Investors need to be prepared for more days like this, Jim Cramer warned his Mad Money viewers Wednesday. The IPO cycle is playing out just as Cramer had feared, and we're only just getting started.
Cramer explained that this week's debut of ride-sharing service Lyft is creating a frenzy among institutional investors, all clamoring for a slice of the $2.2 billion deal that's already seeing share prices rise beyond expectations. The company has a powerful secular growth theme, he said, and the deal will be oversubscribed, Wall Street speak for "not enough shares to go around."
But to pay for these coveted shares, money managers need to sell and raise cash. That spells trouble for the cloud kings, semiconductors and other high-growth names, all of which are seeing their shares under daily selling pressure. Investors should expect the selling to continue as the parade of sough-after IPOs continues with companies like Pinterest, Slack and ultimately, Uber.
The stock market obeys the laws of supply and demand, Cramer reminded viewers. For every big new IPO, countless other shares will need to be sold in order to make room.
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What Should Investors Do With Citigroup?
What should investor do if they own shares of Citigroup (C - Get Report) , as Cramer does his charitable trust, Action Alerts PLUS? Cramer said a part of him wishes he'd never invested in the bank with shares that have stagnated, but his head tells him differently.
The key metric for any bank is tangible book value. That's the amount shareholders would receive if the bank closed its doors and liquidated. In the case of Citi, that number is $3 a share higher than where shares currently trade. Cramer said any investor who would sell shares for less than book value is simply nuts.
By comparison, regional bank Keycorp (KEY - Get Report) , which has the same price to earnings ratio as Citi, trades for $4 a share more than its book value. Why the difference? Cramer said it's likely because Key can get taken over, but Citi cannot.
But while investors fret over an inverted yield curve and recession fears, Cramer said he's choosing to focus on the long-term outlook for Citigroup, which remains bright, even if that means coming to terms with the stock's short-term woes.
Executive Decision: PVH
For his "Executive Decision" segment, Cramer sat down with Manny Chirico, CEO of PVH (PVH - Get Report) , the apparel maker that just posted an eight-cents-a-share earnings beat and announced a $750 share repurchase.
Chirico said consumers no longer just aspire to brands they love, they want to be a part of them. That's why PVH continues to make investments in technology, e-commerce, marketing, and in their stores, to make their brands a destination consumers can connect with no matter where they are. Younger consumers especially, value that connection.
Turning to the topic of denim in the wake of the recent Levi Strauss (LEVI) IPO, Chirico said denim remains challenged in the U.S. market, but only represents 15% of volume for Calvin Klein and even less for Tommy Hilfiger.
When asked about sustainability, Chirico noted that this is another topic that's very important to younger consumers and PVH is making strides to make products that biodegrade and come in packaging that is recycled. All of these issues are a growing part of the company's communication and marketing, he said.
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Executive Decision: Centene
In his second "Executive Decision" segment, Cramer sat down with Michael Neidorff, CEO of Centene (CNC - Get Report) , the health insurance provider that today announced the $15.2 billion acquisition of WellCare Health Plans (WCG - Get Report) . Shares of Centene fell 4.9% on the news, despite the deal being additive to earnings in its second year.
Neidorff explained that the time to act on deals like WellCare are during times of uncertainty, like now. No one expected them to make the deal, he said, and they've been patiently waiting for the right price to buy.
Neidorff said it's a perfect fit. Both companies have high growth and complimentary products, and the combined geography allows them to expand to all 50 states and strengthen their offerings in key markets like Michigan.
Finally, when asked about the political football that is the Affordable Care Act, Neidorff said the plan can be fixed, it only needs to be expanded so costs will come down. Everyone wants to have insurance, he said, and the program teaches people how insurance works.
Cramer and the AAP team are keeping a close eye on the selling and are raising cash so they'll be in a good position to buy. Find out what they're telling their investment club members and get in on the conversation with a free trial subscription to Action Alerts Plus.
Executive Decision: Paychex
In his final "Executive Decision" segment, Cramer checked in with Marty Mucci, president and CEO of Paychex (PAYX - Get Report) , the nation's second largest payroll processor. Paychex just posted a penny-a-share earnings beat with higher-than-expected revenue growth.
Mucci said his company's human resource outsourcing services continue to see strong demand as companies compete to hire and retain the best talent. Small and mid-size companies, in particular, often have a hard time competing on benefits like health insurance and retirement plans, Mucci said, but Paychex offers analytics that lets companies see exactly how they compare to others in their industry.
Another growth driver has been self-service options for employees. Features like chat bots allow quick and efficient access to information and answers to common questions, Mucci said, and currently 45% of payroll inquiries are resolved using these automated systems.
Finally, when asked about the state of the consumer, Mucci said confidence remains strong, but the overall optimism has waned slightly as companies are challenged to find the quality people they need.
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