NEW YORK (02/29/2000) - As the co-founder of financial-advice site TheStreet.com Inc., James Cramer gets invited to industry conferences like Gartner Group Inc.'s Internet & Electronic Commerce (iEC) show ostensibly to talk about the trials of giving birth to an Internet startup. But today, the fast-talking stock guru gave the audience what it really came to hear -- the way to pick winning stocks and make a lot of money.
After giving the audience his top 10 stock picks of the moment, he disclosed the method behind the madness for picking stocks in today's upside-down world of finance, where the hottest companies have no profits and didn't even exist five years -- and sometimes just five months -- ago. (Okay, if your mouse hand is itchy and you want to trade online now, skip to the bottom of the article for the list, but the methodology is more important than the actual list.)"You have to throw out all of the matrices and formulas and texts that existed before the Web because they can't make any money for you ... if we used that (old methodology) we wouldn't make a dime," said Cramer, speaking more from his vantage point as hedge fund manager at Cramer, Berkowitz & Co. than as co-founder of TheStreet.com. Cramer told the audience on the opening day here at iEC that his speech was the first time he has ever offered stock tips in a keynote address.
The person with average knowledge of IT and the Internet can figure it out as well, if not better than, brokers, who let themselves get bogged down by old-fashioned ideas of, for example, what the ratio of a company's share price to its earnings-per-share should be, according to Cramer.
One of the keys to picking winners is that "companies with access to capital always win," Cramer said. And the companies that Wall Street and Silicon Valley venture capitalists shower money on, whether or not they are making any money at the moment -- are the Internet infrastructure companies.
"My top 10, the next 10, the 10 after that all have the same things -- they make the Web faster, cheaper, better, easier to use, easier to access anywhere, anytime ... the Web economy is the only economy that matters," Cramer said. The Dow Jones Industrial Average stock index went down 250 points at the end of last week, but every one of his top 10 picks went up, he said. Another way to put it: companies that make up the Dow are down 12 points this year and technology companies are up 12 points.
Wall Street doesn't care about General Motors Corp. or Ford Motor Co., which last week announced they were teaming up on an auto industry supplier business-to-business Internet plan. What savvy investors care about is which companies the auto giants are using to build the Net infrastructure for their strategy, Cramer said. What's more, he said, you're more likely to pick a winning stock if you pick the loser in the contest to help the auto companies embrace the Web than if you pick the auto companies themselves.
"Oracle (Corp.) was the winner for the Ford and GM business, i2 was the loser -- i2 (Technologies Inc.) dropped 30 (dollars per share) after the announcement but has already bounced back 20 (dollars) -- Ford and GM won't be up 20 in a year; they may not be up 20 in a decade," Cramer said.
"It's the triumph of the arms merchants of the combatants if there ever was one," Cramer said.
Among Internet infrastructure and IT companies, the hottest of the hot stocks are those that "raise the bar," or beat their own internal growth predictions, Cramer said.
In this category, networking manufacturer Cisco Systems Inc. is a giant among giants, because it keeps beating its forecasts. "They have better currency than the U.S. dollar; they have their own stock," Cramer said.
Federal reserve Chairman Alan Greenspan is just making matters worse for non-Web economy stocks because, whenever he threatens to raise interest rates to slow the economy and ward off inflation, he cuts off the oxygen supply -- capital -- to the Fords and GMs of the world, Cramer said. At the same time, this does nothing to slow the torrent of cash flooding to dot-com startups, he said.
When interest rates rise, Wall Street worries how the traditional companies are going to raise capital to expand, he said, while dot-com companies still have the venture capitalists throwing money at them.
Not all industry insiders here at the show agree with Cramer, especially traditional retailers who are rushing to embrace the Net.
"You have to have a profit at some point," and it will be hard for companies on the Web like Amazon.com Inc. to show a profit when they are selling so many products on their site at a discount, said Bill Bass, vice president of electronic commerce at Land's End Inc.
To this, Cramer has two answers: an Amazon.com Inc. can afford to sell below traditional retailers because is doesn't have the traditional overhead of dealing with intermediaries; and traditional retailers who understand the Net and embrace it will, in fact, be able to compete with the Internet retail upstarts.
What were Cramer's top 10 picks? 724 Solutions Inc. (Internet financial services); Ariba Inc. (e-commerce technology); Digital Island Inc. (e-business hosting); Exodus Communications Inc.; Infospace.com Inc. (Internet portal); Inktomi Corp. (database services); Sonera Corp. (network operator); Veritas Software Corp. (backup software); Mercury Interactive Corp. (testing and application performance products); Verisign Inc. (Internet security).
Cramer attaches caveats to this list. First, a strongly recommended stock priced at US$100 might not be as strongly recommended at $200. And, he said, the market is so volatile that by the time you read lists like the one he gave, they might be out of date. Which is why, he would agree, it's best to understand the method behind the market madness, then go figure out the winners for yourself.