• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Jim Cramer

Jim Cramer: Here's Why the Market's So Feckless and Reactive

So many companies -- like Netflix, Facebook and Johnson & Johnson -- are not trading on earnings per share, but on factors that are nearly impossible to quantify.
By JIM CRAMER
Sep 23, 2019 | 05:37 PM EDT
Stocks quotes in this article: NFLX, FB, GOOGL, SNAP, JNJ, MSFT, CVS, MCK, TEVA, MYL, AAPL, AVGO, MU, NVDA, NXPI, INTC, AMAT, LRCX, BA

Too many disparate metrics. Too many things to keep track of. Too many. Too much non-earnings per share to focus on. And all of these new signposts have made this market far more difficult to understand.

It's not talked about enough, so I am going there right here, right now to explain why the market's so reactive and so feckless.

Case in point, maybe the best case in point: Netflix (NFLX) . Here's a company that doesn't trade on earnings per share. In fact, I have never heard anyone say "have you seen how cheap the stock of Netflix is? The darned thing is down to 80-times earnings. What a steal."

Netflix is never talked about like that. Never. This is all rather amazing, given that the company came public 17 years ago. You would think by this time, there would be a way to measure the company's worth. Nope, so it defaults to other metrics, metrics like FOMO per share, or fear of missing out. That means the Emmys matter, and Netflix just did OK in the Emmys. There wasn't anything to speak of that made me think, "Wow, I am missing too much. I have to subscribe." It seems fatuous, but weak Emmys means weak sign-up numbers, which means sell the stock. That's just plain nutty, but its how things work.

Or how about two big companies like Facebook (FB) and Alphabet (GOOGL) ? If these stocks were judged by their earnings per share, they would be dramatically higher because they are doing so well. They are the two cheapest large cap companies in this entire market.

So what do we do?

We figure out what really matters to both stocks. And the answer? Investigations per share. This morning Snap (SNAP) revealed its "Project Voldemort-Harry Potter Villain," which kept track of all the nefarious things Facebook has done. The Federal Trade Commission is looking at everything and word about Snap's slam book on Facebook has investors shuddering. Meanwhile, we know that Alphabet is being investigated by state attorneys general for what the company was investigated for at the beginning of the decade. Google acts better today, because there's no government news. No such luck, Facebook.

Johnson & Johnson (JNJ) is one of the absolute greatest companies on earth. Triple-A balance sheet -- one of only two, the other Microsoft (MSFT)  -- fabulous pipeline of drugs, high organic growth. So what. JNJ is gripped by the opioid and talc stories. JNJ is now about lawsuits. It's lawsuits per share. McKesson (MCK) and CVS (CVS) are lumped in. Obviously Teva (TEVA) and Mylan (MYL) . Those stopped trading on earnings per share a long time ago. They go down every time there's a loss in court, not a loss in earnings. Who can analyze that? It's a dreadful way to think about a stock; totally impossible to quantify. A nasty situation.

The tariffs are another impossible-to-quantify story. This morning Apple (AAPL) announced it's going to build the new Mac Pro in Austin, Texas, and in return it got a waiver for parts brought in from China. That's a huge win. But it is totally impossible to analyze. We don't know what the tariffs were. We don't know how much the breaks were worth to Apple. We just know that it is "good." Is that why Nvidia (NVDA) , Micron (MU) and Broadcom (AVGO) are going up? Is that the reason why Intel (INTC) and NXP (NXPI) are rising? How about semiconductor equipment makers Applied Materials (AMAT) and Lam Research (LRCX) ? The answer is yes, but is that something that can be predicted and measured? How do you put a price-to-earnings multiple on a company that suddenly can get its parts through that couldn't before? That's a wholesale re-do and you have to be willing to pay up for these stocks until we get a new tweet or a delegation of Chinese that doesn't go to Montana.

Railroads used to be measured by their freight loads and earnings per share from them. Now it's how precise is their railroad. Precision railroading, where they know where the cars are and don't give big discounts is the rage. You need to know those numbers if you are going to invest in these stocks.

Then there's aerospace. We know nothing is more important to this industry than getting the Boeing (BA) 737 Max into the skies. Boeing gets hit periodically on negative publicity -- there hasn't been a single positive article about Boeing. But you have to hang in there for approval, because I think this stock will go off, rallying gigantically on that day.

I have another dozen of these ideas in my head, stocks that simply don't trade with earnings or sales, and I have come to think that they are part of the ongoing difficulty of trying to assess what so many stocks are really reacting to.

What do you do if you are hostage to one or many of these odd measurements? I think, first, you have to recognize that if you have too many of these, you will be driving yourself crazy and want out of the entire market. Second, if you are really sick of these faux metrics, then go buy some higher yielding stocks. You will be able to sleep at night. It's vital that you know yourself. You do not want to be shaken out of good stocks simply because other stocks are eluding the grasp of traditional securities analysis. Third, if you know the stock of a company you like and you know what they do and you can accept the metric, then by all means pounce.

But there's one more thing. I don't like markets that have different kinds of valuations other than traditional ones. I didn't buy into the eyeball thesis of measuring cyber companies by the number of people who read or glanced or whatever. Yet, that's what the suspension of rigor ensued.

The more stocks that are valued by nontraditional metrics, the more likely that we truly are overvalued. Right now, I still think we are, and the bulls do have the upper hand. They are winning in September, a month known for its havoc on prices.

But let's accept this as gospel: You can only go up for so long on non-earnings per share issues, before you have to accept that valuations have gotten out of whack. Let's watch this and accept that this isn't a regular market, or a regular advance. It is often too wacky, and I say that as someone who has been around forever and has seen all sorts of markets.

Saving grace: We don't have to worry yet about WeWork and what looks likely to be a "tequila per share" measurement judging by how much tequila flowed in the office when King Adam Neumann was on top of his game.

But don't worry, with nine bankers on the hook, they will find a way to get that metric in front of us.

NVDA, AAPL, GOOGL, LRCX, CVS, JNJ, MSFT and FB are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
TAGS: Stocks | Pharmaceuticals | Technology | Jim Cramer

More from Jim Cramer

Jim Cramer: The Market Now Acts Like a Market of Stocks Than a Bushel or a Peck

Jim Cramer
Jan 22, 2021 12:52 PM EST

There was a period before the time of commoditization where individual elan and corporate dominance meant something. And that's back.

Jim Cramer: Housing Is Our Bridge

Jim Cramer
Jan 21, 2021 3:59 PM EST

Do not fear the housing sales boom -- this is good news and I'll tell you why.

Jim Cramer: You Just Won Powerball, Now What?

Jim Cramer
Jan 21, 2021 2:24 PM EST

Remember, you only need to get rich once.

Jim Cramer: Here Are the Biden Stocks

Jim Cramer
Jan 20, 2021 1:59 PM EST

As power has changed hands in the White House, we can expect these names -- and themes -- to benefit.

Jim Cramer: I Pick the Bulls

Jim Cramer
Jan 19, 2021 3:09 PM EST

My trading strategy? Figure out who is the favorite and calculate the 'line.' Here's how that works out today.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 11:01 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    I'll discuss price targets in my Saturday column.
  • 07:54 AM EST GARY BERMAN

    Friday Morning Fibocall for 1/22/2021

    SPX (Long-Term View) The 1/21/21 NEW high @ 3861...
  • 11:16 AM EST CHRIS VERSACE

    Worst Stocks to Buy for the Biden Presidency

    Biden's take on the minimum wage, likely moves on ...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login