Cramer's Mad Money Recap: AT&T, Time Warner and Discovery

Jim Cramer says there are some lessons to be learned from the AT&T-Time Warner deal, and some better deals investors should consider.
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The media may be touting AT&T's  (T) - Get Report decision to merge Time Warner with Discovery Communications  (DISCA) - Get Report as a "transformational deal," but Jim Cramer told his Mad Money viewers Monday that AT&T should've never bought Time Warner in the first place. In fact, he called the original $85 billion transaction one of the dumbest deals in history.

What does a phone company have in common with the media business? Apparently, not much given the final selling price, which includes saddling AT&T with a ton of debt and slashing its dividend by more than half.

Cramer said there were never any synergies in the AT&T-Time Warner merger and the only one who made out was Time Warner. "The whole thing was a clown show."

But there are a few lessons to be learned. First, in corporate America, anything goes, and you'll never hear an apology for losing you a ton of money. Second, never reach for stocks with high dividend yields. As we saw today, big yields get cut. And finally, there are no referees in investing. While AT&T's board of directors could have stopped this ill-fated acquisition, they didn't.

Investors looking for deals that make sense should consider Salesforce.com  (CRM) - Get Report buying Slack  (WORK) - Get Report; Nvidia  (NVDA) - Get Report buying ARM Holdings  (ARMH) ; or Advanced Micro Devices  (AMD) - Get Report buying Xylinx  (XLNX) - Get Report. Salesforce needs Slack to compete with Microsoft  (MSFT) - Get Report. Nvidia needs ARM to break into portable devices. And AMD desperately needs Xylinx to diversify its portfolio.

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Executive Decision: Generac

In his first "Executive Decision" segment, Cramer spoke with Aaron Jagdfeld, chairman and CEO of Generac  (GNRC) - Get Report, the generator manufacturer with shares up 180% over the past year.

Jagdfeld said everyone takes power for granted until they don't have it, especially at home. But power outages are on the rise, both in frequency and duration, he said, which has been brought on by three things.

First, we're decarbonizing our electric grid, which adds to volatility. Second, we're electrifying everything, from heating to vehicles, which is increasing demand. And third, climate change is making severe weather events more common, whether it be heat waves in the summer or brutal winter storms like we saw in Texas.

The answer to our aging and evolving electric grid is to create micro-grids that can include solar power, batteries for short-term outages and generators for longer-term outages.

Generac is also the leading provider of power backup solutions for the telco industry, which is spending big on 5G wireless capacity.

On Real Money, Cramer keys in on the companies and CEOs he knows best. Get more of his insights with a free trial subscription to Real Money.

Cloud Software Stocks

The cloud software stocks have pulled back hard from their highs, down on average 19%, but that doesn't mean they're worth buying. Cramer dove into these software-as-a-service stocks to assess the damage and see if there's more pain to come.

The losses amongst this group has been jaw-dropping, Cramer noted. Of the 75 names he looked at, the average declines were 37%, with 26 racking up losses greater than 40% and 15 of them had more than 50% declines. But despite these losses, the fundamentals remain strong. That's why he said the "Rule of 40" still applies when valuing the cloud stocks.

The Rule of 40 states that a company's revenue growth plus its EBITDA margin must be greater than 40. This gives a company two ways to win. They can have lots of growth with low margins or high margins with less growth. If a cloud stock has neither growth nor margins, then investors need to steer clear.

Stocks like Coinbase Global  (COIN) , Square  (SQ) - Get Report and Etsy  (ETSY) - Get Report all pass the Rule of 40, but Cramer cautioned that Coinbase is tied to Bitcoin and Etsy's quarter was seen as problematic. Other stocks, like Roblox  (RBLX) - Get Report, Airbnb  (ABNB) - Get Report, and Roku  (ROKU) - Get Report, all trade at more than 10 times sales when using 2022 estimates.

That makes these names still too pricey unless you take a long-term view. He suggested buying these names only as they decline further, noting that they could still have a ways to go before reaching a bottom.

Executive Decision: Hydrofarm

For his second "Executive Decision" segment, Cramer also spoke with Bill Toler, chairman and CEO of Hydrofarm HYFM, the hydroponics supplier with shares up 9% so far this year.

Toler said that Hyrdofarm is a 44-year old company that sells everything farmers need to grow crops of all kinds indoors. They have supplies, equipment, lighting, soil and fertilizer, all of which are primarily sold through retail channels. Their products improve yields and lower costs.

When asked about cannabis, Toler estimated that about 75% of their sales stem from this single industry. He said the cannabis industry is moving all indoors, where they can control quality, consistency and security while getting up to four crops per year.

Raising Rates Isn't the Answer

In his No-Huddle Offense segment, Cramer offered up an alternative to raising interest rates to tamp down inflation. His solution? Let the inflation run its course.

Raising interest rates comes with trade-offs, he said, including a slowing economy and rising unemployment. But letting inflation run its course is the better option given that most of the inflation we're seeing stems from transitory shortages.

Inflation in minerals like copper should self-correct as China's economy cools, for example, and lumber prices could be eased by adjusting tariffs with Canada. Plastic plants will soon be restarting to reduce inflation, while oil producers will soon add capacity to stem oil inflation. Even the housing market is likely to cool as more people start returning to the office.

With so many temporary shortages, it simply doesn't make sense to raise interest rates, Cramer concluded, which is why Federal Reserve chair Jay Powell isn't likely to do so.

Lightning Round

Here's what Jim Cramer had to say about some of the stocks that callers offered up during the Mad Money Lightning Round Monday evening:

Anthem  (ANTM) - Get Report: "I would buy more. I also like UnitedHealth Group  (UNH) - Get Report and Humana  (HUM) - Get Report."

Beyond Meat  (BYND) - Get Report: "I'm a believer and it's a winner over the long term."

Snowflake  (SNOW) - Get Report: "I want you to hold onto Snowflake. They will make you money."

Tuscan Holdings  (THCB) - Get Report: "You're going to be taking some pain with this one."

AFLAC  (AFL) - Get Report: "That's a ho-hum stock. That's all it is."

United Micro Electronics  (UMC) - Get Report: "I think it's a buy at this level. They're doing well. I'm OK with it."

Emergent BioSolutions  (EBS) - Get Report: "This one is a disaster, and that's being nice."

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At the time of publication, Cramer's Action Alerts PLUS had a position in CRM, NVDA, AMD, MSFT.