Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday November 20.
Salesforce.com (CRM) is the king of the cloud, and the cloud rules tech. CRM is a high-flying stock which can either get pummeled on earnings or soar. The company reported an earnings beat of a penny with revenue rising 35% year over year and deferred revenue, a key metric for CRM, up 41%. CEO Marc Benioff noted that this was the fifth quarter in a row CRM has operating cash flow in excess of $100 million. When asked why the European business was strong, Benioff responded that even in difficult economic times CRM performs well as clients look for new solutions to save money. When asked how the failure of client HPQ, after its disastrous quarter, will affect CRM, Benioff responded that HPQ’s management identified CRM’s contribution as “the most successful IT implementation” in HPQ’s history, and CRM intends to be instrumental in a possible HPQ comeback. Cramer asked about CRM’s high valuation; Benioff responded that revenues have passed the $3 billion mark, and in the coming year, the company expects to reach the target of $4 billion. The secret to Salesforce’s success, said the CEO, is focusing on top-line growth, and quoted Yoda, “There is no try, just do.”
“Don’t invest in household names just because they are household names,” said Cramer, “Don’t speculate on takeover targets if the fundamentals are weak.” Even in an unstable market that seems to be driven largely on macro news, the same stock trading rules still apply. Cramer has been bearish on Hewlett-Packard (HPQ) for quite a while, especially since it is levered to the declining PC market and is losing market share in all of its categories. However, some still have faith that HPQ will one day make a comeback, but Cramer thinks this faith is ill-founded. The stock dropped 11.95% and Best Buy (BBY) fell 13% after their poor earnings reports. In the case of HPQ, the culprit was an accounting scandal involving a recent acquisition, and Cramer’s hard and fast rule is always to sell companies that face accounting irregularities. HPQ is down 55% for the year, and is not cheap, but may go even lower.
Best Buy has been cut in half, damaged by rumors that there might be some good news. There were rumors that Best Buy might be bought or take itself private, but with pummeling from competition and huge losses in cash flow and same store sales, Best Buy just isn’t worth it.
B&G Foods (BGS) should not buy Hostess, as a caller suggested, but an acquisition of the Skippy brand would create upside. Either way, BGS is a buy.
Urban Outfitters’ (URBN) quarter looked disappointing at first glance, with comps up just 1% and in-line revenues. Sellers sent the stock down 10%, but it quickly recouped most of its losses. “The sellers jumped the gun,” said Cramer. “They should have done more digging. It was a fabulous quarter.” Taking into account items bought on the web that were returned to actual stores, the same store sales comps were actually up 8%, with a 6% rise in comps for the Anthropologie brand and a 37% increase in gross margins. The stock is emerging from a slump since 2010, and has risen 34% since founder Richard Hayne took the helm as CEO in January. Cramer said URBN also passed on a metric he has developed, the Congratulations Quotient. Out of the 19 analysts who were on the conference call, 11 congratulated URBN’s management. Cramer takes the Congratulations Quotient seriously when looking at a stock, because it is indicative of The Street’s confidence in the company and its earnings. URBN has lean inventories, is growing stores and aims to increase revenues by 20% next year. URBN has been performing well in Europe, and plans to expand its store count on the Continent, in the U.S., and move into Asia. It trades at a multiple of 19 compared to a 17.4% growth rate. Cramer would buy URBN on a decline.
While he admitted to having taken some profits for his charitable trust, Cramer likes eBay (EBAY), and thinks it is still inexpensive. “I think paypal is worth almost the entire price of the company.”
Ross Stores (ROST) has suffered too much negativity, and Cramer thinks it is cheap.
Carolyn Boroden, “the Fibonacci Queen,” called the top in the S&P 500 at 1476, and Cramer thinks she has a lot of “street cred” in predicting the movement of the market. She indicated that below 1396, all bets would be off, and she was right; the S&P 500 dropped below that level after the election. However, she thinks the S&P 500 might rebound, perhaps to as much as 8.8%. Friday’s rally was meaningful, because it reached several key levels. However, there are several ceilings in the way of the S&P 500 rising 8.8%: between 1381-88 and 1433-50. If the S&P 500 can’t take out the pre-election rally level, the current rally will be short-lived. If it closes above 1391 and does so soon, the rally could continue. However, if the S&P dips below 1346, “We are back in the House of Pain.”
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