Cramer's Mad Money - Has Red Hat Gotten Red Hot? (4/2/12)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday April 2.

CEO Jim Whitehurst, Red Hat (NYSE:RHT). Other stock mentioned: Dreamworks (NASDAQ:DWA)

Red Hat (RHT) reported a blowout quarter, with a 2 cent earnings beat, revenues up 21% and a 31.2% increase in billings. The stock shot up 19.5%, and has seen a 47% gain so far this year. Has Red Hat gotten too red hot to buy? The company makes Linux, which is in 80% of cloud computing systems. It offers its product for free and charges through subscriptions for necessary updates and service. CEO Jim Whitehurst says analysts tend to underestimate the company, because they don't see how profitable RHT's business model is. The company's storage business is growing, along with virtualization and middleware. RHT expects more customers from the financial sector, healthcare and telco. Dreamworks (DWA) has found RHT's system indispensable for its animation, and Whitehurst says RHT's technology is the only one fast and efficient enough to deal with DWA's needs. Cramer thinks RHT is still in its early innings of massive growth and would buy the stock on a pullback.

Groupon (NASDAQ:GRPN), KKR (NYSE:KKR), KKR Financial Holdings (KFN)

In 2011, U.S. stocks took their cue from what was going on in Europe and China. Cramer says the rule book has changed, and domestic news is trumping macro events. Stocks started on an upward trend on Monday after strong numbers from China over the weekend. However, on bad news about Italy and Spain, stocks kept going up and were not hit on European woes. There was positive data about U.S manufacturing, and the Dow closed up 52 points. Cramer thinks the U.S. is back in the driver's seat when it comes to moving the stocks.

Cramer took some calls:

Groupon (GRPN) should go higher, because the Wall Street Promotion Machine is still behind it. Cramer would take profits when it rises, because he thinks its business model is not sustainable.

KKR (KKR) is not Cramer's stock of choice; he prefers KKR Financial Holdings (KFN) for its 7% yield.

Annie's (NYSE:BNNY), Hain Celestial (NASDAQ:HAIN), Domino's Pizza (NYSE:DPZ), Kraft (KFT), Unilever (NYSE:UL)

Usually in the case of a hot IPO, Cramer recommends getting in on the deal and selling it in the aftermarket. However, Annie's (BNNY) is a recent IPO that might be worth buying, even after its staggering run. Annie's IPO was last Wednesday; it climbed up 64% instantly from its opening price and eventually soared to 89% from its initial level. The stock has settled back down to $34 from $40, but many might be reticent about buying because of its incredible move. This creator of healthy macaroni and cheese, crackers, frozen pizzas and other products is like a "little brother" to health food leader, Hain Celestial (HAIN). Hain has a multiple of 25 and a 13% growth rate, but BNNY is cheaper, with a 23 multiple and a 15% growth rate. While Hain is the long-established company and deserves to trade at a premium, Cramer thinks BNNY will grow faster than HAIN, and he would buy the stock.

Cramer took some calls:

Domino's (DPZ) is a great company with terrific management, but Cramer would wait before buying, because the catalyst of its dividend hike has passed. He would buy the stock at $33-34.

Kraft (KFT) is a stock Cramer prefers to Unilever (UL) because KFT is creating value by splitting up the company.

CEO Interview: Richard Gelfond, Imax (NYSE:IMAX)

Imax (IMAX) is an aggressively growing company, with the stock up 35% so far this year. It reported an amazing 95% increase in its box office returns year over year, partly thanks to the success of the Hunger Games. Imax once had to ask studios to carry its product, but now huge studios are signing deals with Imax that will keep sales growing for years. Moviegoers are wiling to pay up to see 3D movies, especially in China, where ticket prices are higher. By the end of 2012, the company should see 60% of its revenues come from overseas. Richard Gelfond gave viewers an idea of how quickly the company has expanded. In 2008 Imax had 149 theaters worldwide; today that number is 630, with 225 in China alone. The company has been growing at a 30% clip the last three years and has such a backlog, that high growth should continue. "We are a recurring revenue machine," said Gelfond. Cramer called Imax a great secular growth story.


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