Jim Cramer introduces ‘WATCH,’ his top 5 retailers with scale

Acronyms, sometimes, make life a little easier.

And it makes tracking the top stocks of a sector easier for CNBC’s Jim Cramer, who curated the so-called FANG group and on Thursday introduced a new simple name for retailers with scale — “WATCH.”

Scale is a business’ capability to grow operations and sales while maintaining costs. As Cramer put it: it’s “a company that’s big enough and powerful enough to control its own destiny.”

“A company that scales is one that survives and then thrives in even the toughest environment,” the “Mad Money” host said. “As an investor, you need recognize which businesses can scale because those are the ones that win. Like Amazon, like Microsoft, like WATCH. “

Microsoft, the computer giant that competes Amazon in the cloud industry with its Azure business, is not in the WATCH list because it is not a retailer. Amazon, the internet behemoth that has disrupted the shopping experience, however, did along with Walmart, Target, Costco and Home Depot.

What they all have in common is innovation, Cramer said.

“One of the biggest … benefits of scaling is that it keeps your suppliers in check and that keeps your gross margins up and makes it so that we like your stock more,” he said. “That’s the main reason I’ve created a brand new acronym for the very few retailers that have enough scale to [have] control over their costs and therefore their destiny.”

Cramer said big-box retailer Walmart was on the verge of falling into the same fate of Sears. The company lagged in the ever growing and important digital space, the stores were uninviting and their workers were paid too little, he said.

All of that has changed. Their web business is booming and integrating with Jet.com. Employees are paid more, which helped retain staff longer, and the stores are cleaner, Cramer added.

“Best of all, Walmart can negotiate prices with any supplier it wants because they can’t afford not to sell into Walmart’s channel,” he said. “That’s really bad for their supply chain, but … is it ever great for their shareholders.”

Amazon was able to cross the $1 trillion market cap line again during Thursday’s session and Cramer attributes that growth to the company’s ability to scale. The tech conglomerate uses that scale to dominate in retail and in the cloud business with the fast-growing Amazon Web Services.

“They use that scale to get better prices from their suppliers, which they then can pass on to you the customer, undercutting the competition,” he said. “Apropos of nothing, this is why we have antitrust law because when you get big enough no one can compete against you.”

Cramer complimented CEO Brian Cornell and his vision to reinvent Target. The combination of its Shipt delivery system, store design and affordable prices, the host said, is letting the company win the metropolitan areas.

He acknowledged it could be said that Target, serving about 30 million customers a week, is too small to make the WATCH list.

“But given how fast Target’s growing, I think it’s only a matter of time that you won’t feel that way,” Cramer said. “Don’t underestimate their e-commerce business, which is scaling up right now.”

Costco has 83 million paid members as part of its buying club and that translates to a great business, Cramer said.

“I know that I’m getting the lowest price on everything I buy there,” he said. “These people are magicians.”

Originally hesitating to add Home Depot to the group, Cramer said the home improvement retailer sells merchandise quickly.

That’s “a dream come true for suppliers, allowing them to get terrific deals,” he said.

Disclosure: Cramer’s charitable trust owns shares of Amazon.com, Microsoft and Home Depot.