Cramer's Mad Money - Next Week's Top IPO (11/13/09)

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 |  Includes: AMD, CRM, CSCO, DELL, FTNT, GPS, HPQ, INTC, NTAP, STAR-OLD
by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Friday November 13.

Fortinet IPO (NASDAQ:FTNT)

Cramer thinks the top IPO in the coming week is network security company Fortinet, which will trade under the symbol (FTNT) and should be priced in the $9-11 range.

The IPO is priced “much lower than what I think this stock is worth based on the fundamentals,” Cramer said. Fortinet is not a new company, but has already achieved prestige in the field of "unified threat management"; the company combines antivirus, antispam, firewall, web filtering, traffic optimization and other services in one piece of hardware. This technology makes managing systems more efficient and saves money.

Fortinet has staff located worldwide who monitor security breaches and offer subscribers premium service for a fee. Most subscribers are loyal and create 60% of the company's total revenues. The subscriptions give investors the advantage of earnings visibility; “That’s what makes me so confident that Fortinet will be beating those estimates, [the] number one way stocks go higher.” Cramer also expressed confidence in Fortinet's management and praised CEO Ken Xie and CFO Ken Goldman. Cramer thinks Fortinet is worth between $13 and $19, and recommends buying liberally up to $13. He cautioned investors to buy the IPO and not the stock in the aftermarket.

On Speculation: Advanced MicroDevices (NASDAQ:AMD), Starent Networks (STAR-OLD), Intel (NASDAQ:INTC), Cisco (NASDAQ:CSCO), Hewlett Packard (NYSE:HPQ)

Sometimes, it pays to speculate; Cramer's Speculation Friday picks have been performing well. Advanced MicroDevices (AMD) has risen 164% since last year's recommendation, which he reiterated in May; the company received $1.25 billion in an anti-trust settlement with Intel (INTC). 3Com is up 52%, with 31% of the gain following Hewlett Packard's (HPQ) bid to buy the company. Those who bought Starent Networks on Cramer's recommendation in May have seen an 80% increase, aided by Cisco's (CSCO) announcement that it will purchase Starent.

“It pays to take a chance on broken stocks,” Cramer said, “as long as the companies behind them are intact.” However, before speculating on a stock, investors should always do ample homework beforehand.

Dell (NASDAQ:DELL), Salesforce.com (NYSE:CRM), NetApp (NASDAQ:NTAP), Gap Stores (NYSE:GPS)

Many companies are giving "better than expected" results, however some see their stock prices rise while others see a decline. Can an investor predict how a better than expected earnings report will affect the price of a stock? Cramer says there are three data points worth considering. First, sell-side and buy-side firms' estimates are averaged together to form the consensus estimate for a stock. Usually, however, there is one analyst who is considered to be the leader; he or she is called the "high man" or the "ax." If the ax's estimates are higher than the consensus estimates, then a stock usually has to beat the ax's higher number or risk declining in price.

However, it doesn't stop there. Analysts who are clustered around the ax may "whisper" to hedge funds and mutual funds an amount that might even be higher than the ax's estimates. Cramer used Dell (DELL), which reports next week, as an example. The consensus estimates for Dell is a beat of 28 cents a share. However, an ax, Sanford Bernstein’s Tony Sacconaghi, expects 29 cents. The whisper might be even higher, at 30 to 31 cents. Therefore, Dell could beat estimates and still get hit. The same scenario will apply to other tech stocks that report next week, including Advanced MicroDevices (AMD), 3Com (COMS), NetApp (NTAP) and Gap (GPS).

“That’s how important the whisper, the high man and the consensus are,” Cramer said, “to the way stocks are really valued.”

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