatively inexpensive prices vs. the perception on Wall Street. I think its stock will get a spur when it opens its gigantic Brooklyn store in a few weeks' time, presenting the new look for its next leg of growth. 

There's a reporter who hates Hain at Barron's and he's good for a periodic slam job on the company. His hit-man approach coupled with Washington-based swoons have given you multiple opportunities to get into Hain at a discount in the last year. He's not done. Take his articles as terrific entry points into the stock. I suggested here last year that Hain might be taken over by a major food company.

Since that time, I think the rest of the food group has gotten even more desperate to become MORE natural and organic and it would make a ton of sense for Nestle, General Mills (GIS) or Kellogg's (K), all of which are challenged for growth, to snap up Hain for $120 a share, 50% above where it is now but a bargain for them because it would immediately raise their price–to-earnings multiples given the growth acceleration Hain would present all of them once the deal closes.

The Cost-Conscious Consumer  

We've got a consumer who -- rich or poor -- no longer feels wealthy and that's a consumer worth investing in. There are two plays on this theme that make the most sense to invest in: Costco (COST) and TJX (TJX). Costco has prided itself on offering the lowest price for merchandise because it makes its profit on the Costco cards so many of us proudly carry.

I recently pulled up with Craig Jellinek, Costco's chief executive officer, and I am convinced that he is following perfectly in the tradition of retired CEO Jim Sinegal in offering the treasure-hunt experience that is fabulous for customers, but a nightmare for suppliers because Costco rotates through new product constantly and then pulls it just when it feels that the goods have gotten too commonplace. It's the secret -- besides those incredibly good samples and the ultra-low prices -- to the chain's strength.

TJX is a marvel to behold. It's the company that comes with cash to the strapped retailer, the J.C. Penneys (JCP) of the world, and says we will take your excess inventory for dimes on the dollar and then TJX marks it up to quarters on the dollar in a way that the public can't resist.

It truly is the only discounter that has thrived during this period, which has seen Target (TGT), Wal-Mart, Penney and even Ross Stores (ROST) stumble. I love to shop at the TJ's right across the street from here, buying the same goods that I have seen marked up gigantically at those supposedly discounted retailers.

If you want stability and a slower growth play on the concept, consider Tanger Factory Outlet (SKT), a real estate investment trust that's capitalizing on the inability of major stores to maintain full price. This is the one real estate investment trust I follow that has held up in the face of higher interest rates. I think it will continue to do so.

(Stay tuned for Part II later today.)

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