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Look for Dunkin to Cover the Map
Posted at 4:19 p.m. EDT on Friday, Sept. 27
Sometimes themes in our business get so ingrained that you speak in shorthand about them, when they are actually as arcane as the infield fly rule or the cover 2 defense.
Such is the case with the "regional-to-national" concept I am always harping on. I did it again last night on "Mad Money" when I said Dunkin Brands is the quintessential regional-to-national story that you have to own. I might as well have said to someone who has never watched a football game in their life that Dunkin is running a read option play where he hits the A gap.
So let me go over it in English, because second nature doesn't cut it with first-nature people. When I was still in law school, trading from my dirty linoleum floor, I read a book by Peter Lynch -- who is still perhaps the greatest mutual fund investor of our time -- called One Up on Wall Street. This revolutionary book told you how regular investors can beat the big boys at their own game. I know: These days, when I say that home gamers can beat the professionals, a whole flock of managers says I am being reckless. But Peter Lynch, who is the envy of many who knock me, knew better.
A key tenet of Lynch's philosophy was that, if you keep your eyes open and just act on your instincts, after you have done some homework on a company, you can do fabulously in the market. For example, he said, if you like a store or a restaurant -- I mean, really like it -- others will, too. So if you look up where the company has stores and you see a substantial part of the country doesn't yet have a store that you like, there's a good chance, if the balance sheet is sound, that you might have a winner.
Lynch said you must always look out for these regional-to-national stories, because they can be "10-baggers" -- meaning they can go up and up and up until they expand all over the country.
Well, one thing is for certain: I love my Dunkin Donuts and I can't wait to see the gals behind the counter at my fabulous Dunkin Donuts in Summit, N.J., tomorrow morning. How can you not like that piping-hot extra large with a little bit of skim that comes in for under 3 smackers?
Yet when the company came public, I was shocked to learn that there are very few Dunkin Donuts west of the Mississippi and none in California -- areas that represent one-fifth of this whole country. That means the company could have growth as far as the eye could see, perhaps a 10-bagger, given how well it is executing and how much cash it is throwing off. There are very few high-quality chains that aren't already nationwide, and when you find them -- as we have with winners like Dollar General and Ross Stores -- you have to hold on to them until they fill out the map.
Once that happens, by the way, the growth of the company slows dramatically, and so does the stock. We know this from many of the big department stores and discounters that are already everywhere, like Sears and yes, ugh, J.C. Penney . They don't need any more Sears or Penneys. If anything, they need fewer of them.
Of course, store growth doesn't always have to come in a regional-to-national capsule. Whole Foods still has plenty of runway to fill in stores, as does Bed Bath & Beyond . Both are winners. But the regional-to-national story is the better bet, especially when the largest state in the union isn't covered.
So now you know what I mean. Now you can look at the annual report, as Peter Lynch told you to do, and check out the locations. Or you can go on the Web, as every chain has a store map. Then you can make up your own mind. Chances are, if you like the product, and the chain's just spreading its wings, you've got a winner.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the stocks mentioned.
Strategizing for a Shutdown
Posted at 11:54 a.m. EDT on Thursday, Sept. 26
You have to wonder how we can have a big move up that can be sustained given how much we hear about what can happen in a government shutdown. How do you get excited ahead of an event that could cut a percent out of gross national product? How do you start buying stocks when numbers are too high for all but the most international of companies?
No wonder every lift is met with a sell-off. No wonder we can't sustain any big move, although positive micro news still manages to pop a stock, even a stock like J.C. Penney which, from all the stories I have read, does need to raise money.
But let's think this through. One of the hardest hit areas in the 1995-1996 shutdown was travel. Non-essential services like passport issuances and national parks were shut down. You saw a dramatic decline in travel, which was the weakness that reverberated through the system. We know that the sequester knocked off sales for the airlines -- almost all referenced the sequester as a point of weakness. One can only imagine how badly this one will hurt the airlines, which have been a terrific leader of the bull market.
Now consider how weak Hertz is today, citing airline traffic. That was a hideous downside surprise -- the worst I have seen. But I wouldn't buy it ahead of a shutdown; I would short it. The rental car business was another leader in this market because of the consolidation in the industry.
Again, international companies based here, technology companies and resource-based companies will hold up better than the domestics. But that just means they sell off less.
I keep thinking about the terrific work our own Mark Sebastian has done about the Volatility Index (VIX) and how things are still too complacent. We just aren't set up with enough fear going into an event that lowers growth.
The sell-into-strength side remains the smart side.
Random Musing: Not an encouraging press conference when it comes to the attorney general and JPMorgan , that's for certain.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long JPM.
- a regional-to-national story; and
- heading into a government shutdown.