Stocks such as Peloton and Netflix are likely to continue moving to the upside during the coronavirus pandemic, CNBC’s Jim Cramer said Monday, even though the persistent strength sometimes defies fundamental metrics.
“Until we turn the corner on the pandemic, the earnings themselves are simply an abstraction for these thesis stocks and any disappointment is simply one more reason to buy them,” the “Mad Money” host said.
Cramer said Peloton and Netflix are among a group of stocks he’s dubbed the “magnificent seven,” for the enthusiasm of the investor base that has helped push the stocks higher and higher in recent months. The other members of Cramer’s list: PayPal, Square, Roku, Tesla, and Zoom Video Communications.
“Buyers don’t seem to care how well the underlying companies are doing, they want to own those stocks regardless,” Cramer said of the group. “In each case, the thesis is so powerful that it overwhelms any mundane attempt to figure out what the business might be worth.”
He pointed to Netflix ahead of the company’s scheduled earnings release Tuesday. The company has benefited from the pandemic, with movie theaters shuttered and consumers spending more time at home streaming content, Cramer said.
“No one’s going to the movies anywhere around the world, which means the Netflix bull thesis must be true regardless of what the company says when it reports,” he said. “If the stock goes down after it reports tomorrow, history says buy it anyway regardless of the results.”
Cramer said Netflix, shares of which have rallied about 64% in 2020, continues to benefit from being considered a growth stock. Equities with that classification “are always worth buying into weakness, until something goes wrong and the story falls apart,” he said. “And right now, the buyers and the investors don’t think that’s even within reason.”
Peloton Interactive Inc. stationary bicycles sit on display at the company’s showroom on Madison Avenue in New York, U.S., on Wednesday, Dec. 18, 2019.
Jeenah Moon | Bloomberg | Getty Images
Peloton, like Netflix, presents its customers with an at-home alternative during the pandemic, Cramer said. It’s why the exercise company, which is known for its signature stationary bike, has seen its stock soar almost 370% so far this year.
“It’s true that Peloton’s software makes it more of an ecosystem — the back-orders are immense, the new products are enticing,” Cramer said. But when seeking to understand its strength this year, “what matters, though, is that Peloton’s become the de facto way to play the athletic pandemic angle.”
Square and PayPal boast a similar investment thesis in that the companies allow investors to gain exposure to the financial sector without having to own traditional banks such as Wells Fargo or Bank of America, according to Cramer.
Cramer said he thought Square’s stock would’ve been hurt by its connection to small businesses, many of which have suffered during the pandemic. “Sure, it’s similar to Etsy or Shopify, but those companies still need to produce real earnings or their stocks get punished,” Cramer said.
PayPal, for its part, has played a key role in digitizing and democratizing the world of finance, Cramer said. Even so, he contended, “this is a company that’s either missed the rosiest of projections or straight up lowered estimates many times, yet it hasn’t meant a thing. PayPal is the thesis in banking and it doesn’t need no stinking earning estimates beats.”
Shares of San Jose, California-based PayPal have risen 85% in 2020.
A video sign displays the logo for Roku, after the company’s IPO at the Nasdaq Market in New York, September 28, 2017.
Brendan McDermid | Reuters
Roku has benefited from the secular shift away from traditional cable television, which had been in place prior to the worldwide outbreak of Covid-19. The stock is up more than 550% since January 2019. This year, in particular, it has advanced 66%.
“The love for Roku is beyond reason. Remember, we’re talking about thesis investing here, about cult stocks, and the thesis among younger buyers is that there’s nothing worth watching on traditional TV except maybe sports — and now not even that,” Cramer said.
Tesla is firmly entrenched into the camp of a story stock, he said, and at this point, the former hedge fund manager contended that he cannot even predict how high the stock will ascend. In the past 12 months, the electric vehicle maker’s shares have soared 738%. The stock is up 415% year to date.
Cramer said investors in Tesla seemed to be convinced that CEO Elon Musk will be able to help the company grow into its market capitalization of around $400 billion.
“I’ve always said Tesla’s a cult stock, even after I joined the cult last year. That shareholder base isn’t going anywhere and neither am I. Is that circular reasoning? Absolutely. It’s also given you a monster gain in this one.”
Zoom’s rise is “the greatest story I’ve seen since the dawn of the personal computer,” Cramer said, explaining the videoconferencing company has “insane growth the likes of which I’ve never seen.”
With usage exploding during the coronavirus pandemic, Zoom has seen its stock roar higher by 735% so far in 2020. It closed Monday’s session at $568.34 per share, but notched an intraday all-time high of $588.84.
“Every single time you hear that Covid cases are on the rise, these investors who don’t care about valuation buy Zoom hand over fist,” Cramer said.
Despite the strength in all these stocks, investors do need to have a dose of perspective, Cramer said. “Nothing lasts forever, including the market’s love affair with the magnificent seven.”