Options Trading News

January 29, 2013  Tue 8:42 AM CT

Amazon and Netflix are making my life very difficult.

It's my job to figure out what to pay for stocks, and what's right and what's wrong. That usually means asking if you should be paying more for safety, like Heinz at 17x earnings or Johnson & Johnson at 14x, than Intel or Microsoft at 10x or Apple at 8x earnings.

Or is it better to bet that Caterpillar can earn ten bucks and it sells for 9x that number?

But along comes Netflix at 128x earnings and Amazon at 500x earnings, and we have to ask ourselves if there really can be two tracks of earnings here. Can we really be willing to pay anything for a handful of stocks and so little for others, like Apple?

TheStreet.com logoThis conundrum is central to the stock market right now. I believe what we are willing to do here is not to suspend all judgment about what we will pay for a stock but instead determine that the companies themselves are in growth modes and don't want to be constrained by the spending that makes earnings look more meager than they really are.

In other words, if Netflix were to try to stop expanding overseas and if Amazon were to just declare victory and stop building so aggressively, then we would see the real earnings power and know that the stocks weren't all that expensive.

I like both stocks. But I think you can only get away with the "if they stopped spending they would earn X" argument so many times before running into buying parameters that can't be breached, even as you clearly are leaving gains on the table.

It's far better at this point to say, "These gains from here? They are all yours. I don't have the stomach for them."

And I don't.

Disclosure: Cramer's charitable trust is long AAPL.
Share this article with your friends

Related Stories


Cramer: Buyers blow with the wind

March 4, 2015

It's rather amazing that what we saw Thursday--all of those buyers of pretty much everything just seemed to walk away just one session later. One possible reason? The weather.


Bulls logging on to Amazon.com

February 3, 2015

A large investor is betting big on the e-commerce giant after the company reported blowout quarterly results late last week.


Cramer: Market is vicious plaything

February 2, 2015

Stocks are going up or down on a whim, and when they go down they don't stop for anyone because there's just no buyers for what disappoints, seemingly at any price.

Invest Like a Monster - Las Vegas: March 13-14


The fastest money in the market
View full report »

Premium Services

Webinar Recording

Turbo Charge Your Trading Profits

Education & Strategy


As we continue to discuss the Greeks, we come to the first of the strike based Greeks called Gamma. Gamma is known as the second derivative, while delta is the first.

View more education articles »