It's funny how strongly the tape can color your thinking. I had the CEOs of three terrific companies on "Mad Money" Tuesday night, and each firm, in its own way, is problematic at this moment -- but none would be in a more hospitable environment.
First there's Salesforce.com CRM , which just signed a deal to buy ExactTarget ET , the premier digital marketing company, for $2.5 billion. That's a 53% premium to ExactTarget's closing price the day before, but this is a company that definitely complements Salesforce's existing business.
Sure enough, the market viewed that purchase as a huge overpay -- plus, Barron's came out with a very negative article about what would happen if Salesforce had to replace its stock-based compensation with cash. That all shook the stock to its core, even despite the company's guide-up in its earnings report just last week. It didn't matter that SAP SAP and IBM IBM had both been rumored to be buyers, and that this would have been a setback for ExactTarget, which has partnered with Salesforce in many situations. Didn't matter that ExactTarget has almost nothing overseas, and that Salesforce can plug ExactTarget's best-in-class technology into its huge foreign network.
What mattered was that Salesforce.com -- with its 30% growth rate and terrific operating cash flow -- was now down 20%, trading like a broken growth stock, because it failed to beat and raised huge as it has done so many other times.
Or let's take Radian RDN , the mortgage insurer. Here's a company that's a gigantic beneficiary of the housing revival: Many of the so-called bad contracts it had written on homes before the crash are now coming back to life, which is no doubt leading to reversals of reserves. As the losing policies roll off, they're being replaced by new business of considerable size, given that Radian is now the biggest player and home sales are picking up. Radian is setting up for a gigantic 2014.
But mortgage rates have ticked up, and that's enough to frighten away the buyers. That's despite the fact that the company just took a look at May and said it was the best month ever, while CEO S.A. Ibrahim has noticed no decline in home-buying because of the rate back-up. So Radian just looks like a stock that's run up huge and is ahead of the fundamentals, even as the fundamentals are literally improving by the day because the bad business regularly rolls off.
Then there's AMN Healthcare Services AHS , a $600 million company that's a one-stop shop for all of the staffing needs for hospitals -- a terrific story that should get better with age as we go into Obamacare and more and more people become elderly because of the nation's changing demographics. This is a terrific little company that's the largest in its industry with a very bright CEO, Susan Salka, and an even brighter future.
Many businesses will be challenged by Obamacare, but hospitals are not one of them -- and when they need doctors or nurses and don't want to put them on full staff, they will call AMN Healthcare. I found myself wondering why this stock's market capitalization is only at $600 million, as this company's total addressable market is huge and it's recognized as best in class in the industry.
But then I thought about it and recognized that, with a tougher market, no big mutual fund is going to want to get trapped in a junior growth stock with no place to go if things go wrong. Stocks like AMN are magic-carpet rides until they become roach motels when the tape morphs from glorious to toxic.
Salesforce.com, a cloud play; Radian, a housing play; and AMN, a healthcare play: These stocks were all perfect just a few weeks ago. Now they're facing challenges as the buyers reassess their commitments and sellers ring the register.