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Jim Cramer's Action Alerts PLUS

Waymo Helps Drive Google

By Jim Cramer and the AAP Team | 2017-05-23 14:13:02.0
Stocks in Focus: GOOGL

Alphabet (GOOGL) shares are trading slightly higher, paring gains after touching all-time highs earlier today. Regardless of the pullback on likely profit-taking after hitting its highs, the stock is benefiting from anticipation ahead of the company's Google Marketing Next event, the annual conference where Google unveils its latest innovations for ads, analytics and DoubleClick. 

We continue to be amazed by Google's ability to infuse its artificial intelligence and machine learning capabilities to give marketers the best ad products available to reach the largest possible audiences (Alphabet has seven products with over 1 billion users). The company is announcing new products today that should only intrigue its partners even more -- you can read about the company's ambitions in its blog post released before the event here

Additionally, investors are buzzing over a Morgan Stanley research note focusing on Google subsidiary Waymo and its unlocked potential for the future. This is a major point that has propelled our investment thesis in Google, part of which focuses on the company's underappreciated efforts to move the company away from a sole reliance on Search advertising by building an ecosystem of services, product, and consumers. Waymo is a long-term contributor to this vision, which also includes hardware, Google Cloud, YouTube and other bets whose potential has yet to be realized. 

From a high level, we think GOOGL's consistent ability to power higher is supportive of our decision to maintain our One rating on the stock even as shares continue to push new highs. We explained in a note last year why we have always stuck with Google and followed up with even more conviction this year, recommending investors purchase shares on the overblown ad controversy in our note here

Further on the Waymo discussion, we believe the Morgan Stanley note today simply sheds light on potential not yet recognized by the broader market, but that is sometimes what it takes for a company to get the credit it deserves. With that said, we wanted to pass along Jim's commentary from Real Money on the Waymo topic posted this morning. You can read the entire post below: 

Driverless cars, driverless trucks, distant? Close? All I can tell you is that if you read this morning's Morgan Stanley recommendation of Alphabet (GOOGL) because of its Waymo division, you will be thinking it is here and now.

That's because Morgan Stanley ascribes a $70 billion valuation to Waymo, a 12% boost when it gets recognized for what it is -- the best hope for driverless cars.

The proximate cause for this push? The Waymo partnership with the No. 3 Disrupter on CNBC's annual list, Lyft, because it gives the company more access to miles driven, which is the key metric supporting Waymo's case as the dominant self-driving car. 

The way you measure the strength of your autonomous-driving initiative is to see how often the car has to be disengaged because of issues. Waymo is far ahead of every other manufacturer, and the company's numbers are in evidence right on the California Department of Motor Vehicles website. That means it can be the prototype for all car manufacturers -- and be Switzerland, if it wants to. I have been thinking that if Mark Fields, ex-CEO of Ford (F), had hooked up with Waymo, as Fiat Chrysler (FCAU) is working with the company for minivans, he'd have kept his job. 

I love this report, but I take issue with one element of it -- the idea that Waymo may be spun off into a separate company.

I think that would be a big mistake, because the autonomous-vehicle total addressable market is so much bigger than the search market is now. The latter is way too dependent on advertising -- and advertising is considered a very cyclical business.

On the other hand, autonomous cars have several secular tailwinds:

  1. The shortage of drivers for growth in all goods, right now;
  2. The much-safer statistics of cars that are driverless;
  3. The market for the physically challenged: elderly and disabled people who can't drive. 

The big concern is that when an autonomous car has an accident, it sets back the whole industry, because people are so skeptical of how well they can work. The skeptics have clearly never been in one, or they would know the cars are far more rigorous than their human drivers -- especially the tired, the texters and the impaired ones. If I were Waymo, I would be actively soliciting the auto insurance industry to vouch for the cars, because of the suspected dramatic decline in fatalities they would produce.

Of course, Waymo is not alone. Waymo develops its own chip systems, having found that others are too expensive. I would point out that the company with the best technology is Mobileye, which was bought by Intel (INTC). I have been to Intel's factories and they are a wonder to behold. Mobileye has not been able to scale development of its chips at a price that can be competitive with the suite that Waymo is offering, but that could change with its Intel ownership. 

No matter, Alphabet has not received the respect that it deserves for this other bet. Now it is happening. As the news leaks out of the "here and now" for autonomous cars, it can only spell a stock that goes higher -- and a price-to-earnings multiple that is more befitting a fast-growing stock than the relatively inexpensive P/E that it has now.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long GOOGL.

Market Update: Fed Meeting Minutes, Trump's Budget and Oil Strategy
Stocks in Focus: NUE, APA

Investors are focusing on the most-important economic and market topics rather than drowning in uncertainty over the proposed budget.

05/23/17 - 12:17 PM EDT
We're Buying More TJX on Weakness
Stocks in Focus: TJX

The trade will lower our cost basis in this name we expect to outperform retail peers.

05/23/17 - 10:45 AM EDT
Weekly Roundup
Stocks in Focus: TJX, CSCO, EZU, NUE, SNA, DHR, ARNC, C, DXC, AGN, APA, XEC, CMCSA, FB, SNAP, GE, GOOGL, HPE, KEY, LUV, BA, MMP, SLB, AAPL, ADBE, DOW, DD, WMT, NWL, NXPI, PEP, SBUX, WBA, WFC, RAD, AMZN, WDC

Markets start to recover from one really bad day amid more political turmoil. Portfolio moves include initiating a position in an ETF.

05/19/17 - 07:21 PM EDT

Markets

Chart of I:DJI
DOW 20,969.72 +31.81 0.15%
S&P 500 2,399.30 +0.88 0.04%
NASDAQ 6,143.4027 +4.6909 0.08%

Action Alerts PLUS Holdings

Holdings 1

Stocks we would buy right now

Symbol % Portfolio
Weighting
Industry
AGN 0.044699590459784104 Drugs
APA 0.04016560103075607 Energy
CMCSA 0.028825459330412216 Media
CSCO 0.034349009224752654 Computer Hardware
DHR 0.03500944155289408 Health Services
DXC 0.02838662181418425 Computer Software & Services
EZU 0.007483811692036438
FB 0.0541982466323201 Internet
GE 0.024153834498567225 Industrial
GOOGL 0.05298745403072748 Internet
HPE 0.013661991104386362 Telecomm
KEY 0.01302730874620542 Banking
LUV 0.0216734958427961 Transport
MMP 0.03128494413727168 Energy
NUE 0.03252112403319154 Metals & Mining
SLB 0.032704275227980896 Energy
SNA 0.03697478080945553 Industrial
XEC 0.03527582680551345 Energy
Holdings 2

Stocks we would buy on a pullback

Symbol % Portfolio
Weighting
Industry
AAPL 0.04564700801651329 Consumer Durables
ADBE 0.017807917605840908 Computer Software & Services
ARNC 0.022420607647283382 Industrial
C 0.033620031201927685 Banking
DOW 0.03281897139699502 Chemicals
NWL 0.024771471101985597 Consumer Durables
NXPI 0.02157484807055312 Electronics
PEP 0.03343869338530456 Food & Beverage
SBUX 0.028821469898446507 Leisure
WBA 0.014623081532488934 Retail
WDC 0.017994332881329483 Computer Hardware
WFC 0.03667992551962632 Banking