Small business optimism hit an all-time high in August, topping its Reagan-era record, and CNBC’s Jim Cramer knew investors would want a way to play the surge.
But “this kind of reading is very hard for Wall Street to process,” the “Mad Money” host warned of the National Federation of Independent Business’ report on Wednesday.
“Small businesses are off the radar because, well, they’re small. Professional money managers care about big business and medium business, but small business is outside their area of expertise. And that’s why they’re so easy to miss,” Cramer said. “But when you actually look at them, they’re on fire.”
So Cramer set out to find some publicly traded securities investors could get behind to make money from the small business boost.
He began with maintenance giant HD Supply, a catch-all industrial play that provides roughly 500,000 business customers with repairs, infrastructure and other business-facing products and services.
“If you go to the website, you can see they carry all of the major construction brands,” Cramer noted. “HD Supply is the site for small businesses to get their goods.”
The “Mad Money” host also considered the automotive angle. The auto market may be slowing, but there are still hundreds of millions of cars on the road that last longer than they once did.
That means that by the time those cars need repairs, they might be off-warranty, leading owners to get repairs from independent shops. Those shops buy new car parts from the likes of AutoZone, Advance Auto Parts and Genuine Parts, all of which are seeing higher sales, Cramer said.
But “the real winners” of the small business boom were e-tailer Etsy and payments processor Square, Cramer said.
Calling Etsy “the great equalizer,” the “Mad Money” host emphasized its massive online ecosystem: 1.9 million sellers creating handmade items and selling them to 33 million buyers.
“Etsy’s so popular they raised their cut from 3.5 percent of each transaction to 5 [percent and] nobody batted an eyelash,” he said.
Square, on the other hand, is trying to simplify cashless transactions, making it “the ultimate small business play,” Cramer said. He added that while Square’s point-of-sale consoles are fairly expensive, the company is also bolstering its small business lending segment.
“Square’s in a fabulous position to make the loans because they see the daily receipts. They know who can afford it and who can’t,” he said.
All in all, Cramer backed investors going after U.S.-based small business plays, but warned that attractive prices may require some patience.
“These are the outfits that benefit from the strength in small business,” he said. “Granted, most of these stocks are at their highs. You might have to wait. But why not buy them on any weakness? Domestic growth levered to small business — I think that’s precisely where you need to be.”
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