- the new market pattern; and
- two hard-to-value stocks.
The New Market Pattern Posted at 4:10 p.m. EDT on Friday, May 17 New pattern: A selloff brings out buyers. One of the most unnerving traits of the old bad days was that when you had a reversal day where the market opened higher and then plummeted, it tended to usher in a real bone crusher. I thought that would be the case today, especially after Nordstrom ( JWN) reported its dog quarter, and J.C. Penney ( JCP) and Dell ( DELL) failed to impress, either. Instead, buyers came out of the woodwork in pretty darned shocking fashion. They went back to disappointers like IBM ( IBM) and 3M ( MMM), so-called disappointers like United Tech ( UTX). What changed?
I think auto registrations in Europe plus good consumer sentiment made this rally. We are in some sort of super-positive moment that we didn't get crushed today and the key remains that Europe has, in the words of John Chambers of Cisco ( CSCO), bottomed out. This is a bottomed-out-in-Europe rally, and as long as we keep getting good data points out of Europe, we are going to have this kind of day. Who knows what will happen if we actually get good numbers out of China? Where will Vale ( VALE) and Freeport-McMoRan ( FCX) and the other cellar-dwellers like Joy Global ( JOY) go? Or maybe it is just a matter of time. At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long JOY, UTX, VALE.
Tesla and Amazon Drive the Shorts Crazy Posted at 11:10 a.m. EDT on Thursday, May 16 Hard-to-value stocks are such bummers. How do you value a car company that makes only 21,000 cars, even as it makes money on them? How do you value an online company that dominates Internet commerce? The answer is simple: You don't. You can't. You can't, because there's a confluence, an actual formula, for what's going on here. You take a service or product that is much loved, you verify constantly that it is loved, whether it be because of the rapid adoption of the online service or a terrific rating in Consumer Reports, and you add in sudden profitability and a chance for long-term dominance and then sprinkle on nonbelievers who short the stock because the usual valuation works are defied, and they can't be defied forever. The result? You get Tesla Motors ( TSLA) at $10 billion, and you get Amazon ( AMZN) at 220x earnings.
Now, the mechanics of the stock market are working in favor of these two stocks -- the mechanics meaning the difficulty of the short-selling process. You can't just sell stock when you short; you have to borrow stock to sell it, and that has been very difficult in the case of Tesla, where 41% of the stock is sold short. Anyone who buys this stock is the enemy of the shorts, because the shorts are going to demand that stock. The shorts are frantic to find stock, and when they can't, the brokers just buy the stock in to cover the short.
Tesla? What can I say? The simple truth is that it is a really cool car, and my friends who have them love them. I would like to get one. I bet that many who are short the stock would like to get one. In the meantime, the CEO does an equity offering to pay off a despised government loan, and the CEO buys a ton of it! That was supposed to be the chance for the shorts to cover. No such luck. Not enough stock. So the short-busting continues. I know when I can value something, and I know when I can't. I can't value either of these companies, so my bottom line is that they are dangerous both ways, for gamblers who gamble without an edge, so count me out. I will let others do the wagering. At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the stocks mentioned.