Jim Cramer says not every company can pull off the transition from cyclical to secular growth stock.
At this point in the business cycle, every company wants to be seen as a secular growth stock, Jim Cramer told his Mad Money viewers Wednesday. That’s because with interest rates on the rise, no one wants to be seen as a cyclical stock. But investors need to approach these stocks with skepticism, because not every company can pull off such a transition.
There are lots of companies that have made the jump from cyclical to secular grower, but none more successfully than Micron Technology (MU) – Get Micron Technology, Inc. Report. For years, Micron was merely a commodity memory chipmaker, one beholden to the boom-and-bust cycles of mismatched supply and demand. But then the company changed its stripes, diversifying itself into a high-end chipmaker for all of today’s hottest markets. Micron hasn’t been able to completely shed its past however, which is why shares rose on strong earnings Wednesday morning, only to fall 3.5% by the close as investors feared a slowdown in its forecasts.
Devon Energy (DVN) – Get Devon Energy Corporation Report is another company that has been able to successfully become a secular growth stock. Oil producers were notoriously undisciplined, that was until Devon instituted a variable dividend and made a commitment to return more money to shareholders. Now, the company can provide shareholders with stable growth no matter where oil prices are at the moment.
Even companies like Deere & Co. (DE) – Get Deere & Company Report have been able to break free of the boom and bust of agriculture to reinvent itself as a provider of high-tech farming equipment.
That’s not the case with high-end furnishings retailer RH (RH) – Get RH Report, which finds itself still at the mercy of consumer demand. That’s also the case for automakers, who will soon suffer as auto financing prices many buyer out of the market. Only Tesla (TSLA) – Get Tesla Inc Report seems able to buck this trend and continue its trajectory as a secular growth company.
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