Alibaba Is the Real Deal; Yellen Says Stay the Course: Jim Cramer's Best Blogs

NEW YORK (TheStreet) -- Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:

  • Getting through the next week, and
  • Janet Yellen's common-sense stance.

Click here for information on RealMoney, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.


Alibaba Is the Real Deal

Posted at 4:43 p.m. EST on Friday., Sept. 19, 2014

Call me humbled. That was my immediate reaction this morning when I met Jack Ma, the man who built Alibaba  (BABA) , the company that came public today, into what may be the most lucrative fast-growing company (not just e-commerce company) on earth at this very moment.

I didn't want to be humbled -- or awed, for that matter. I wanted to be skeptical, cynical even, as I figured this company's stock would be red-hot, perhaps too hot. And that's exactly what happened with its $92.70 opening -- a huge gap up from it $68 pricing.

I knew that such an opening would smack of the ridiculous premiums we have seen from the openings of the worst deals, not the best ones, meaning deals such as Facebook  (FB) , which so disheartened a whole new generation of potential investors and made them as sour toward the stock market as their parents have been. Or the dreaded "dot bombs" from 1999 and 2000 that ended with such heartbreak as well as the losses amounting to trillions of dollars of hard-earned money.

I wanted to express that you could argue that Alibaba's valuation is already too high given the prospects of this company and the fact that it already has the market cap of Facebook even though it lacks the proprietary runway of that amazing company.

But a few minutes into the conversation at Post Nine of the New York Stock Exchange, I found myself quite taken by this mild-mannered 50-year-old gentleman. His humility, frankly, astounded me, and not just because he overnight has become the richest man in the Peoples Republic of China. He is now worth $26 billion, and he yet acted as if he were just one of hundreds of thousands of teammates with whom he works.

No, it was when I asked him who his hero was, who he aspired to be and he positively took my breath away when he said "Forest Gump." Holy cow, Forest Gump, the fictional wunderkind who accomplished more in a lifetime than anyone in history but at the same time carried himself in a fashion that could truly be described as the world's most humble man. That's when I said to myself, oh my, what a terrific man, this fellow just might be.

When he pulled out a present for us, a neatly ribbon-tied golden box, all I could think of was that he was about to pass us the symbolic candy box from Forest Gump, because for Ma, "Life is like a box of chocolates." I wasn't disappointed that the box contained an Alibaba T-shirt, but the box of candy sure would have been a fitting gesture after that revelation of the man's true role model.

I have read every inch of the coverage on Alibaba, and I regard much of it as disparaging. There's an overwhelming smugness to the commentary, basically suggesting that this company's initial public offering (IPO) could represent the key card in a house of them that is this current stock market. I am bracing myself for the stories that say Alibaba marks the beginning of the end, another dot-com bomb, except this time it's being thrown from Communist China of all places -- a Chinese fifth columnist of an IPO.

I know that the cynics won't be able to resist the story line of this IPO signaling a market top. It's too easy not to call the top off this deal. Why not? Who is going to remember that you called the top if the market goes higher? No one. But you could be the sage of Wall Street if you say that the largest IPO of all time was the death knell to the bull.

Hey, I wasn't all that happy with the deal. I was hoping the stock would open 10 points lower than it did, so it didn't overheat.

But let's go back to Ma and what he has created. He has built a company that provides many of the retail needs for half of the people in his home country -- the half that has  Internet access. The other half? It awaits using Alibaba as its all-around retailer because there are so few stores in the People's Republic of China. The country is as lacking in retail stores as we are swimming in an excess of them. But there is no way it's going to need to build as many stores as we have, precisely because of Alibaba.

Unlike Amazon  (AMZN) , Ma has done this by never sacrificing profitability. In fact, this company is more reminiscent of the early days of Wal-Mart where Sam Walton always thought that growth and profitability go hand-and-hand. Ironically, at its peak today, Alibaba was valued at almost the exact same price as Wal-Mart's stock.

But, importantly, because he cares so much about making money for his shareholders -- even as he professes a love for his customers, including having a lucky 8 of them ringing the opening bell -- you have a stock that, even at $91, isn't classically overvalued. At this price, for example, Alibaba sells at 19x next year's earnings, almost half of what Facebook sells for, even though it is growing its sales and earnings at only slightly less the pace of Facebook.

Alibaba has much faster growth than Google  (GOOG)   (GOOGL) , which sells at the identical price. And Twitter  (TWTR) , just for comparison sake, sells at 142x earnings. Although that's a bet that there are big numbers to come, with Alibaba, you have a bird in hand.

I wasn't just taken by Ma's vision of profits, though. I found him to be a great American success story, even though he is from China. He was dirt poor when he started. He had a vision of using the Internet to harness retail for the masses. And he wants to do this for wholesale as well, matching entrepreneurs with craftsmen worldwide to manufacture products so they can realize their dreams as he has. He is an inclusive capitalist in a country run by communists and I got the feeling that he wants to make everyone worldwide as rich as he is. There's nothing zero sum about this man.

So, yeah, I liked him. I wish we had more CEOs who shared his ideals. At the same time, though, I fear that my judgment is so against the grain that if the stock falters, I will be regarded as some fawning acolyte of just another hyped man and a hyped stock.

Oh, and about the stock? What do we do with it? Here's the pattern. Buyers in these kinds of stocks typically try to mount an assault at the intraday high. I don't trust that assault and would trim some into any big run as I am sure there are plenty of people who will wake up Monday to the negatives I described and want to ring the register.

Ultimately , though, if there is a swoon, and you can get the shares of this fast-growing, large-capitalization company at a market multiple (back in the mid-80s), then I think you should do it. I believe in the company. I believe in the man.

Here is my bottom line on the largest IPO of all time: I think Aliababa is not crazily expensive. And while I prefer both Facebook and Google to it, I can't dismiss either Ma or the enterprise he built as overvalued -- even as both do seem too good to be true.

Because maybe, just maybe, they're not.

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long FB and TWTR.

 

Yellen Says Stay the Course

Posted at 5:02 p.m. EST on Wednesday, Sept. 17, 2014

What do you do if the Federal Reserve makes sense? What do you do if the Federal Reserve is like you or me, making judgments based on the facts at hand as they did today? I think you say, maybe we should stop worrying about the Fed and start worrying more about how to make more money with our money.

As I listened to Fed Chief Janet Yellen today, I heard a woman who was simply saying (I'm paraphrasing), "Look, the Great Recession is still with us psychologically. We aren't back to normal, because the downturn so scarred people that they aren't behaving as we would hope. They aren't hiring as we think they should. They aren't spending as we thought they would. In other words, we have to stay the course for a while, trying to keep rates lower and longer than we thought we would, because things just aren't as hot as we thought. When they get better, we will let you know and we will take action."

I think this kind of common-sense stance drives many people who manage money up a wall. These very wealthy managers keep thinking, "Oh man, what are these people at the Fed talking about? Things are smoking here. We've got all sorts of terrific data and the Fed is just reckless and dead wrong."

They want the Fed to take swift action to get to the way the Fed used to be, when it took action dogmatically, not looking at the data as much as just making grand sweeping gestures that were often out of step with the facts.

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I think these very rich managers and traders and portfolio managers are completely out of touch with the average person in the world. I think they don't know how many people in this country play for dinner -- and dinner is Hamburger Helper because they are employed part-time or because they pay an enormous amount for health insurance or because they are one step from the firing posse.

The portfolio managers think Hamburger Helper is dog food. The hedge fund managers can't believe anyone has a problem buying a house because they have four of them and the banks had no problem giving them credit. They don't seem to realize that banks give loans these days only to people who don't really need loans but want that free money that they think the Fed is creating.

The people who need the money salivate at these low rates but can't get them for borrowing; they only get them when they save. Remember when I went nuts about the Fed, screaming, "They know nothing! They know nothing!"? That's because they were taking actions that had nothing whatsoever to do with the facts. They were staying firmly against inflation when their actions had already crushed inflation. They were being dogmatic, certain and forceful when they should have been inquisitive, thoughtful and questioning.

And they pretty much precipitated a crash of such horrendous proportions that we've been stuck picking up the pieces ever since. They weren't data dependent back then. If they had been, they would have been easing furiously. They would have actually known something and they could have saved us.

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I know the critics of the Fed think I am a big softy and they think Janet Yellen's even worse, a leftist ideologue bent on making it so all of the money that the rich people have will one day be worthless.

But, to me, Yellen is saying she is not out of touch. She recognizes that it is taking a long time for things to get better, so she's going to take a long time thinking about things and not taking rash action.

What's so annoying about the rich pundits is that they actually think they have been right all along -- even as it is the Fed that has been right. There has been no pickup in inflation at all. We got a consumer price number that was negative. There's no worldwide growth whatsoever. There has been contraction in China, Europe, Latin America and emerging markets.

So the Fed doesn't want to make things tougher until it is absolutely sure because the penalty for being wrong is so high that it's worth the wait.

I am not, by the way, talking class warfare. I am saying that the rich money managers don't know what's going on in the rest of the country and Yellen does. She knows the rest of the government is not helping the economy to grow. If anything, it is helping it shrink by putting in more regulations, making banks fearful of making any bad loans and raising taxes for the wealthy.

She's not going to get "mechanical" -- the word she used -- at a time like this. She is not worried about falling behind the curve (meaning that she's being too easy). She is worried that the psyche of the country is too fragile. She has tapped into the zeitgeist of our parents or grandparents or great grandparents after the Great Depression when they pinched every penny for the rest of their lives. She seems to recognize that the Great Depression only ended when World War II pumped up the economy. But there is not going to be a World War III that will have that same effect.

What does her view mean for those of us who are trying to make you money? It means that, once again, we are going to have to work harder to get a return on our money. It's a terrible thing to not be able to borrow the money that's being lent so cheaply because the banks are afraid to lend it to you -- while at the same time you are making nothing on your deposits.

The trick with the Yellen regime, just like the trick with the Ben Bernanke regime before her, is to remember that they speak for the common person who is worried about his job or her budget. They want the common person to make money. They know the common person can't make it with certificates of deposits so they are urging you to find stocks that can go higher. I know you are scared of the stock market, too, not unlike those parents and grandparents and great grandparents who never touched the stock market. But she's taking her time so you will get your feet wet into the stock waters.

She's trying not to scare you. I wish others felt that way. I am with her.

Fortunately, so many companies are making tons of money -- not because they are hiring and expanding but because they are firing and selling a little more in terms of goods and services than they were before. They are everywhere we look.

Today, we got all of the reviews for the new Apple  (AAPL)  iPhone and there are raves. Why not own some Apple? It's much cheaper than the average stock. How about the domestic retailers? The Fed's not going to tighten credit and gasoline is trader lower so there is plenty of opportunity there. How about with companies that are able to grow fast despite the sluggish nature of the economy?  These include companies such as Facebook  (FB)  or Google  (GOOG)   (GOOGL)  -- or the Alibaba deal, provided you pay no more than $80 for the deal if we don't get any stock on it.  

How about considering stocks that have good yields and are going to make you some money and give you a little growth to boot, such as Verizon  (VZ) , ATT  (T) , Kinder Morgan  (KMI)  or Ventas  (VTR) ? Or maybe Microsoft  (MSFT) , which raised the dividend today but can do so much more to bring out value.

And how about a stock that got hammered unfairly on the day, such as Skechers USA  (SKX) . Things are good at the company but a lawsuit filed today knocked the stock down.

If we step back, what we heard today from the Fed is simple: One day we, will forget how horrendous it was in this country. One day, the rest of the world will get better. One day, the pain will be a distant memory. And when that memory dims, it will be a good time to raise rates.

The bottom line? Yellen says stay the course. To me, that means keep working to make that money grow and keep trying to find ideas that can make you money in an environment where the Fed knows something. They know more than the rich critics who can't believe how good things are and know nothing about those who play for dinner -- and dinner is often thin gruel.

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long AAPL, FB, GOOGL, KMI, MSFT and TWTR.

 

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