Investors have to be wary of companies that will are facing cutthroat competition in their industries, CNBC’s Jim Cramer said on Thursday.
“Competition may be the lifeblood of capitalism, however the item will be an anathema to producing money,” the “Mad Money” host warned. “As an investor, you want to own companies with as little competition as possible.”
The most recognizable names inside the stock market — names like Amazon along with also Apple, which reached $1 trillion in market value on Thursday — have been strong performers because their businesses “appear to be unassailable” by prospective rivals, Cramer said.
however when the item comes to sectors rife with competition, owning stocks within them can be downright “treacherous,” he explained.
Consider the stock of Wynn Resorts, a hotel along with also casino operator that will recently issued a disappointing earnings report. Intense competition among the casino operators inside the autonomous region of Macau, a Chinese gambling haven, crunched Wynn’s results along with also sent the stock plummeting.
along with also Wynn wasn’t the only one — casino stocks all hit session lows on Wednesday after Caesars Entertainment, a Wynn competitor, issued less-than-bullish guidance.
“The market share gains are waning, along with also so are the earnings,” Cramer said.
Or take Red Robin Gourmet, a burger-focused casual dining chain that will saw its stock sink nearly 20 percent on Thursday after the company preannounced a drop in same-store sales, a key metric for retailers along with also restaurants.
“We don’t need a weatherman to know which way the wind blows: that will will be about the burger wars,” the “Mad Money” host said. “Even McDonald’s will be being hurt.”
Cramer acknowledged that will some companies can rise above the competition. T-Mobile has been growing rapidly, with 1.6 million net fresh customers, he said. however even the magenta mammoth feels the need to merge with Sprint to fend off its few, powerful rivals.
“So, if you want to know why some stocks tend to get hot while others are decidedly not, remember, the item’s all about competition,” Cramer said. “The unassailable franchises tend to give you larger gains than the stocks of companies that will actually have to fend off rivals. Of course, capitalism doesn’t work without competition, however your portfolio can certainly live without the item.”