Important points
CNBC’s Jim Cramer on Thursday shared strategies to help investors identify future winners. Mr. Kramer recommended looking for companies that are “underpromising and overdelivering,” and setting conservative expectations that leave management with room to beat expectations later on. “If you see it…don’t run away from it,” the “Mad Money” host said. “It’s likely to be a great start in a very good position,” he said, pointing to Cisco as the latest example. The networking giant’s stock initially rose in after-hours trading Wednesday night after reporting strong quarterly results, but quickly reversed course as investors focused on the company’s guidance. Cisco stock ended Thursday’s regular session down 8.4%. Mr. Kramer argued that the sale concealed the strength of the underlying business. “The decline in stock prices is sending the wrong signal,” Cramer said. “Fortunately, this presents a great buying opportunity. As a play in artificial intelligence across networks within and between data centers, I think Cisco is absolutely worth buying.” Kramer said Cisco’s results show strong demand from hyperscalers and strength in its traditional networking business. The problem, he argued, was perspective. But he said CEO Chuck Robbins tends to make conservative forecasts, especially at the beginning of Cisco’s fiscal year. That approach is why investors shouldn’t automatically treat weak guidance or declining stock prices as evidence that a company’s fundamentals are deteriorating, Cramer said. “The vast majority of good CEOs just don’t want to overpromise,” Kramer said. “They are very fond of under-promising, giving weaker guidance, and then breaking that guidance and over-promising.” Kramer said this distinction helps investors spot opportunities through earnings season, when strong quarters are overshadowed by cautious guidance. “Even if a company posts great numbers, the stock price is often still going down,” Kramer said. “The reality is you probably should be buying more.” Subscribe to CNBC Investing Club today to follow Jim Cramer’s every move in the markets. Questions about Cramer’s disclaimer? Call Cramer: 1-800-743-CNBC Want a deeper look into Cramer’s world? Punch him! Mad Money Twitter – Jim Cramer Twitter – Facebook – Instagram Have questions, comments, or suggestions about the Mad Money website? madcap@cnbc.com
