Cramer's Mad Money - Chinese IPOs Are All Dressed Up With No Place To Go (10/31/11)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday October 31.

Chinese IPOs Are All Dressed Up With No Place to Go: DangDang (NYSE:DANG), (NYSE:YOKU), Baidu (NASDAQ:BIDU), Google (NASDAQ:GOOG), Renren (NYSE:RENN), Tudou (NASDAQ:TUDO), (NASDAQ:DATE), Amazon (NASDAQ:AMZN). Other stocks mentioned: Brasil Telecom (BTM), Provident Energy (PVX), SodaStream (NASDAQ:SODA), Green Mountain Coffee Roasters (NASDAQ:GMCR)

Cramer warned investors to avoid Chinese IPOs dressed up to resemble U.S. companies. While there can be analogies to U.S. counterparts, Chinese stocks are not U.S. stocks. Many of these IPOs enjoyed spectacular first day pops only to tumble after. The Chinese Amazon (AMZN), DangDang (DANG) soared 86% on its IPO and fell 74% in the aftermarket. (YOKU) rose 161% on the first day, and is now down 31%. Renren (RENN) rose 28%, but dropped 61% later. A couple of Chinese IPOs dropped on the first day and have fallen further: Tudou (TUDO) fell 11.9% on its IPO and is down 35%. (DATE), a dating site fell 4.4% on its first day of trading and is up 2.7%.

These Chinese IPOs have lost investors an average of 40%. Since Baidu's (BIDU) success in 2005, Chinese IPOs have proliferated. Baidu is a solid company that is a viable alternative to Google (GOOG), since Google doesn't operate in China. However, stocks like DangDang face stiff competition, most notably from the company it was designed to imitate, Amazon. Chinese companies resemble the Chinese government and provide very little financial information. Those who buy these stocks are in the dark as to their true value. In addition, the Chinese government seems ready to crack down on social media, which isn't good news for these stocks.

Cramer took some calls:

Brasil Telecom (BTM) may be a buy, since the Brazilian government is cutting interest rates, and Brazilian stocks might go higher.

Provident Energy (PVX) yields almost 6%. Cramer would buy in stages.

SodaStream (SODA) has become a battleground stock. Cramer would avoid SODA and Green Mountain Coffee Roasters (GMCR).

4 Tricky Sectors to Avoid. Stocks mentioned: American Airlines (AMR), Yamana (NYSE:AUY), NovaGold (NYSEMKT:NG), Goldcorp (NYSE:GG), SPDR Gold Trust (NYSEARCA:GLD), Kroger (NYSE:KR), Safeway (NYSE:SWY), Supervalu (NYSE:SVU), Whole Foods (WFM), Advanced Micro Devices (NASDAQ:AMD), Intel (NASDAQ:INTC), Micron (NASDAQ:MU), MF Global (MF), Eastman Chemical (NYSE:EMN)

Cramer discussed 4 tricky sectors to avoid:

1. Airlines: Many investors feel tempted to buy an airline stock when they see full seats, but Cramer observed that full seats do not necessarily mean the airline is making money. The seat prices might be slashed and the company might be losing money with every ticket. While some managers say fuel prices are hedged, they seldom are, labor costs are sky high, competition is fierce and many airlines are barely viable as publicly traded companies. While many sing the praises of American Airlines (AMR), Cramer would avoid the stock, and has vowed never to recommend an airline on Mad Money.

2. Gold Miners: In the past, Cramer has recommended Yamana Gold (AUY), Goldcorp (GG), Novagold (NG) and others, but it is better to own coins, bullion or SPDR Gold Trust ETF (GLD). The reason gold has kept its value for so long is that it is difficult, dangerous and expensive to mine and the challenges mining companies face are too formidable to make their stocks worth buying.

3. Supermarkets: This is a "terrible" industry, since margins are tiny, competition is cut-throat and waste is huge. Whether supermarkets grow, shrink or merge, very few can transcend the inherent problems in the industry. Kroger (KG), Supervalu (SVU) and Safeway (SWY) have been tough stocks to own. The only supermarket Cramer would recommend is Whole Foods (WFM), which is a health play and not a supermarket play. Unlike other stores, WFM has pricing power because of its proprietary products.

4. Advanced Micro Devices (AMD) and Micron (MU): While much of tech is in the sweet spot right now, Advanced Micro Devices and Micron have only been worth buying as trades. AMD faces tough competition from Intel (INTC) and Micron's (MU) chips are nothing special. These two stocks will remain "single digit midgets."

Cramer took some Calls

MF Global (MF) is one of Cramer's least favorite stocks in an embattled sector. While financial stocks have had a run, they will continue to suffer from poor public opinion, government interference and woes in Europe. Most financials are not strong on revenues and margins.

Eastman Chemical (EMN): "The money has been made in EMN." Cramer doesn't like chemical stocks in general right now and dislikes EMN in particular.

3 Scary Stocks: (NASDAQ:ACOM), Netflix (NASDAQ:NFLX), Lufkin (NASDAQ:LUFK)

1. (ACOM) made investors serious money following its IPO in 2009, and has run up 233% since. Cramer got behind the stock on what seemed to be its strong subscription business. The company reported two disappointing quarters in a row because it hit a wall with new subscribers; subscriber acquisition costs climbed. On the initial sign of problems, investors should have sold the stock. Since then, the company announced it was losing 11,000 subscribers, and the stock has dropped from $36 to $23. Management claimed it was experimenting with new strategies, but if a stock has a high multiple, there is no room for experiments.

2. Netflix (NFLX) is writ large. Cramer got behind Netflix 2 years ago at $54, and it rose to $300. Investors should have rung the register when management announced price increases on its DVDs. At first, Cramer thought these increases were nominal and looked at the company's record of confounding its critics. The move caused a mass exodus of subscribers and sent Netflix tumbling to $82 after a poor recent quarter. Netflix teaches the lesson of overstaying one's welcome in a battleground stock.

3. Lufkin (LUFK) seemed like a "buy" after Cramer's trip to the Bakken, when he thought the company would be hit with a new wave of demand from the drilling boom. The company lowered earnings and sales forecasts on alleged "one time worries." However, these were the same "worries" the company had last quarter. Cramer urged viewers to beware of the "one time concern" excuse. If a company has a "temporary" problem, it is in wait and see mode; the company needs to prove the problems are over before the stock can be considered a "buy."


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