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:
- What makes him buy shares in Amazon
- What drives stocks higher
Click here for information on RealMoney, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.
Cramer: Praise Be Unto Amazon
Posted on Oct. 28 at 1:51 p.m. EDT
Thursday night, Amazon rocked the investment community by revealing it has aggressive plans to spend in order to win over parts of the world that it hasn't conquered as well as to boost initiatives that exploit artificial intelligence, like Echo, the hands-free speaker you control with your voice.
On Wall Street, you don't spring unexpected plans about the need to spend without expecting a backlash of skepticism. For example, earlier this week, Kevin Plank, CEO of Under Armour (UA - Get Report) , talked about the need to spend to grow and gain share. Immediately, his stock plummeted because, to Wall Street, that spend implies lower gross margins and therefore lower profitability. It also means that perhaps demand isn't as strong as one thought, hence the brutal decline in the stock--down 25% for the year--as investors decide to pay less for the company's shares. (Amazon and Under Armour are part of TheStreet's Growth Seeker portfolio.)
That's why the decision announced on Amazon's call to beef up spending freaked out many investors and has caused Friday's substantial decline. I buy that logic for pretty much every company, every company save Amazon. Time and again, I have seen this company's stock rise and then have a chunk of the rise repealed when, periodically, the company sees an opportunity to spend where the return on investment could be huge. Bezos does not want to cut off his nose to spite his face or please Wall Street. He recognizes that he can't be constrained by what Wall Street wants, which is typically a predictable earnings stream driven by predictable spending. Nor can he bother with the thinking that he might not be spending as much if things weren't slowing down worldwide.
He takes his own counsel and he acts on it.
People often look back and say, why didn't I own the stock of Amazon given how much I like Amazon Prime or love the convenience or are impressed with the time of delivery and its superior customer service.
The answer? Simple: because they get scared off after days like today. They can't stand the volatility. But that has always led to this kind of knee-jerk shake-out, which makes it too hard to own.
Here's what I say: You either have faith in Bezos or you don't. You either buy into his amazing success or you stick with something less volatile. For me, though, this decline is simply one more buying opportunity in the long upward climbing road that Amazon's been traveling.
Now that doesn't mean you have to go buy it Monday. We have real sellers out there and they might not be done unloading the stock. But it does mean you've got a sale going on and you have to ask yourself, would you take advantage of a sale on Amazon? If you would, then you might want to take advantage of a sale after what has amounted to, over time, a very predictable pattern of accelerated spending precisely when the opportunity most knocks.
Cramer: Snap Up Groupon on This Weakness
Posted on Oct. 28 at 6:25 a.m. EDT
How can the market not like that the company bought Living Social, a competitor where it can now pick and close, meaning pick what office of Living Social is doing better or worse than one of its own and close it or fund it more aggressively, depending upon the stats?
Usually when I interview a CEO and his or her stock is down, it's pretty darned obvious--and often painful--why, because there are no free passes. But I spent hours trying to figure out what Rich Williams had done wrong to merit such a drastic decline in value, one that cut the company down to where its cash is, more than a third of its capitalization. The answer?
It had run too much.
I think the company is simply going back to its roots as a local coupon business. Nothing sexy, but something worth more than $2.3 billion if it gets it right. That's, of course, the real question: can it get it right? From the very beginning, Groupon never had to worry about getting it right, because it was all about the buzz. Sure, it made some money for a couple of years, but nothing worth the company's price tag.
Now it's pretty much the only game in town, even as people keep presuming that a company like Action Alerts PLUS charity portfolio holding Google (GOOGL - Get Report) or Growth Seeker portfolio name Amazon (AMZN - Get Report) is going to come after it. I can tell you that this is a retail business, and the margins are never going to be good enough for the behemoths to challenge Groupon.
So what's the point of owning it? I think that if you are the only digital coupon game in town and you can use algorithmic pricing and machine learning to anticipate behavior, you can make a ton of money for your clients. That's exactly what I think that Groupon can do.
To me Groupon is a useful, focused business without a lot of growth, which can make enough money that its market cap shouldn't be so close to its cash position.
But to do that the CEO, Williams, had to dismantle a huge amount of infrastructure that was created to mask declines in couponing or to put money to work that was burning a hole in the pockets of the old managers.
I got interested in Groupon and said it was too late to sell it after putting a hate on this monster forever when it sold a company called Breadcrumb, which is a restaurant point-of-sale system, back in May for an undisclosed sum. We use Breadcrumb at Bar San Miguel to keep a running total about how we are doing each night. I was fascinated by how good it was and how it enabled me to keep track of receipts and get a sense of things going awry that I otherwise might not know about.
I got interested because it made no sense for Groupon to own Breadcrumb. Sure, someone could say "let's cross-promote this point of sale system with digital coupons", but the fact is that small business people aren't going to make those kinds of connections. The register is different from the coupon. They have nothing to do with each other.
So when Williams sold it, I knew this company had gotten serious about profitability, just like it had when it decided to close underperforming offices around the globe.
Ever since then, it's been a terrific performer--until Thursday. To me, this company's going to turn out to be a digital dominator of a niche market, local coupons, a business that can make a lot of money or be swallowed by another company that says "this one's making too much money, let's buy it with the cash it has on the balance sheet."
That means, to me, snap this stock up on the weakness. This management team is focused. The decline is undeserved.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long GOOGL.
Cramer: Here's the Secret to Driving Stocks Higher
Posted on Oct. 27 at 4:08 p.m. EDT
We understand the term "better than expected." We know that when a company reports better-than-expected numbers its stock goes up. We also know "worse than expected," that toxic statement that often gets followed by the dreaded words "cuts forecast."
But how about another category that's causing stocks to jump Thursday: "not as bad as we thought."
The "not as bad as we thought" thesis is playing out big today and you can see it in some prime examples.
Number one? Bristol-Myers (BMY - Get Report) . Not that long ago, Bristol-Myers was at the top of the heap. I always mention that the stock price is determined by what Bristol-Myers is doing, not what's happening to the world's economy.
It was the "go to" name in the pharmaceutical business because it had the best growth of the old-line pharma companies. Some called it a biotech in disguise because of its massive re-rating from boring old drug company to the company with the winningest anti-cancer franchise of any out there because of its breakthrough drug, Opdivo.
You may have seen the ads for the drug, the ones that are meant to ask your doctor to try Opdivo, ads that gave a lot of people hope that a real wonder drug was upon us.
But a few months ago we learned that Opdivo wasn't all that wondrous. In fact it failed to meet some endpoints in an important lung cancer study and BMY fell from $75 to the mid-fifties immediately. Then when still one more study came out showing it had inferior characteristics to Merck's (MRK - Get Report) Keytruda, the stock broke down to $49 as the market judged that Bristol-Myers was just about hype not substance.
Thursday, Action Alerts PLUS holding Bristol reported and wouldn't you know it, the company had some good things to say about Opdivo and some of its other drugs. By this point, because the stock had seemed like the second coming of Valeant (VRX --a very unfair comparison but one that got around--short-sellers had swarmed to the darned thing. As poorly as Bristol has played its hand when it came to promising Opdivo's universal greatness, it was understatedly positive Thursday. Or, to put it in the prism I am using, it simply wasn't as bad as people thought it would be and it rallied.
I still think the company is promising too much but its rally is simply based on not blowing up a third time. Just as owners get disappointed and sell when they don't like what they see, short-sellers get disappointed when they like what they see and they have to cover, which sends the stock higher. That's the truth behind Bristol's big move, one that I do not trust as much as I would like because it is based on the company simply not screwing up badly again.
I felt the same way about Cheesecake Factory (CAKE - Get Report) and Buffalo Wild Wings (BWLD . Both companies reported numbers that to me were absolutely nothing to write home about. Wall Street was looking for 1-2% growth for Cheesecake and the numbers came in at 1.5%. That's not better than expected. A tech stock that delivered that kind of number, one that failed to beat the top line, would be slaughtered. But when it comes to going out to dinner, you do a number that's smack in the middle of the range and you are a hero. No wonder Cheesecake's stock actually hit a 52-week high simply by not missing its estimates!
In fact, the restaurant business is so bad right now that when Buffalo Wild Wings predicted that its franchises would have minus 1.7% franchise comparable store sales and the numbers came in at minus 1.6%--minus mind you--that sent the stock up almost $8. It's almost stupefying isn't it? But simply not horrendous cuts it in this market, or in the land of the blind, the one-eyed restaurant chain is indeed king.
Twitter (TWTR - Get Report) almost pulled off this same thing today. The stock was flying in the morning because there was actually a trajectory of daily averages users that was positive. You see Twitter was supposed to report a horrendous number, part of the whole process by which it didn't get sold. Amid all of the other rancor and bad will that developed during a process that played out way too publicly was a belief that when the company reported it would deliver sales and metrics so disappointing that it would go right back to the $14 level before all over the take-over hoopla started.
But it didn't. It just wasn't the most disgustingly terrible quarter that investors thought. It looked like the stock was going to break out for good. However, we learned that it was shutting Vine, something that at one point speculators thought would be the reason for someone to acquire the company, so the pre-earnings desperation came right back to life.
My take? It genuinely wasn't as bad a quarter as I know I thought they were going to do. They did beat on both revenue and earnings. Plus, I think that this number makes it more likely that Twitter can come back into play, especially if they develop something that can use machine learning to actually knock off the trolls. They do that and I am telling you that buyers will come back and this company will be owned by someone else who can use all of the data to help companies make better decisions about what consumers want and where their dollars could best be spent.
But it is a one-two punch. They have to fix the troll problem--which I think they are--and then they have to keep the process quieter. It got totally out of hand last time to the point where it became $29 or bust and the company's not liked that much that a buyer's stock won't be crushed for making a bid.
I think that the discipline of closing Vine and chopping heads while at the same time showing some growth is going to make Twitter more attractive to buyers, but not until the troll problem is buried and done with because the shareholders of whoever might make a bid despise Twitter for its inability to tamp the hate even as they can't keep their eyes off it to see what's happening.
Finally, there are companies that recognize that they can change the coloration of what people think about them and manage to see their stocks soar.
For years now Qualcomm (QCOM - Get Report) , the company that develops intellectual property integral to the modern-day cellphone, just kept disappointing Wall Street. Management, which is very pro shareholder, was besides itself. How the heck does a company like that make Wall Street see that it isn't as bad as they think it is?
How about by making an acquisition that in one fell swoop changes its stripes from a so-so cellphone chip company with oodles of cash overseas that can't be brought back without confiscatory taxes being paid into an internet of things and automobile semiconductor company with some terrific cellphone technology? That's what happened today when we learned that Qualcomm were plunking down $47 billion to buy NXP Semiconductor NXPI, a foreign-domiciled company and one of our favorite companies owned by my charitable trust, Action Alerts PLUS.
The fact that NXP Semiconductor is foreign domiciled allowed Qualcomm to take that deadweight cash and put it to work without taxes while borrowing cheap foreign money to pay for the rest. That's how the acquirer's stock could leap two and a half dollars while NXP's stock barely budged!
Yep, not being as bad as we thought, not being as bad as we were getting used to. That's become a time-honored way in this difficult market to drive your stock higher. Why bother to look through it? The darned strategy's working.
Action Alerts PLUS, which Jim Cramer co-manages as a charitable trust, is long BMY and NXPI.