Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday March 12.
With bears urging caution and thinking the market has grown too fast, Cramer decided to discuss the bearish arguments point by point.
1. Markets don't get speeding tickets, because if earnings are strong enough, stocks can keep growing. Many bears point out that Apple (AAPL) has made a big move, but to put it in perspective, Cramer posited that if Apple were a $55 stock rather than a $550 stock, investors would not feel so leery about its move from $40 to $55. It has a multiple of 13 while the average multiple of the S&P 500 stocks is 14, and yet Apple has more growth than the average S&P 500 stock. Other stocks with similar growth rates as Apple, Chipotle (CMG), Intuitive Surgical (ISRG) and Under Armour (UA) are trading at a multiple of 40. If Apple were trading at this multiple, it would be $1,600 a share.
2. The Chinese trade deficit is a concern, but it may cause China to import more American goods, because it may need to grow internally.
3. Retailers are going up in spite of rising gas prices, perhaps because employment numbers and low interest rates cancel out worries about spending on gas.
4. Transports, which are a "tell" on the economy, are doing poorly, and Cramer says this point makes him more cautious than he would be ordinarily.
There are two kinds of internet IPOs: those that are hyped by The Street and shoot up only to flounder in the aftermarket, like Yelp (YELP) and Groupon (GRPN), and those that have real products to sell like Brightcove (BCOV) and Guidewire (GWRE) and are worth holding on to. Cramer would invest in hot internet IPOs only if it is possible to get in on the actual deal, and would sell into the initial pop. However, Cramer thinks the upcoming IPO of Demandware (DWRE) is worth getting into and holding. It is easier to secure shares of DWRE because it is not so hyped. The company designs and maintains software for ecommerce sites and has a subscription-based model using cloud. The company is reminiscent of Salesforce.com (CRM), and may give investors gains beyond the first day. Cramer thinks DWRE has the potential to behave like Brightcove, which rose 31% on its IPO, but has given investors a 40% additional gain in a month. Jive has doubled from where it was in the aftermarket, and is up 61%. Investors who bought GWRE saw similar gains. Cramer would get shares of DWRE and hold onto them.
CEO Interview: Alan McKim, Clean Harbors (CLH)
Clean Harbors (CLH) is the largest hazardous waste disposal company in the U.S. with 69% market share in incinerators. The company has been a serial outperformer, with a 24% earnings beat and 30% increase in revenues. The company works with refineries, chemical plants and limits the toxicity of oil and gas drilling. With the rise in manufacturing, CEO Alan McKim expects to see more business from chemical plants. He hopes to see more consistent regulations on frac water disposal, and that the general public will realize this is a safe procedure.
CEO Interview: Jeffrey Friedman, Associated Estates Realty (AEC)
Last week, Cramer posited that rental REITS might be in trouble, since it might be cheaper to buy a house than to rent. Associated Estates Realty (AEC) CEO, Jeffrey Friedman said he objected to Cramer's thesis, because it doesn't take into account regional differences in the market. Currently, there are 400,000 new rental households every year. AEC has a large presence in older suburbs of the Midwest where construction is slow and it is still 2 to 3 times more expensive to buy than to rent. The REIT saw 27% of its customers move out to buy homes in 2005, and now the current figure is down to 17%. Cramer accepted Friedman's assessment of the profitability of some rental REITs, and since AEC is an inexpensive stock with a 4% yield, Cramer thinks it could be a good investment.
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