Monday, June 21

Adobe and Costco are broken stocks, not broken companies

Pessimism among investors shouldn’t deter people from carefully buying shares of high-quality companies that have endured massive declines, CNBC’s Jim Cramer said Friday after a widespread sell-off in the stock market.

On Thursday, survey results from the American Association of Individual Investors showed that pessimism among retail investors was at its worst in some 5½ years, a symptom of the market’s volatility in recent months.

But Cramer, a longtime stock-picker whose mantra is “there’s always a bull market somewhere,” urged investors “to think a little more long-term.”

That means investors have to be exceedingly careful and choose their buys wisely, the “Mad Money” host said, choosing the stocks of Adobe, Costco and Johnson & Johnson to illustrate his point.

“If you bought any of those stocks yesterday, you’d say, ‘Wow, that had to have been the worst financial decision I’ve ever made,'” he said after all three stocks closed dramatically lower. “Adobe and Costco must’ve had shortfalls. […] The J&J story about the company knowing about asbestos in talc? Dreadful.”

But stock-pickers who are open to a wider frame of reference for these stocks — say, several months rather than several weeks — might have an easier time rationalizing why these stocks look “cheap” here, Cramer explained.

“In reality, … Adobe reported a terrific quarter, but the stock had already run up dramatically. Same with Costco. People just assumed the numbers were bad, though, because the stock went down. There was no rigor to the process at all. In short, Adobe and Costco are broken stocks, but they’re not broken companies,” he said.

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