Cramer's Mad Money - Yahoo Instead of Baidu (5/13/10)

by: Miriam Metzinger

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


While the Chinese bubble is supposed to be on the verge of bursting, according to pundits, Baidu (BIDU) is still going strong as the Chinese internet is becoming "the real Cultural Revolution," according to Cramer. Google (GOOG) is sitting on the sidelines of this huge trend in China, and Cramer has been less bullish on the stock. However, Cramer would get behind Google's less hyped competitor Yahoo (YHOO) not only because it is showing signs of a comeback in its own right, but also because of its extremely valuable Chinese assets, a subject that hasn't been commonly discussed.

Right now, Baidu is "too hot to buy" with a 227% increase in its stock price since last year and a 27% uptick since March. Cramer thinks Yahoo is an "amazingly cheap stock" at $16, particularly because of its Chinese assets. It holds a 44% stake in Alibaba, which owns 70% of, a leader in the Chinese e-commerce space. Yahoo also has exposure to Alibaba's non-public assets and owns 100% of Yahoo China. If Yahoo sells its assets, the stock will soar. Cramer gave an example of one asset, Taobao which is "sort of like eBay (EBAY) with Hoisin sauce" and is already half the size of eBay and is growing much faster. If Taobao has an IPO, it is likely to fetch $10 to $20 billion (Yahoo is worth $22 billion).

Taking all of Yahoo's Chinese assets into consideration, Yahoo is trading at a 60% discount to Google and a 74% discount to Amazon (AMZN). Cramer thinks Yahoo could easily reach $20, and if its assets are taken public, $25.

Aside from the assets, Yahoo has shown dramatic improvement under the guidance of CEO Carol Bartz, and the stock price has risen 33% since she took the reins in January 2009.

Pessimism is Good

To vary an expression from Wall Street's infamous Gordon Gekko, "Pessimism is good." Greed, as it turns out, can actually be bad, and is a sign of a market topping. However, when the bears are roaring and the cynics are spinning the news, Cramer says he feels more bullish because negativity creates room for rallies.

This thinking can create sunshine on dark days like Thursday when the Dow dropped 114 points. Although the decline was not as dramatic as the freefall last week, the bears are certainly out with predictions of doom and gloom.

Cramer thinks last week's nearly 1,000 point drop in the Dow was beneficial because it took some of the froth out of the market. Bearish sentiment on Monday led to selling, which in the short-term was negative, but forced fickle players out of stocks and left behind loyal investors who are sticking with stocks for the long-term. The IPO market might not be good right now, but Cramer thinks a sizzling IPO market is a bad sign, and is reminiscent of the tech boom and bust of 1999-2000. While oil prices are dropping, that means more money consumers can spend at the mall this summer.

Mad Mail: Verizon (NYSE:VZ), AT&T (NYSE:T), Procter & Gamble (NYSE:PG), Ecolab (NYSE:ECL), Citigroup (NYSE:C)

When one viewer commented that investors could have avoided the pain from last week's monster decline by using limit orders, Cramer agreed, "We use limit orders and we protect ourselves from all of these rapacious high frequency traders… who are not necessarily out to get you, but do drive you out."

Cramer told another viewer worries Verizon (VZ) will take the iPhone from AT&T (T) are overblown, and this concern is already priced into AT&T's stock. Cramer thinks AT&T will raise its dividend soon. Even though it isn't possible now to get Procter & Gamble (PG) as low as it was last Thursday, PG is still a better buy than Ecolab (ECL) which is "all the way up." Cramer is not worried about Citigroup's (C) exposure to Europe. With the government about to sell its stake in the bank, the next level is $3.75, which according to Cramer, is a good place to buy more stock.


Jim Cramer was up 31% in 2009. Click here now to trade alongside him.

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