Cramer's Mad Money - Much Ado About Baidu (3/3/14)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday March 3.

Much Ado About Baidu (NASDAQ:BIDU). Other stock mentioned: Google (NASDAQ:GOOG)

Baidu (BIDU) reported a 2 cent earnings beat on revenue that increased 54.7% higher than expected and management gave strong guidance. Nevertheless, Baidu was downgraded from a "buy" to a "hold" by a Morgan Stanley analyst who is concerned that there may be a drop in gross margins as Baidu invests more in its business.

Cramer thinks the Morgan Stanley analyst wasn't taking into account the fact that a turbo-charged business needs to keep spending to grow, and profitability isn't the main goal. He agreed with the Stifel Nicolaus analyst who upgraded the stock, because the analyst feels Baidu will continue to dominate mobile in China. The growth rate for Baidu's mobile segment could be a staggering 80-100% in the next few years, and since Google (GOOG) is not allowed to operate in China, Baidu is the leader in Chinese search as well. While Baidu trades at a rich multiple of 47, and Cramer doesn't usually recommend Chinese stocks, he will make an exception in the case of Baidu.

Anatomy of a Sell-off. Stocks discussed: Intel (NASDAQ:INTC), Cisco (NASDAQ:CSCO), Alkermes (NASDAQ:ALKS), Nokia (NYSE:NOK), IBM (NYSE:IBM)

The Dow plunged 154 points on worries about a war in Ukraine. While Warren Buffett questioned the strategy of selling stocks, even those that have nothing to do with the region, on Ukraine fears, Cramer thinks the market will follow a typical pattern of sell-offs that occur when there is a foreign crisis. Day one usually sees a drop in stocks, as does day two of the crisis, until the end of the day, when there is a move back into stocks not directly related to the crisis. On day three, stocks unrelated to the hot spot continue to rise, but other stocks fall. Day four, the sell-off continues, and in this week, day 5 will coincide with the non-farm payroll report. One bright spot is that shorts might, in the last two days, give up because the market will be oversold. A lackluster jobs report may be good for growth stocks; if the economy seems weak, there will be a hunger for growth and if it is strong, there will be confidence in growth.

Cramer took some calls:

Intel (INTC) is a stock Cramer's charitable trust gave up on. "Intel is not there." He feels the same way about Cisco (CSCO) and IBM (IBM).

Alkermes (ALKS) is a good stock. It wouldn't be surprising if it goes up on a takeover or rises because of the strength of its pipeline This is a great stock to own in this environment.

Nokia (NOK) has bountiful intellectual property; it can make a lot of money off of licenses. Cramer would take some off the top and let the rest run.

Expectations are Everything: GNC Holdings (NYSE:GNC), Vitamin Shoppe (NYSE:VSI). Other stocks mentioned: Rite Aid (NYSE:RAD), Walgreen (WAG), CVS Caremark (NYSE:CVS)

GNC Holdings (GNC) reported a quarter that was seen as a disappointment, with a 2 cent earnings miss, lower than expected revenues and downside guidance. The stock took a 14% hit. Competitor Vitamin Shoppe (VSI) was seen as guilty by association, fell 6% and was downgraded as a result of its competitor's poor results. Cramer urged viewers to keep an eye out for negative pin action like this, because it is often an overreaction. VSI actually went on to report a decent quarter, beating estimates by a penny with higher than expected revenue that grew 17% and a 4.6% gain in same store sales. The stock shot up 8%.

However, Cramer would buy GNC rather than VSI, because now the expectations have reversed; they are low for GNC and high for VSI. GNC is cheap and sells at a multiple of 14 with a 17% growth rate, while VSI has a 17 multiple and a 13% growth rate. GNC has more stores, but it has more opportunity to expand overseas. In addition, its products are more proprietary than VSI's. The reason for GNC's tepid quarter was the weather, which affected it more than VSI, given the number of GNC's stores, and some issues with its loyalty card program that are being straightened out. Cramer would wait for GNC to drop a bit before buying.

Cramer took a call:

Rite Aid (RAD) has tripled, but is still a buy on a decline, given the strength of its long-term story. Cramer thinks RAD, along with Walgreen (WAG) and CVS Caremark (CVS) are bright spots in retail.

CEO Interview: Dr.Stanley Crooke, Isis Pharmaceuticals (ISIS)

Isis (ISIS) gained 307% since Cramer got behind it 16 months ago. The company focuses on technology dealing with RNA, and it has 28 drugs in the pipeline. The company has 3 treatments for diabetes that are going through Phase 2 trials this year, as well as cancer and heart drugs in the pipeline. Cramer would buy Isis on its current decline.


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