Cramer's Mad Money - Why Google Is a Value Stock (6/1/11)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday June 1.

Is Google (NASDAQ:GOOG) a Value Stock? Other stocks mentioned: Baidu (NASDAQ:BIDU), Yandex (NASDAQ:YNDX), Sina (NASDAQ:SINA), Marvell Technology (NASDAQ:MRVL)

Could Google (GOOG) be a value stock? Cramer says the notion isn't a crazy one, even as the stock has a $500 price tag. He urged viewers to look beyond the share price and pay attention to the numbers that really count. Even though Google is no longer a momentum stock and disappointed in its recent quarter, something is making Google seem a whole lot cheaper than it did before: Yandex (YNDX). This Russian Google had its IPO a few weeks ago and shot up 55% to $39. The stock is currently at $32. Yandex can grow its earnings at a 40% clip and has a multiple of 60 while Google has 17% growth and is trading at just 15.6 times earnings. This means that Yandex is trading at 1.5 times its growth rate and Google is trading just 1 times its growth rate. Considering the fact that, in spite of its recent problems, Google is still a superior company to Yandex, Google now seems cheap.

Google operates in Russia and can compete with Yandex, and the latter company is levered to the unstable Russian economy. Google dropped 8% after its recent earnings on its admission that it missed the social media wave, an unspectacular performance by the CEO on the conference call and its spending which is considered by some analysts to be extravagant. However, Cramer thinks it is good news the company is investing in growth and it isn't too late to embark into social media. The new CEO will become more seasoned and better skilled at handling conference calls. Google is still the unrivaled king of search and is the main beneficiary of the internet advertising. Android is the only smartphone platform aside from the iPhone that is getting any traction and the Android has 97% market share in mobile search. The company has generated $37.6 billion in cash, and Cramer thinks worries about Google are already baked into the stock.

Cramer took some calls:

Ring the register on Sina (SINA) and Marvell Technology (MRVL). Cramer said $120 was the level to take profits on Sina.

Buy or Sell Defensive Stocks?

With the huge sell-off on Wednesday, investors might be tempted to buy defensive stocks, but Cramer would take a look at the charts before buying. Cramer examined the charts of 12 defensive stocks in the following sectors: medical equipment, consumer staples, HMOs, drug and tobacco stocks. Most of the charts showed a bottom around March 15 and a steady move up since then. The event that was the catalyst for this surge in defensive stocks was the earthquake in Japan. Only in the last two weeks has there been news of rebuilding since the disaster, and with this news of recovery, the same charts show that most of these stocks are either flatlining or going down, except for the tobacco stocks, which continue to perform well because of their high yields. Cramer would take profits in defensive stocks and urged investors not to get greedy.

Caterpillar (NYSE:CAT), Deere (NYSE:DE), Apple (NASDAQ:AAPL), Cummins (NYSE:CMI)

The Dow fell a dramatic 280 points, but it wasn't on any major event, but on the same old worries: China's tightening, financial collapse in Greece, unemployment and concerns about what Ben Bernanke is going to do about the end of QE2. It is tough to be upbeat when Caterpillar (CAT) is down 4 points and seems to be headed lower, but Cramer reminded viewers that the fundamental story has not changed: Caterpillar is not dependent on domestic news but is still a big grower in emerging markets, benefits from high oil and inflation and has nothing to do with housing. Cramer would use down days like Wednesday to pick up good stocks like Caterpillar, Cummins (CMI), Apple (AAPL) and Deere (DE).

Have You Missed the Gold Call? SPDR Gold Trust ETF (NYSEARCA:GLD)

Is it too late to buy gold? Even with the SPDR Gold Trust ETF (GLD) breaking above $150 and gold stocks rallying, it is not too late to buy the yellow metal since the fundamental story remains strong. This is the season when gold is historically weak, so gold might be worth buying at a low price for a long-term investment. He suggests 10-20% of any portfolio should be gold and thinks of the metal as a currency rather than a commodity and portfolio insurance. With countries and individuals hoarding gold and not enough coming out of the ground, the price should continue to rise. "I would own it as far as the eye can see and about ten eyes further."


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