Jun 04 2009
Cramer’s Recommendation on Visa; Irresponsible?
Jim Cramer, the wildly popular performer of “Lightening Round,” recently recommended Visa. Will Visa continue to climb? Probably. But Cramer, a respected financial guru, seems to overlook the P/E ratio of Visa, which sits in the nose bleed area of 69. While he is right that the credit card processing is completely entrenched in the monetary system, and it will always be lucrative. He is also right that Visa doesn’t have the credit issues that affect credit card companies.
It’s that overly high P/E ratio that makes no sense, and begs a more dramatic question. When is it ethical for a financial guru to back off on a recommendation? Wouldn’t an overly high P/E ratio be one of the first yellow lights?
If Cramer can not look at simple fundamentals and make sound recommendations, what is his line in the sand? When will it be “too expensive?” Merely because Visa’s business is sound, will always grow, and is not in a sector that will get pounded from credit losses doesn’t change the fact that it is expensive. If widely respected financial “rock stars” can not encourage responsible investing, what chance does the stock market have in maintaining any sensible stability?
Stock pickers of all kinds are often the first line of defense for the common investor. People like Stephen Leeb, Larry Edelson, and Sean Broderick have the trust of the common investors. It is difficult to give advice to begin with, but its worse when the stock goes down. If a stock already suffers from basic fundamental problems and the guru knows that, why on earth would they encourage people to put their hard earned money on the line for it? The majority of the above mentioned advisers only recommend those stocks as an agressive growth, the highest risk out there.
There are so many excellent stocks out there, but Cramer’s lack of caution makes no sense. Performance has value, and his on “The Lightening Round” is entertaining. But anyone following his advice needs to be put on notice. Be sure to understand the fundamentals before buying his recommendations. That way you go into those stocks with your eyes wide open.
