Caution on Momentum Plays
"Investors must have discipline to play with momentum stocks," Cramer told viewers, as he examined the meltdown in Sodastream (SODA), which lost 34% of its value last Thursday as the company's forecasts imploded.
Cramer first got behind Sodastream at its U.S. IPO last November. However, he started recommending investors take profits in the company in July after shares soared 288% higher on its growing momentum. That warning was spot on last Thursday when the company reported a two-cent-a- share earnings beat on a 38.5% increase in revenues.
Cramer explained that Sodastream's growth was simply not enough for a high-flying momentum stock and the situation was made worse by the company's forward looking guidance which forecast sharply slowing growth.Making matters worse, Sodastream executives said that they still haven't committed to selling their products at retail giant Costco (COST), a retailer Cramer said is "too big to ignore." Additionally the company's planned expansion into restaurants was revealed as only including sparkling water, a major disappointment for analysts. Cramer called Sodastream's forecasts "a complete bust," effectively pulling the rug out from under its shareholders. Cramer said he's surprised that shares were only cut in half given its sharply declining growth. By contrast, Green Mountain Coffee Roasters (GMCR), makers of the Keurig one-cup coffee brewers, delivered a fabulous quarter with fabulous guidance to boot. "Sodastream is no Green Mountain," concluded Cramer, which is precisely why investors must use caution when investing in momentum stocks. He urged investors to use any lift in Sodastream to sell their remaining shares.
Oracle Downgrade Wrong"When analysts fight, you win," Cramer told viewers. Such is the case with tech giant Oracle (ORCL), a stock which Cramer owns for his charitable trust, Action Alerts PLUS. On Friday, Oracle received a downgrade from one firm, while receiving an upgrade from not one, but two, others. So who's right? Cramer said the bear's case cited concern with Oracle's hardware strategy after its recent acquisition of Sun Microsystems. The analyst predicted a peak in operating margins as a result as competitors begin taking market share. But with shares trading down from their highs in the mid-30s to just $26 today, Cramer noted that Oracle now trades at just 11 times earnings, where historically the stock traded closer to 16 times earnings. The stock is clearly cheap, said Cramer, but does it deserve to be? Cramer said the Oracle still have strong end markets and a good balance sheet, two things he looks for in a tech stock. The company has $29 billion in cash on its books and has done $35 billing in recent acquisitions. The company also grew by 17% during the recession, further showing its strength. At issue are the company's hardware sales, which Cramer called "problematic." However while sales were down by 40%, unit prices were up by 120% as Oracle repositions its products as premium machines. Moreover, Oracle is still primarily a software company, not a hardware company, so hardware, he said, should not be seen as a major issue for the company. Cramer concluded that the downgrade of Oracle was wrong, and the company remains one of only a handful of tech stocks Cramer would consider buying for the next few weeks.
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