Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday May 13.
Amazon's (NASDAQ:AMZN) Nemesis. Other stocks mentioned: eBay (NASDAQ:EBAY), EchoStar (NASDAQ:SATS), Zynga (NASDAQ:ZNGA)
"This has not been a good year for Amazon (AMZN)," said Cramer. The stock has fallen more than 100 points so far this year, for a nasty 25% decline. Cramer doesn't see much good in store for the stock for the rest of 2014. The upcoming IPO of Alibaba, the largest ecommerce company in China, could spell doom for AMZN. For many years, AMZN had little competition, but with Alibaba's IPO, all that might change. It could be the largest IPO in history. Money managers will have to decide whether to own Amazon and Alibaba; it is highly unlikely they will own both. Cramer thinks many of them will jump to Alibaba.
Alibaba is even more dominant in China than Amazon is in the U.S. Around 70% of all internet transactions in China are done through Alibaba. The total addressable market for Alibaba is much larger than for AMZN, with 30% more products sold on Alibaba than Amazon and Ebay (EBAY) combined, and this is with only 42% of the Chinese population shopping online. Amazon's revenues increased 22%, but Alibaba has "godzilla-like" growth. Revenues increased 62% and then again to 66%. Alibaba is only just beginning to expand outside of China, but Amazon is also growing internationally. Alibaba has 50% operating margin, while Amazon's is less than 1%. Since Alibaba has no physical inventory and makes its money on commissions, it is more streamlined than Amazon; AMZN has a low cost advantage, but that means lower margins. Cramer would not necessarily jump into the Alibaba deal, because it depends on how it is priced. It also doesn't spell the end of Amazon, but AMZN is likely to get hurt.
EchoStar (SATS): "You are fine in Echostar. That is sizzling. I wouldn't sell it."
Zynga (ZNGA): "I like Zynga. I'd rather own it than sell it."
There are good stock offerings and bad stock offerings. Concho Resources (CXO) and ExamWorks (EXAM) represent the best and the worst kind of secondaries. CXO is up 22% for the year, and the company is improving production and raised its forecast. Management said it needs to raise more money to deal with this huge production increase, and therefore, decided to issue a secondary. ExamWorks offers support services for health insurance companies. It was a former market darling, but now it is losing money. Its secondary offering was "disastrous," and the stock plummeted, as insiders dumped shares. Secondary offerings are fine if the goal is to raise money to increase the value of the company. Secondary offerings that are intended to prop up a failing company should be avoided.
All-Time High Soul Searching: Hillshire Brands (NYSE:HSH), Pinnacle Foods (NYSE:PF), AT&T (NYSE:T), DirecTV (NASDAQ:DTV), Sprint (NYSE:S), T-Mobile (NYSE:TMUS), Pfizer (NYSE:PFE), AstraZeneca (NYSE:AZN), Allergan (NYSE:AGN), Oracle (NYSE:ORCL), Microsoft (NASDAQ:MSFT), Hewlett-Packard (NYSE:HPQ), American Airlines (NASDAQ:AAL), Splunk (NASDAQ:SPLK), Weatherford (WFT)
On a day the averages rose to all-time highs, Cramer said, "All-time highs call for soul-searching, because by definition, the market is more expensive than it was." It is important to assess the risks and realize that, as stocks go higher, they are inherently more risky. However, it doesn't pay to sell everything and sit on the sidelines.
Higher prices and better economic conditions breed confidence, which means that management is more likely to look for acquisitions: Hillshire Brands (HSH) made a bid for Pinnacle Foods (PF), AT&T (T) is in talks to buy DirecTV (DTV). Pfizer (PFE) is gunning for AstraZeneca (AZN) and Allergan (AGN) might be another big takeover. Cramer predicts Sprint (S) and T-Mobile (TMUS) may join forces soon. In addition, some segments are still cheap. Industrials are historically inexpensive, as well as the autos and some retails. Traditional tech like Oracle (ORCL), Microsoft (MSFT) and Hewlett-Packard (HPQ) are trading below their historical values. Airlines are still cheap; American Airlines (AAL) trades at a multiple of just 6.
However, on the darker side, there are still two markets: one that is undervalued, and one that is overvalued. There is likely to be more pain for newly-minted cloud plays and speculative biotechs, because it is hard to find a reasonable value for them. Splunk (SPLK) fell 8% for no apparent reason, except for its sector. The relative quiet in Russia and Ukraine is troubling, lest things heat up again. Mortgage origination numbers are "terrible," retail sales are sluggish and gasoline is too high. The bottom line: stocks with real earnings and those that can be taken over may go higher, but stay away from "hot" stocks.
Cramer took some calls:
Weatherford (NYSE:WFT) has finally gotten its act together, and is worth keeping on the radar.
Where Are The Nasdaq 100 And The S&P 500 Heading?
Money is flowing out of momentum stocks and into safer stocks; will this trend continue? Cramer consulted the technical analysis of Carley Garner to see the direction of the Nasdaq 100 versus the S&P 500. She has noticed a pattern that shows that the more volatile action in the Nasdaq 100 can predict the movement of the less-volatile S&P 500. The weakness in the Nasdaq 100 does not bode well for the S&P 500, but she thinks that both will bounce, albeit temporarily.
The Nasdaq 100's weekly chart shows the Slow Stochastic Oscillator in oversold territory, and the Nasdaq 100 might be due for a rebound. It could rally 131 points above where it is now, and it could climb to a 5.5% gain. After this bounce, the MACD indicates that long-term, the Nasdaq 100 could drop dramatically if it fails to meet one of its resistance levels, and could take the index 500 points lower.
The S&P 500 is hovering at overbought levels, and it seems to have come up too far too fast. Its recent strength means that there might not be much upside left. Garner thinks the S&P 500 could fall to the 1700s if it doesn't pass its ceiling of resistance. Cramer has always been skeptical of the "Sell in May," expression, but that seems to be what Garner's analysis is showing for this year. Cramer isn't as bearish as Garner, but given this information, he would proceed with caution.
CEO Interview: Burton Goldfield, TriNet (NYSE:TNET)
TriNet (TNET) is a recent IPO that bucked the down-trend. The company develops solutions that allow companies to deal with legal and regulatory issues. The stock rose 19% on its first day of trading, but unlike other IPOs, it kept climbing and is now sitting at $23. The company trades at a multiple of 22 with a 20% growth rate. "We have growth and profits and that is not common today," said CEO Burton Goldfield, who discussed how the company helps managers concentrate on running their businesses by taking care of regulatory issues. With outsourcing and telecommuting, these issues become more complex for small to medium-sized business managers. There is competition, but "other companies are more horizontally focused, and we are very vertically focused." Cramer said this is one recent IPO that was worth owning after its initial offering.
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