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Dell Points Up Tech's Decay
Originally published on 3/30/2007 at 6:49 a.m.
Who do these tech guys think they are? I am marveling at what happened at
Dell (DELL Quote) yesterday. The
misstatements covered so many issues, but most importantly revenue recognition and margins, making it so the profitability of Dell might be even more narrow than thought.
Which got me thinking: What kind of ethos developed in tech that could be so antishareholder and pro-management? Who advised all of these tech companies to do the wrong thing? Who made up this stuff? How did it survive Sarbanes-Oxley? What kind of renegades ran this part of the economy?
The fast-and-loose behavior we are seeing has been largely contained to this group. But it is just filthy.
- The buybacks these companies did? Mostly to line the pockets of the insiders because they didn't decrease the float.
- The returning the money to shareholders in a dividend form? Nada. Consolidations to create value? Heck, the steel industry is more forward looking.
- Product cycles that get the margins going? How about only video games and high-definition TV? I can't think of anything else that moves the needle. Vista didn't; the Web already has.
Yet the group remains front and center as a place to invest. There are still many funds and managers who believe this group has exciting growth that can turn into big profits.
It hasn't panned out.
Dell's one of the worst examples. It's been years since this stock worked and now we discover that the picture, as bad as it was, wasn't nearly as bad as the reality.
I know portfolios are going to have tech. And I know tech will work in the late summer. But it is a wonder to me how every other area has some upside, except for this one.
What a misallocation of mental resources to invest in this group.
At the time of publication, Cramer had no positions in stocks mentioned.
Cheap, Good, Juicy: Freeport-McMoRan
Originally published on 3/29/2007 at 8:47 a.m.
Insider buying at
Freeport(FCX Quote). Gigantic insider buying. Two hundred thousand shares worth of insider buying!
Makes you sit up and take notice, doesn't it? So do the multiple upgrades, from Morgan Stanley, from J.P. Morgan.
It's all about one thing: The go-to name in the mineral space is now available to all who want it. This is the big, liquid, numbers-too-low play, the China play, the pure play with molybdenum and gold thrown in. Cheap and good and juicy.
That's why they love it.
I believe that every mutual fund in the country right now is trying to figure out not
whether to buy it but
how big to be in it. They know that
CVRD(RIO Quote) and
Xstrata increased 60% after debt-financed consolidating deals. They know that Freeport could earn $10, and that means you are going to see $100 a share if everything goes the way of copper, with little downside otherwise.
Now let me throw in the kicker, one that no one is thinking about: Freeport "owns" one of the largest copper mines in the world. Quotes are around "owns" because the mine is in Cuba and was confiscated by Castro in 1959. When Castro dies, I believe Freeport is going to go for it, and I think it's worth anywhere from $4 to $10 a share to the company.
And I don't know a soul who is talking about it.
You don't need Cuba to get this stock to $100.
But let me throw it in to be sure you buy the darned thing.
'Cause Freeport-McMoRan is now the big name in worldwide minerals for every portfolio manager in the world.
Random musings: I am very excited for our Beat the Street game to start April 2. I need you in it to win it and to get together with me for a fabulous day immersed in the market!
Click here to preregister for the first round.
At the time of publication, Cramer had no positions in any of the stocks mentioned in this post.
Watch This List of Levitation Stocks
Originally published on 3/28/2007 at 12:21 p.m.
If you are like me, you get steamed at stuff like
Exxon(XOM Quote). Here's a stock that was at $70 not long ago and no one wanted it. Now it is at $76 and everyone wants it,
even though it is the least levered to oil of all the companies in the patch.
At the height of the downturn, I cynically spoke for this stock on the
Today show after the big decline. I picked it because this stock is irresistible to a couple of fund managers who like to step in
only when it is going up.
You never see big funds buy this on the way down.
I get steamed because I can't think of who in his right mind can make money buying high and not buying low. What kind of strategy is that? Of course, if you find a stock where you can anticipate such buying, and I have a bunch of them, you can make decent money, but all you are doing is piggy-backing off of dumb money's attempt to walk things up and make performance.
Frankly, there should be more to the game.
These are some of the names to watch, for starters:
Watch those stocks. Put them on your fridge. The game gets played out every time the market is weak. These stocks start levitating.
Seems to happen every time.
Random musings: Do people really think that a
Fed chief is
ever going to say, "We are not worried about inflation"? Do you think that you will ever hear that? Don't be silly. If we had
massive deflation,
maybe he would say he was worried about the balance between inflation and deflation. He's a
central banker, for heaven's sake!
At the time of publication, Cramer had no positions in any of the stocks mentioned in this post.
What's Happening in Housing
Originally published on 3/27/2007 at 7:31 a.m.
As long as the "current environment of strong employment, low interest rates and a healthy economy continues,"
Lennar (LEN Quote) "will meet or exceed" its 2006 earnings.
That statement, made by Lennar CEO Stuart Miller, moved up the whole group when he said it in January 2007. Frankly, at the time, the statement seemed patently absurd. Most people simply expected nothing much for the homebuilders but down year-over-year earnings, and Miller seemed to think that the world was wrong.
Today, three months later, he
goes back on that statement. What's interesting is that the three criteria are pretty much intact.
So what's really happening? I think we are simply in a reduced earnings period for everything housing. Not losses. Just not a lot of profitability where there was too much profitability in previous years.
I think the same thing may be true for those in the mortgage business. The homebuilders and the mortgage companies printed money for many years. I think that's over. Margins are coming down. Fewer homes are going to be sold. That means down earnings year over year, which means these stocks must all be sold because no mutual fund wants to have down earnings.
Lennar, in particular, got this market wrong, expanding rapidly into the worst markets and continuing to build spec houses despite waning demand. Just a bad idea.
And now Lennar will have to pay even more than it has already, given that it is down from when it made that silly statement in January.
Random musings: I am eagerly awaiting our
Beat the Street game and am cooking up a lot of neat stuff with James Altucher over at
Stockpickr, where the new portfolios just keep being added. It is ironic that when
Motley Fool started something like this not that long ago, the press loved it. Maybe one day, the press will love Stockpickr, too. You never know.
TheStreet.com holds a minority ownership interest in Stockpickr LLC and serves on its Member Committee. Jim Cramer is a director, co-founder and stockholder of TheStreet.com.
Construction Boom: Building in Subprime Risk
Originally published on 3/26/2007 at 9:17 a.m.
The amount of disinformation about subprime loans is simply out of control. Without compromising my view of a
Fed rate cut in May, which was buttressed by everything from
FedEx's(FDX Quote) weak earnings to
Darden's(DRI Quote) poor traffic in last week's releases, you have to weigh the real consequences of subprime with the data we have out there now.
First, we need to analyze how much of subprime is fraudulent, and how much of it is from flippers vs. undocumented immigrants.
I say this because if you are going to put no money down on a house, why in heck should you keep the house if it doesn't go up in value
unless you bought only one house and you can refinance? I think the number of foreclosures in the latter cohort is smaller than you think. The former cohort, though, carries a high walk-away factor. And I think the speculators
were big. The so-called "tightening" of credit standards is simply a return to where we were in 2004.
Going forward, credit-toughening-wise, if you are going to get a loan with little money down, you can easily get one from the Federal Housing Administration, but you have to put 3% down. Can we accept that if you can't put 3% down, you aren't ready for the American dream?
You can't, however, get an FHA loan to speculate on a house, and you can't get one if you are an undocumented immigrant. The
Washington Post says 25% of these immigrant loans are going to foreclosure. We don't know how many of these were made, although the
Post says 375,000 were made in 2005.
Now, how bad is it going to be for the
public homebuilders? Take a look at the earnings call from
KB Homes(KBH Quote). Let's stipulate that KB Homes is one of the worst homebuilders, with a big California component. But if you go through the quarter, the exposure to bad loans has already washed through. The building of new homes has been cut back to "only build if sold ahead." The building loans are from
Countrywide(CFC Quote), which maintained higher standards. This is one incredibly
well contained mortgage meltdown, if you use the benchmark of a homebuilder that is worst in show.
And if we really had a huge problem in subprime, it wouldn't be a question of it spilling over to prime. It would be a question of how badly
Wells Fargo(WFC Quote),
WaMu(WM Quote),
Cerberus Capital Management and
General Electric(GE Quote) have been hit. Those are the legit subprime companies besides Countrywide, which has already said it's not much of a problem.
These are the lenders who are not fly-by-night mortgage brokers with no deposits to back their bad loans.
I am not minimizing the headline risk to this industry. And I am worried about employment. Any reversal of the tepid employment growth we have will change the demand side for certain and put out more supply.
But a lot of this problem is known. When a problem is known, it tends to get discounted by the market, unless the people in the media haven't done their homework.
Oops, that's a given, so there will be more headline risk ahead. But I'm beginning to believe that the knowledge of the problem is getting built into the market.
Random musings: I love the new portfolios of
bandwidth and
activist names on
Stockpickr. ... Given the incredible explosion of ETFs, I think you need to subscribe to Rev Shark's
TheStreet.com ETF Shark Alerts. The Rev and I have sparred from time to time, but without his guidance, I'm going to be blindsided by this new, important force in the markets. Take your a free trial now. ...
Apple's(AAPL Quote) going much higher into the iPhone launch and on all of these stories about album declines. ...
Caterpillar(CAT Quote) has momentum at last, buttressed by Citigroup's add.
TheStreet.com holds a minority ownership interest in Stockpickr LLC and serves on its Member Committee. Jim Cramer is a director, co-founder and stockholder of TheStreet.com. General Electric owns CNBC, for which Cramer is a featured commentator. At the time of publication, Cramer was long Caterpillar.
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