Investors need to keep their eyes on the prize by choosing companies with tangible results and tuning out the outside noise, CNBC’s Jim Cramer said Thursday.
“Stay out of the crosshairs of the young, money-losing stocks — many of which should never have come public and came way too early — and instead just find some solid, tangible companies that make things and do stuff that you like, and then they distribute … generous dividends,” the “Mad Money” host said, echoing his 2022 mantra of buying shares of companies that report actual profits and make things.
Cramer’s comments came after the market’s third consecutive day of gains during the week that saw the Federal Reserve lift interest rates by a quarter point. On Thursday, both the Dow Jones Industrial Average and the S&P 500 rose 1.2%, while the Nasdaq Composite gained 1.3%.
Cramer said that the Fed’s interest rate hike, coupled with inflation that has been skyrocketing for months, has led to a market that is unforgiving for high-value stocks.
“Right now, this market’s got a disease that is called multiple compression. Because inflation is rampant and the Fed’s hitting the brakes on the economy, Wall Street’s willing to pay less for any company’s future earnings stream,” Cramer said.
“The thing about market-wide multiple compression is that it hits the most richly valued stocks the hardest, which is why I’ve been warning you away from the high-flying price-to-sales stocks since November.”
Cramer also warned that listening to ill-suited advice, like forgoing individual stocks for index funds from portfolio managers stirring up panic, will only hurt investors. The host advised investors on Wednesday to look for companies that are “built to last.”
“The key is to not be taken in by plausible-sounding arguments that turn out to be totally untrue,” he said.