Herbalife's Correct Price; What Bill Ackman Needs: Jim Cramer’s Best Blogs

Jim Cramer talks about the what Bill Ackman needs and how to figure out Herbalife's correct price.
By Jim Cramer ,

Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:

  • How Herbalife's earnings power shows the correct price
  • How Bill Ackman needs Mondelez to deal

Click here for information on RealMoney, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.

Cramer: Sell on the Negatives? Not This Market

Posted on July 15 at 3:33 p.m. EDT

You have to admit the bears have to be a little frustrated. Wells Fargo (WFC) - Get Report , which is part of our Action Alerts PLUS charitable portfolio, reports a not-so-great number -- don't worry, it has been doing that and then going higher a few weeks later forever -- and it can't crush the banks. The rig count goes up again and oil doesn't get knocked below $45. And, sadly, let's face it, do you feel like traveling after what happened in Nice? I can't stop thinking about it and neither can my wife. We can't get it out of our heads.

Yet it doesn't produce selling.

The dollar is wrong. Bonds are wrong -- except for the banks, but because of Wells it doesn't matter.

And we are headed into the world of Bank of America (BAC) - Get Report , which has the biggest deposit base and therefore the one that needs the most rate hikes right now.

Suboptimal.

Yet none of this produces profit-taking.

I love to see this kind of strength. But we are using it to trim again for Action Alerts PLUS -- this time our most wayward positions, the ones we had told people to trim earlier in the week but we were restricted from trimming because of mentions on television.

It feels good to trim the not-so-hot ones even as this market keeps beckoning you to stay involved.

Random musings: Real hourly average earnings actually went down 0.2% in June as my writing colleague Matt Horween informs me. Do the ideologues who constantly scream rate hikes care about this stuff? Why do they take their view so personally and attack people like me when I am pretty clearly about trying to be an equal opportunity supporter of greater wealth?

At the time of publication, Jim Cramer's charitable trust Action Alerts PLUS was long WFC.

Cramer: For Ackman, It's Like Free-Agency Time in the NFL

Posted on July 15 at 2:00 p.m. EDT

Bill Ackman needs Mondelez (MDLZ) - Get Report to make a deal, any deal. Valeant's (VRX) not doing what it has to -- it's Johnson & Johnson's (JNJ) - Get Report turn to attack the company next week and despite all the support he's given CEO Joe Papa, in the end $32 billion in debt is $32 billion in debt, and no company at the mercy of others in its industry can shoulder that burden without concern. Plus, Herbalife's (HLF) - Get Reportgone to where it should go on an earnings basis, which is not where Ackman wants it.

Ackman wants what Ackman gets, so it is time for Mondelez, a big position of his, to either put itself up for sale to help Ackman make his year or do a very positive deal to have Ackman make his year or he runs the risk of being Eddie "Sears Holdings" Lampert, and when you are as rich as all of these guys, you play for pride. You think NFL owners like to lose?

We are dealing with NFL owners. So it's free agency time and Ackman needs to win this bout with free agency.

I point all this out because with interest rates going higher, the traditional food and drug and consumer packaged-goods should be selling off, but with Ackman's agent on the prowl, it's too dangerous to go short. Heck, maybe even Valeant has to do a deal to raise cash, buying someone with stock who is dumb enough to take it to get their cash flow. More stupid things have happened. It sure would make Valeant's stock go higher.

Anyway, I can't think of another explanation for the bond market-equivalent stocks to go higher.

And look out, Hershey (HSY) - Get Report , you better be ready for a higher bid.

I think it happens this weekend.

At the time of publication, Jim Cramer's charitable trust Action Alerts PLUS held no positions in stocks mentioned.

Cramer: Only Herbalife's Earnings Power Shows You the Correct Price

Posted on July 15 at 9:51 a.m. EDT

What would you pay for a stock that you reckon has $6 in earnings power, which has decent worldwide growth and an aggressive buyer who wants to almost double his potion? A stock which, at the same time, has been held down by a nasty short-seller who is part of the 31% of the float that is sold short?

Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.

First you say, back of the envelope, this one has about 10% growth. Second, you are giving consumer product companies like Herbalife (HLF) - Get Report -- remember it is no longer a pyramid scheme company, as of this FTC pronouncement -- a huge multiple if they have any organic growth. Third, you know that this company's been hampered by one man running full out to destroy it, who will still try to do so, but his main way of killing it, using the FTC to shut it down, is now gone.

But now, let's ratchet it back a little. If you think that Herbalife is more like a supplements company and not, say, Hormel (HRL) - Get Report -- a pretty good presumption -- you need to temper that price-to-earnings multiple. I say the more likely analogy is Vitamin Shoppe (VSI) - Get Report , which has a pretty similar growth pattern ex-Bill Ackman, if you can get your head around that.

If you use VSI as the comp, then you have to slap a 13 multiple on the $6 number. But again, this brand's been tarnished, no doubt, not unlike VSI competitor General Nutrition (GNC) - Get Report , so let's throw that in the mix, as GNC sports only about a mid nines multiple.

So split the difference. Call it about 11.

That comes out to a fair valuation of $66 ex all of the possible short-squeeze fireworks.

My take: You pay up to $66 and then after that you are just speculating on Ackman vs. Icahn and how much they hate each other, and I think the answer is not enough to rely on anything but the earnings to get you past this analysis.

I understand the emotions that want you to pay more -- and people are doing that -- but if you want fundamental grounding, my analysis gets you to less than where it is now. You need out and out war between hedge fund managers and a monster squeeze to justify these prices, not higher EPS, because you just aren't going to get there yet.

At the time of publication, Jim Cramer's charitable trust Action Alerts PLUS was long WFC.

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