Cramer's Mad Money - Has Carl Icahn Lost His Mind? (6/9/14)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday June 9.

Has Carl Icahn Lost His Mind? Family Dollar (NYSE:FDO). Other stocks discussed: Dollar General (NYSE:DG), Five Below (NASDAQ:FIVE)

"Has Carl Icahn totally lost his mind?" asked Cramer. This savvy investor bought a 9% stake in the "worst dollar store," that has had problems with execution. FDO has seen declining same store sales and has lower gross margins than the competition. "It has serious company-specific issues," said Cramer. How can Icahn's move be explained? Carl Icahn is an activist investor, and the aim is to revamp a challenged company rather than to buy best-of-breed names. In other words, Icahn likes FDO because it is currently poorly-run. With FDO rising 13% on the news, the street apparently has confidence Icahn can turn it around.

Cramer sees three ways Icahn can create value for FDO. First, FDO can be taken private, which is what happened to Dollar General (DG), before it came public again at a higher valuation. However, the problem is, who would buy FDO? Second, there could be a merger with a better company, like Dollar General. Consolidation would make sense in the dollar store space because of the reduction of food stamps and increased competition. The question persists, however, which company would buy FDO? Cramer thinks DG would rather buy its own stock than buy FDO. Third, Icahn could affect a management shakeup, and its turnaround strategies have not worked. "Icahn prevails," said Cramer, adding that Icahn will have significant influence over FDO's shareholders. With FDO's 13% increase in one session, "Icahn has done more for FDO in one session than the CEO has in ages."

Cramer took some calls:

Five Below (FIVE) is a winner, even as the market is skeptical.

Hey, Big Spenders: Hillshire Brands (NYSE:HSH), Pinnacle Foods (NYSE:PF), Tyson Foods (NYSE:TSN), Pilgrim's Pride (NYSE:PPC), Kraft (KRFT), Merck (NYSE:MRK), Idenix (NASDAQ:IDIX), Seattle Genetics (NASDAQ:SGEN), Analog Devices (NYSE:ADI), Hittite Microwave (NASDAQ:HITT), Gilead (NASDAQ:GILD), Cypress Semiconductors (NASDAQ:CY). Other stocks mentioned: Weyerhaeuser (NYSE:WY), Twitter (NYSE:TWTR)

"Everybody is being too complacent," said Cramer, with the Dow inching up 19 points. It is astonishing how much companies are paying for each other. Hillshire Brands (HSH) launched a bid for Pinnacle Foods (PF), but Tyson (TSN) and Pilgrim's Pride (PPC) wanted to buy HSH, with Tyson as the victor, agreeing to pay $63 a share for HSH. Cramer thinks this valuation is too rich, at a 70% premium to where the stock was before the bidding war. Cramer liked HSH as a breakup play prior to this controversy; he thought the company could be worth $40 on a breakup, and even then, he thought $40 was a stretch. Recently, Cramer did a breakup analysis of Kraft (KRFT), and came up with a $21 billion valuation for Oscar Mayer, which he thought seemed high. However, given HSH's takeover number, he now thinks Oscar Mayer's number was too conservative.

Cramer has been bullish on biotechs, but in the past few months, he has recommended caution. Merck (MRK) is paying $24.50 a share for a $7 stock, Idenix (IDIX), for a 238% premium. One of Idenix's Hepatitis C drugs was put on hold by the FDA, so it is an expensive, flawed company at this valuation. Gilead (GILD) is already enjoying success with its Hepatitis C drug, and Cramer would "never" have recommended Idenix. If a mediocre company is worth this much, what about a quality biotech like Seattle Genetics (SGEN)?

Analog Devices (ADI) is buying Hittite Microwave (HITT), and both stocks rose, even though Cramer thinks HITT is not a great company. Cypress Semiconductor (CY), a better company, might be a buy. Family Dollar is "the worst of the dollar stores," but jumped 13% on a stake by Carl Icahn. Dollar General jumped 7% on chatter the two might combine.

"I'm starting to wonder if I have become too bearish," said Cramer.

Cramer took some calls:

Weyerhaeuser (WY) is spinning off its housing segment, but Cramer would stick with the parent company.

Twitter (TWTR) is a good long-term investment. Cramer thought it was overvalued at first, but now he is bullish.

CEO Interview: Jonathan Bush, AthenaHealth (NASDAQ:ATHN)

AthenaHealth (ATHN) provides a cloud-based software platform that helps doctors manage the business side of their practices. The stock got slammed along with other momentum names, and fell from $204 in March to $128. David Einhorn gave a well-publicized, bearish analysis on ATHN, which was a "brutal presentation" that bought the stock down from $126 to $109 in one session, but the stock has risen since then. It is up 68% since Cramer last interviewed the CEO in January 2013. While Cramer is careful about cloud stocks, has ATHN been punished too severely?

Cramer spoke to CEO Jonathan Bush, who is also the author of Where Does It Hurt? An Entrepreneur's Guide to Fixing Healthcare, who said that ATHN is transforming itself into a company that allows healthcare providers and consumers to "shop for care," whereas most enterprise software companies keep users on "islands" of data. When asked about declining earnings estimates, Bush answered "I don't look at ultimate earnings as a way of running the company. I want every product we sell to have a higher gross margin every year... and to grow the company on average 30% a year ... We've got a lot of room. There is no point being too conservative about how we grow."

CEO Interview: Juan Ramon Alaix, Zoetis (NYSE:ZTS). Other stock mentioned: Pfizer (NYSE:PFE)

Zoetis (ZTS) used to be Pfizer's (PFE) animal health division, and popped 19% on its first day of trading. It is the leading maker of treatments for livestock and pets, and although it delivered a solid quarter last month, the stock is stalled. "This is a nice, consistent grower," said Cramer. CEO Juan Ramon Alaix pointed out that Zoetis delivered strong growth, given the challenges of managing the complexity of the spinoff. Zoetis is investing in vaccines for livestock, particularly for destructive outbreaks affecting swine.

Mentioning BMW Is Heresy to Tesla (NASDAQ:TSLA) Bulls

Cramer complained of a "firestorm" of angry tweets from Tesla (TSLA) bulls for posting a picture of a parking lot of BMW i3s. Tesla bulls insist that BMW will never be a threat to Tesla's dominance. The new fashion is the BMW i3, which is lighter weight and lower cost. Those who own the stock of Tesla should know that, like it or not, there is another viable player in the electric car space, and BMW is a company with a lot of money and firepower. Cramer was bullish on Tesla at first, but 150 points later, down 60 from its high, he is concerned that holders are "worshiping" Tesla, and it pays to face the reality of competition in the space.


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