Investing Is About Who To Believe - Cramer's Mad Money (8/8/18)

by: SA Editor Mohit Manghnani

Cramer is interested in Sonos speakers but not the stock.

CarMax is better than AutoNation.

Sodastream International has run up a lot.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday, August 8.

Markets are not always based on logic. Sometimes, investing is based on the leap of faith that a company will take well in the future. Cramer thinks that the key to being a good investor is not knowing what to believe but whom to believe.

Case in point is Disney's (NYSE:DIS) CEO Bob Iger, who on their earnings conference call told a great story about upcoming blockbuster movies, theme parks that are firing on all cylinders, merging with Fox's assets and a programming killer service. Though the company missed revenue estimates, the growth in its studio, theme park and broadcasting segments was notable. They also launched ESPN Plus, the subscription growth of which is exceeding company's expectations.

"He basically said, 'Take my word for it'. I am actually happy to take his word for it. Is there any reason not to? Wasn't Iger the one who first flagged ESPN's problems with cord-cutting? Wasn't he up-front about the need to do something? Hasn't he taken radical action to create value for shareholders?" asked Cramer.

He believes that Bob Iger is not given the benefit of doubt and that's where the opportunity to buy arises. "Bob Iger didn't just fall off a turnip truck. And while Netflix has a lead on them when it comes to the streaming stuff, who says it's zero-sum? You've got plenty of other players in this space — Amazon, YouTube, Apple; why not Disney?" said Cramer.

On the flip side, the market is keeping a lot of faith in Tesla (NASDAQ:TSLA) CEO Elon Musk. He just tweeted that the financing has been secured to take the company private. Musk has every right to say he is taking the company private as long as there aren't any stock sales taking advantage of the surge in price. Even if those comments were questionable and the SEC is making inquiries into Musk's tweets, the short sellers ran away. That's the belief put in Elon Musk.

"Investing is about knowing not just what to believe, but who to believe. That's why you've gotta have faith in Disney," concluded Cramer.

CEO interview - IDEXX Lab (NASDAQ:IDXX)

IDEXX Labs reported yet another good quarter. Cramer interviewed CEO Jonathan Ayers to discuss what led to the strength in earnings.

Idexx Laboratories is a leading player in the veterinary tech and diagnostics space and is getting into preventative care treatments as well. "We see preventative care, including bloodwork, as one of the major long-term growth drivers," said Ayers. Pet diagnostics has been the fastest growing segment of the industry and IDEXX accounts for 80% of the R&D in that category.

Ayers said that pets can't say how they feel and hence diagnostics serve as the voice for pets. "And what our innovation does is it expands their vocabulary so they can tell us more about their health status," he added. Using their suite of blood, urine and fecal tests, vets can diagnose what's ailing an animal in under 20 minutes.

Ayers added that nearly one in seven adult animals suffers from common diseases and that's the reason IDEXX equipment is in demand. The company plans to add 13% more vets in the next six months.

Know your IPO

In the know your IPO segment, Cramer reviewed the new public company Sonos (NASDAQ:SONO). The company makes wireless home speakers that can stream or play music from any device or service. They have 630 patents and 19M products registered in 7M households.

The company went public below its IPO range of $17-19, but it closed above $19 on the first day. When the company reported last quarter, they saw 10% revenue growth but forecast a decline. Gross margins have also been volatile and this is worrisome for a company climbing towards profitability.

Cramer is worried that as consumer technology becomes more durable, Sonos's recurring business could become saturated. 37% of its registrations in 2017 came from existing customers but Cramer believes people will not replace their costly speaker systems often. He argued by citing Fitbit's example, which once boasted of their ecosystem and the fact that users will upgrade to their costly products. "Turns out people don't really feel the need to upgrade and Fitbit's stock has been a total, unmitigated disaster. Look, I got burned by that one. I'm not going to make the same mistake twice," he said.

Two of the company's latest products are powered by Amazon assistant Alexa which can be disabled by limited notice. They are also competing with Apple's homepod and Google's Home.

"Bottom line? You may love Sonos the product like I do, but I'm not enamored of Sonos the company, and I think Sonos the stock is way too risky, even as I'm a committed user of their speakers," he concluded.

Auto dealers

What's the deal with auto dealers? The stock of CarMax (NYSE:KMX) is up 17% for the year but rival Auto Nation is down 7%. Both the companies are identical, selling both new and used cars and yet their stock trades differently.

While the stock of both companies were down in the year, CarMax had a good rebound by posting good earnings and with plans for a new ecommerce experience for its customers. AutoNation, on the other hand, has struggled. On taking a closer look, one can find out that CarMax is levered to used cars while Auto Nation to new cars.

It's no secret that new car sales peaked in 2016 and hence AutoNation has been lagging behind. The talk about new tariffs is not making things better for them. This will make used cars more attractive to buyers.

CarMax trades at 15 times earnings and that is the stock to buy among the two rivals.

Viewer calls taken by Cramer

The Container Store (NYSE:TCS): There are lot of shorts in the stock and Cramer has been bearish on it for a long time. Now that the company is reporting good numbers, it's time to pay attention.

Sodastream International (NASDAQ:SODA): Their last quarter was great. Cramer thinks the ship has sailed to buy into the stock as it has run up.


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