NEW YORK (Real Money) -- So let's see, Domino's (DPZ) and Harman (HAR) are now dead stocks? The fact that they opened up and then fell flat is the kiss of death, too, as if they are somehow software-as-a-service stocks or 3D printers or biotechs?
Last night I interviewed Patrick Doyle of Domino's and Dinesh Paliwal from Harman and I have to tell you that I think the action in their stocks, which was full of the sound and fury, actually signified nothing.
This wasn't the first time that Domino's has reversed like that in the 70-point run since I met Patrick Doyle, one of my bankable 21 from Get Rich Carefully. In fact, this stock has had some major problems getting by earnings days in part because Doyle is so candid about his business. Yesterday, he dropped a bomb about raw costs, particularly cheese, which has gotten a little out of control. But he has a largely franchise model and that price falls to the franchisees for the most part -- they do have some company-owned stores that get hit -- and otherwise the growth here was superb and the cash generation better than ever.
I know this tape has created so much confusion with its interaction with the bond market. I think this stock reversed in part because interest rates reversed and headed lower. Plus, when it comes to commodities, what comes up can come down. I simply don't believe the 25% move higher in dairy in the last quarter is sustainable, while I do believe the mid-single-digit comps here and the high-single-digit comps overseas are.
Harman's tougher. The action in the stock is mystifying. It opens at $114, a gap up of about five points, then cascades 12-straight points down, an hour before the conference call begins. Again, all that I can find that disturbs the stock is the bond market, as there was nothing substantive impacting Harman in that period. No earnings notes. No new stories.
Then the conference call begins, and the stock works its way back to where it is, slightly in the black from the day before after the call. Finally, it rolls over to close down a couple in that last-minute ugliness.
Did we hear Harman say anything bad about its business on the call? Nope. Professional (sound for shows like the Grammy's), personal (the fabulous at-home speakers), headphones and auto infotainment are doing much better than analysts thought. Yes, there was a gross-margin in issue in one small line of business. More importantly was that the company has won a huge number of orders from auto companies worldwide, and once they are in they are very difficult to dislodge. When we checked around to see whether there is anything that we might be missing, we heard that some thought Apple (AAPL) would challenge them with an in-car system.
I frankly found that absurd. Although I can see that their recent partnership with HTC might be annoying to Apple, there are many things that are annoying, and let's just say it isn't what's driving the stock.
Both have huge moats. Harman's embedded in pretty much every car company in the world. Domino's has harnessed social media, notably Facebook (FB), to generate a huge number of digital orders, which has been a terrific way for the company to take share in the competitive pizza delivery market. The moms and pops just don't have the horses.
Now, of course, when you have these island reversals the stocks are now being consigned to the dustbin. I am totally cognizant of that. These two need to stabilize, especially because all of the hot money that came in on the opening has got to be flushed out.
And while I am sure there are things that I am missing, I think these two stocks, so fabulous for so long, remain terrific places for the growth investor to be in. They have the best managers, the most consistent sales and earnings profiles and among the best order momentum -- pizzas and infotainment -- of the vast majority of companies I follow.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.
Editor's Note: This article was originally published at 5:42 a.m. EST on Real Money on May 2.
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