Norfolk Southern and other railroads had a wild ride last week

Jim Cramer shares his views every day on RealMoney. Click here for a real-time look at his insights and musings.


Cramer: The Cost of Being a 'Fundamentalist'

Posted at 11:47 a.m. EDT on Thursday, Jan. 19, 2017

Blame it on Amazon ( AMZN) .

I'm talking about the short sellers who are losing billions and billions of dollars every day now betting against Netflix (NFLX) and Tesla (TSLA) . They just don't understand the Amazon factor, meaning that you may not see what's causing all the love for either company, but that love is tangible and palpable and has both stocks breaking out to levels that most fundamentalists didn't think possible.

Let's start with Netflix. Wednesday night, it reported a much better-than-expected subscriber growth and streaming revenue. Some of the numbers here are so stellar they cry out for recognition: International membership grew by 5.12 million against a forecast of 3.75 million and 47% of the members of a company that started streaming just 10 years ago are from overseas, giving them 93.8 million users. They have the luxury of balancing profitability vs. growth and they, fortunately, are going with the latter.

They key to the story? Content: their original programming which, mind you, just began in 2013, in just four years accounting for five of the top 10 most searched TV shows globally. "The Crown." "Luke Cage." "Black Mirror." "Narcos." These shows are compelling enough to drive the sign-ups.

Yet there were so many people betting against this company. Listen to Wedbush today reiterating its Sell recommendation: "We continue to believe that Netflix is overvalued. We have been consistently wrong about this stock as we have always believed that valuation fundamentals dictate that companies be valued based upon the discounted present value of their cash flows. It is likely that we will be wrong for a while longer as there is more quality content than ever before and Netflix certainly has had its share of hits."

There you go, a bull case within a bear case. Too bad he didn't have two daughters who, when they left the house, didn't bother with cable. They had Netflix. Hence, why I have been behind it. Hence, why I begged Apple (AAPL) , an Action Alerts PLUS holding, to buy it at $25, $35, $50 and on and on.

Nope.

Now it is too high. Why? Because it turned out to be Amazon. Sure it was and is faith-based investing, but it's been delivering. And while Wedbush waits to be wrong a little longer, with the only concession being that the analyst raises the price target for this $140 stock from $60 to $68, I am waiting for them to get to 200 million viewers. Why not?

It's a bargain.

How about Tesla? I have always called this a cult stock. Why? My kids can't own stock, but the only time they have been upset about that is when they haven't been able to buy Tesla's shares because they think that the car is amazing. It is amazing. Test drive one. The issues have been, though, how many can they make and can they make any money on them. One of the reasons why people have been dyed-in-the-wool bears, is a belief that they can't make as many as they say. But this morning Morgan Stanley, which with its Hold recommendation had laid out a compelling bear case, went to a Buy recommendation, pointing out that the company could make as many as 75,000 additional Model 3s by 2018. Plus, the company employs 25,000 people and makes all of its cars in the U.S. and Morgan Stanley then points out that CEO Elon Musk has an important line of communication to Donald Trump. Voila, it's a Trump stock.

But let's go back to Amazon. Both Netflix and Tesla--like Amazon--require you to go outside the traditional fundamentals to value their stocks. I have liked the stocks of Amazon and Netflix, two FANG members, because I think their products are bargains, although I have only said, if you like a Tesla go buy the stock. You need to accept that both can be the next Amazons and if you do, you know it would be foolish to short either, as so many dedicated professional short sellers no doubt feel after today's performance for these two incredible stocks.

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

Cramer: The 3 Rail Stocks Are Sells, but That's Not the Real Story

Posted at 6:30 a.m. EDT on Thursday, Jan. 19, 2017

When people say the animal spirits are unleashed you have to respect those spirits or else you get run over by a speeding locomotive.

I am talking about Wednesday night and the locomotives that were Norfolk Southern (NSC) , Union Pacific (UNP) and CSX Corp. (CSX)

Wednesday was supposed to be a just OK day for the rails as CSX reported a good, not great number that talked, as always, about cost cuts and furloughs and, yes, domestic coal being down.

Considering that the stock had run from $28 to $38 in six months, including a six-point Trump bump, it wasn't too shabby that the stock was only down a dollar and change, aided by the fact that 80 percent of their volumes were neutral or positive year and a call they made about the industrial economy stabilizing and a "healthier volume environment."

But then all hell broke loose after the close when Canadian Pacific Railway (CP) CEO Hunter Harrison abruptly quit his job and let it be known that he is in advanced talks with a former Pershing Square partner Paul Hilal to perhaps pursue a bid for CSX. Hilal ran the portion of the Pershing Square fund that had a gigantic stake in CP not that long ago. Harrison had been installed by Pershing to run CP about five years ago.

At the same time, CP named Keith Creel its new CEO--someone the company regarded in its release as being the CEO in waiting--and he immediately made comments about how consolidation in the industry is inevitable.

The oddest twist? In the CP release, the company wrote: "Mr. Harrison had approached the Board to discuss his retirement from CP and potential related modifications to his employment arrangements that would allow him to pursue opportunities involving other class one railroads," and because of that request he was asked to leave immediately.

In other words, CP could have said that it wanted to consolidate with other rails--it tried back in November of 2015 to buy Norfolk Southern for about $2 billion less than it is now selling for, but at the time represented a substantial premium and it failed. Or, it seems, it could just let him go to work on the merger.

Next thing you know, on the strength of these announcements, CSX's stock breaks out of the $30s and trades to almost $42, a monumental four-point move that would have required months of good cargo numbers to get to.

The stock of Union Pacific, which reports this morning, jumps three.

And craziest of all, Norfolk Southern, which, remember, rejected the CP bid from November of 2015, bolts five points!

What's this have to do with animal spirits? Frankly, with details so sketchy, with press releases and whispers flying around, I would have sold all three of these stocks. They are way too expensive on the numbers and they have no inclination--or have expressed none in the past--to merge.

But it didn't matter.

The buyers went nuts anyway.

Yes, it is that kind of market. A bull market. And while this was pure froth last night, all I could think of is that there's someone short these rails and at that very moment those undisciplined shorts were trying to recover their stock. I know hope can spring eternal, but sometimes there is too much hope, like the hope of a speeding takeover release running over your position.

To me, they are sells. But the fact that they could move like this on these pieces of news? That's the real story.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.