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[Ulisses Pereira]

"Worry About Popularity of Low-Quality Stocks"

By James J. Cramer
RealMoney Columnist
01/13/2004 09:08 AM EST



"Let's just hope it's the January Effect. I'm talking about the heated and intense trading in many of the little guys, the garbage stocks, stocks like Internet Capital Group (ICGE:Nasdaq - commentary - research) and CMGI (CMGI:Nasdaq - commentary - research), that has been going on since the year began.

First, like Gary B. "Chartman" Smith, I agree that every stock deserves a second look. It is entirely possible that CMGI is a vastly improved company. It is also possible that it never should have gotten as low as it did. I will even stipulate that CMGI could be the next Nortel, the next Lucent, etc.


ICGE's tougher. Maybe it does own some hidden gems, some companies in its roster that could make it worth something. Maybe there's something here, too.

But here's the problem. The kind of frenzied activity we are seeing in these stocks, and I want to include Silicon Graphics (SGI:NYSE - commentary - research) on the list, is a sign that people prefer low-quality stocks to high-quality stocks. In the end, if the market doesn't gravitate to higher quality, we will be constrained on the upside. That's because lower-quality stocks let you down far more often than higher-quality stocks do, and you have to "trade" low-quality names even as you "invest" in higher-quality names.

Take last year's low-quality darling, Gateway (GTW:NYSE - commentary - research). It trades like a demon but it keeps disappointing. If that's what we have to base a year on, we aren't going anywhere.

I am not going to throw my hands up and declare this market too speculative for me. After all, those who speculated in Nortel and Lucent at the bottom, myself included, made an awful lot of money.

I am just noting the trend and declaring it something that won't be positive if it continues to spread to the myriad brain-dead companies out there that still trade. To be oblivious to this trend, to think that it could continue all year, not just January, seems a stretch, but a stretch that is, indeed, worth fretting about. "

(in www.realmoney.com)