Market Values Stocks Incorrectly In The Short Term - Cramer's Mad Money (5/24/18)

by: SA Editor Mohit Manghnani

Intuit's TurboTax software has made it easier for consumers to file taxes.

Inflation is easing.

AbbVie is an excellent company.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday, May 24.

The market is having a hard time valuing stocks and putting a dollar amount on anything. Netflix (NASDAQ:NFLX) surpassed the market cap of Disney (NYSE:DIS) for the first time, and Cramer found this comparison outrageous. While both Netflix and Disney are entertainment companies, the market values and looks at them differently.

Disney is a traditional media company with legacy segments and some tech prospects whereas Netflix is viewed as a high-growth tech stock. "It's not in the media category, it's something totally different. If the growth runs out or slows down, believe me, that valuation will be crushed far, far more heavily than Disney stock could ever go down. In reality, the opposite is occurring, though. Netflix is expanding ever faster into new markets. If you run a fund that only likes the highest growth stocks, you think it deserves a higher capitalization than Disney because it grows much faster. That's how they think," said Cramer.

When analysts argue that Netflix is overvalued and expensive, Cramer thinks the analysts are mis-valuing the stock as it is a different growth-centered stock. Don't be quick to judge high-quality stocks. Micron Technology (NASDAQ:MU) is another example that is trading at 5 times earnings and the stock rallied on Thursday after investors had given up on the stock.

"This short-term stuff [is] so wrong so often that it's a wonder we even bother paying attention to it other than to point out instant anomalies that, hopefully, you can jump on to get some good entry points," concluded Cramer.

CEO interview - Intuit (NASDAQ:INTU)

Intuit reported good earnings, raised their full year guidance and the analysts raised their targets on the stock. Cramer interviewed the QuickBooks and TurboTax software company's CEO, Brad Smith, to know more about the quarter.

Smith said that Intuit saw growth in every business category with consumer segment growing 15%, small business growing 16% and consumer tax business growing 15%. As Trump's administration rolled out a simplified tax code, Intuit rolled out TurboTax which makes tax filings simper. This is a point where consumers need TurboTax more than ever.

"The reality is, in the U.S., about 155M people file taxes. 90M of them go to a tax store or a CPA, and with tax simplification, more of them are now going to have confidence that maybe they can file their taxes on their own at a much lower cost. And now that we introduced TurboTax Live, they don't have to be worried about being alone. They can touch a screen, have a CPA come right into the software and help them through the tax return. So we think this is going to be a huge catalyst for the category and for our company," said Smith.

Cramer likes the stock and thinks it will go higher.

Off the tape

Cramer went off the tape to review privately-held Indigo Agriculture, which is innovating the way food is grown. Cramer interviewed CEO David Perry to know more.

Perry said that modern agriculture is built on old technology like GMOs and plant breeding. They are using a new approach to weed out old, synthetic agricultural solutions like GMOs as younger consumers are getting health conscious. The company uses naturally occurring microbes to enhance yields by 10-15%.

The microbes also protect them against pests and insects which reduces the amount of fertilizer used and the amount of agricultural chemicals used. Perry is a tech entrepreneur who grew up in his family's farm in Arkansas.

The company studies survivor plants that grow in strained environmental conditions and compiles their genetic and microbial information into a massive database. This data is then used by machine learning to find microbes that could help specific plants survive in less-than-ideal conditions.

The company is also working to connect farmers to food companies so crops grown on Indigo technology can be kept away from the masses. "If we start allowing them to differentiate their products, make them value-added based on quality and sustainability; better for the farmer, better for the consumer," he concluded.


What goes up has to go down as well. That is the case with inflation too which the Federal Reserve recently categorized as only temporary. Cramer thinks there are many deflationary forces in the US like the glut in autos and OPEC removing production caps to ease down oil prices.

The recent price hike in lumber could also reverse after a pro-Canada ruling over lumber tariffs. Freight costs are likely to come down as railroads add more capacity. Fed was correct. The interest rates are going lower slowly.

Viewer calls taken by Cramer

China Mobile (NYSE:CHL): The stock has been trading sideways for seven years. Cramer does not like the stock.

Align Technology (NASDAQ:ALGN): They had a good analyst meeting. The business is better than many thought.

AbbVie (NYSE:ABBV): Hold the stock. It's an excellent company.


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