NEW YORK ( TheStreet) -- "Cheapness is in the eye of the beholder," Jim Cramer told the viewers of his "Mad Money" TV show on Monday. And there are only a couple of beholders that matter: the hedge funds and mutual funds, and the acquirers. "No matter how inexpensive a stock might appear to be, it won't go higher unless it can attract hedge fund and mutual fund buyers or a takeover bid in this environment," he said. Cramer said that tech stocks and bank stocks are only "theoretically cheap," but the perception that they're of great value doesn't take the beholders into account. The tech stocks that are considered cheap, for example, are the ones "being destroyed by Apple ( AAPL)." And while bank stocks are inexpensive historically, Cramer wondered if the "best of the best," such as JPMorgan ( JPM) and Goldman Sachs ( GS), are languishing, "do I really want a bank in my portfolio?" Cramer called these stocks "value traps" that might look cheap on paper but have no real growth. Instead, the cheap stocks are those with the strongest earnings momentum, and the two cheapest in the market are Netflix ( NFLX) and Amazon ( AMZN). Netflix and Amazon are considered cheap because they have the potential for big earnings beats down the road. "If things go right and they keep delivering," Cramer said, "these names will turn out to be much cheaper than the value stocks." Cramer said he spends so much time talking about growth because that's how to anticipate what the big hedge funds and mutual funds will buy. "We don't care about what looks cheap to us," he said. "We need to know what''s cheap to them." We care what hedge funds and mutual funds think because "their buying can move up these stocks immensely," Cramer said. As for takeover targets, it's difficult to identify them, and "without a catalyst of a deal, they most likely won't move up on their own." "Cheapness is in the eye of the managers who put money to work every day," Cramer said. "You have to think like them if you want to find stocks that are ultimately going higher."
Executive DecisionIn the "Executive Decision" segment, Cramer welcomed back to the show Herbjorn Hansson, CEO of Nordic American Tanker ( NAT), an oil tanker company that beat earnings per share by a penny this morning and raised its dividend to 30 cents from 25 cents in the previous quarter.
Cramer noted that even when oil was skyrocketing, the oil tanker industry wasn't faring well because it's "not as much about the supply and demand for oil as it is about the supply and demand for ships to carry oil, and right now, there's just too many darn tankers out there." So while Cramer considers Nordic American the best in its industry, with a "pristine" balance sheet, he said the stock has been "hammered" and now sits barely a point off its 52-week low. Hansson said that he's discovered two things about running his business: first, that Nordic American must pay the dividend it's promised its shareholders, and second, that it must have a strong balance sheet. "This industry is in trouble," Hansson said. "We wish to give this dividend because we will show strength because Nordic American is the strongest shipping company out there." He hopes that shareholders will see the company is in "excellent shape" and take the recent dividend boost as a signal that they own stock in a "jolly good company." As for Nordic American's balance sheet, Hansson called it the "strongest balance sheet in the industry." Hansson addressed the threat of piracy and said Nordic American has armed forces on board, noting that it would be "irresponsible" not to. "I care a lot about our crews and, of course, our assets," he said. Governments need to take action, but in the absence of that, "we have handled it." Cramer noted that the sentiment on Nordic American is "so negative," with two buys, seven holds and four sells, but said he thinks the company is in the position to benefit from current weakness because it can afford to buy new ships "on the cheap from competitors who can't take the pain." "I think you're the best operator, you've got the best balance sheet, and when things get better, you'll make fortunes," Cramer told Hansson. In a second "Executive Decision" segment," Cramer spoke with Mark Bristow, CEO of Rangold ( GOLD), an African miner that Cramer said has "some of the most spectacular production growth in the industry." Last week, Rangold missed earnings by 24 cents a share, while maintaining its four-year forecast, which Cramer said indicated that "the rest of the year could be very, very good."
But Cramer warned that this potentially high-reward play on gold is also high-risk. "Africa has huge potential. It's an emerging market that's trying to develop itself," said Bristow. "And if you want to go and get big rewards, you have to be able to manage risk." Bristow said he sees "a lot of upside" in gold in the medium term. "I think it's got a good three to five years to run." Cramer asked Bristow about how he plans to keep costs under control as the company transitions from open-pit mining to more-expensive underground mining. "It's all about being able to mine gold profitably," said Bristow. "What underground mining brings that open-pit mining doesn't is that your capital that you invest lasts for a lot longer, and you reduce the dilution, so you mine better-quality gold." As for the effect of high diesel fuel costs on profitability, Bristow said that diesel costs are always an issue but noted that as Rangold opens up its Ivory Coast project, it's hooking into a hyro- and gas-powered grid, reducing power costs by over 66%, and in the Congo, the company will move to pure hydro power. Cramer cited a report that said Rangold is poised to triple current production by 2014 and that growth is fully funded. "We've got a very strong balance sheet, and we're not planning to issue any more stock," said Bristow. "We can get there with the money and the cash flow that we have internally." While Cramer said he's "squeamish" about the risk, he likes Rangold, which has soared over 2,400% in 10 years. "If you really believe in gold and are willing to take some political risk, this one has it all," he said.
Motricity: Mea Culpa"You can't play the investing game without being wrong sometimes," said Cramer. "The trick when you make a mistake is to be able to recognize it." Case in point, Motricity ( MOTR). At the time of its IPO less than a year ago, Cramer called the stock the "on-ramp to the mobile Internet superhighway." If "dumbphone" users want to access the Internet, they need Motricity, which is seeing rapid expansion overseas.
When Cramer originally recommended the stock, it was trading at $17.48, and he thought it was "one of the most important mobile phone companies you'd never heard of." It quickly soared up 76% to $30.74, which seemed like a homerun, but "it's been all downhill since then," and the stock is at $10.43 now. The problem is that smartphone adoption happened much more quickly than Motricity had expected -- and smartphone users don't need Motricity. The company wasn't prepared for it, and neither was Cramer. "It's something I should have seen coming," he said. "Mea culpa." In March, Cramer spoke with CEO Ryan Wuerch. Who defended the company's prospects. "I'm worried that the guy doesn't know what he's talking about," said Cramer. "The pain just keeps coming." Motricity's earnings report last Tuesday looked on the surface like a solid quarter, but the stock plunged 14% the next day and has continued downward since then. It did pick up 57 cents today, and Cramer said it was time to use this meager strength to decide what to do with the stock. Cramer cited two main worries with the stock: that management lacks credibility, and fears about the business model's viability. He said on the company's conference call, management seemed to be backing away from its original 2011 guidance by not reaffirming it when asked repeatedly to do so. And the company is nowhere near its projections at the time of its June 2010 IPO. "These guys just don't seem to have much of a handle on what's going on at their company," said Cramer. "They don't realize that they aren't getting it right." It turns out that dumbphones are not a growth area, and Cramer reminded viewers that "nobody likes tech without growth." Even though 78% of global handset traffic is in dumbphones, Cramer said you have to wonder how sustainable that growth is. "It's looking more and more like the whole enterprise is getting obsolete," he said. Cramer doesn't like Motricity's balance sheet, either. Though he wouldn't sell immediately, saying that at $10.43, the stock seems oversold after a quarter that "wasn't that horrible," he'd wait for near-term catalysts and look to sell on any strength.
"This is simply not the stock that I originally thought was worth pounding the table about," said Cramer.
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