CNBC’s Jim Cramer has always valued product loyalty. He smiles every time he sees the inscription on the back of his Procter & Gamble Old Spice deodorant bottles: “If your grandfather hadn’t worn it, you wouldn’t exist.”
“I smile because, indeed, my grandfather used Old Spice and, truly in the mindset of my era, that’s exactly why I buy it,” the “Mad Money” host said on Wednesday. “Will I ever switch? No, no more than I would ever switch from the Apple ecosystem to some ‘who cares’ handset company.”
That Apple loyalty speaks volumes to Cramer, who on Tuesday argued that the iPhone maker should definitively be valued like a consumer products company rather than a technology play.
And after he examined Procter & Gamble’s fourth-quarter earnings report, Cramer’s theory started to come into focus.
“If there was a theme running through the Procter conference call, it’s that people around the world change their behaviors and preferences rapidly, often based on price,” he said. “Brand loyalty’s a real challenge to keep, something they’re going to put to the test now with a 5 percent price hike on Bounty, Charmin and Puffs.”
Rising raw costs have put consumer products giants in a bind, Cramer explained. Procter and its rivals are being forced to raise prices — or “risk extinction” if they don’t — regardless of whether consumers will continue to buy their goods, he said.
On the flip side, there’s Apple, with 96 percent consumer satisfaction for all of its products and 98 percent satisfaction for its newest smartphone models, according to a survey report from 451 Research.
Apple also made $9.55 billion in services revenue during the third quarter, a 31 percent pop since last year. As it stands, the company boasts roughly 300 million paid subscribers.
“When you have those customer satisfaction numbers, when you can pick up market share as easily as Apple can because of its reputation, then, sure, you can get away with raising the average price of your phones from $606 to $724,” Cramer said.
And while Procter achieved 1 percent organic sales growth in its latest quarter, a key metric for consumer-facing companies, Apple’s various growth metrics pointed to a “double-digit blend,” the “Mad Money” host said.
“Procter and Gamble? It has no ecosystem anymore. Nobody links any of its myriad products with each other,” he said.
But Apple is building on its product library, getting more and more digitally savvy customers to sign onto its ecosystem, he continued.
“Now here’s the punch line: Procter & Gamble’s stock sells for 17 times next year’s earnings estimates. Apple, with a stock that I tell you to own, not trade, sells for just 15 times next year’s earnings estimates, and that’s without backing out its massive cash hoard,” the “Mad Money” host concluded. “How wrong is that? I don’t know. You be the judge.”
Disclosure: Cramer’s charitable trust owns shares of Apple.
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