NEW YORK (TheStreet) -- Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:
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It's Not Always About Earnings
Posted at 11:42 a.m. EDT on Friday, Dec. 13
Know your metric! Last night, Adobe Systems reported a quarter that looked like it was from Hades, and sellers dashed out of it, on the basis of what looked to be a serious shortfall. I know I was crestfallen when it came out, because we own it for the Action Alerts PLUS charitable trust, and I didn't want the trust to get hit this close to year-end. I don't throw things anymore, but it was upsetting, as it always is when one of your stocks is trading down in afterhours. You feel helpless and befuddled, knowing that the night and the next day's trading are going to be hideous.
Wait a second, said Stephanie Link, my co-portfolio manager, you know we have been telling people that this stock trades off the cloud orders, the new lucrative subscription suite offering that has ignited sales and will be a big part of the earnings stream in the future.
I said to her that everyone knew that and they don't seem to care, as they are selling it down anyway. She challenged me and said they are selling it down precisely because they don't know that the earnings per share are not what controls. Plus, when a stock heads down, it is a self-fulfilling prophecy, as the media then jump all over it, accentuating the horrendous shortfall and the big, big miss that has made it the disaster du jour.
[Read: Adobe Systems Reaches New Lifetime High]
Sure enough, what we were looking for, the subscription orders, were far better than what we thought. Initially, as you watched the stock tick up, you could see that those who were selling it on earnings were confused. The climb made no sense to them either, because they were using a service that told you what the earnings-per-share consensus was, and it didn't hit the consensus, so therefore that meant sell. Or they weren't on the conference call at all, or else they would know that the key metric is so much better.
Next thing you know, the stock is up 2 and a half from the bottom as management outlined the cloud business, and then it jumps another dollar when they get downright giddy about the company's success in transitioning to cloud-based orders.
By that point you know that the shorts are so baffled that they simply have to cover, and that has led to the huge run higher that you can see on your screen.
Now, I have been a huge proselytizer for waiting to hear what a company has to say on a call before taking action. Sure, there are cases where things are bad, and when the company fleshes it out on the conference call, the stock gets hammered once again. That's exactly what happened to Cisco Systems . But waiting to hear the real story has, on balance, been much better than worse in the years of the conference call's ascendance.
Even more important, though, is the recognition that not every stock is an earnings-per-share-driven stock. In my soon-to-be for sale book, Get Rich Carefully, I give page after page of key metrics that are the real drivers of what must be beaten to send a stock higher. We know now that the sellers of Adobe didn't see the truck coming that ran them over because they simply believed that investing is as simple as finding out what the EPS consensus is, seeing if a company failed to beat it, and then shorting it to Kingdom Come. I wish it were that easy.
The hard money, the careful money, was made knowing what really mattered with Adobe. Only those who know how to do the homework could reap the rewards of the turn in Adobe's stock. Be sure you know what can affect a stock more than earnings per share before you come in with guns blazing. Believe me, you won't regret doing the extra work. If you don't do the homework, just say away from your screen. You will be beaten to a pulp the way the Adobe Quick Draw McGraws were off this outstanding quarter -- at least outstanding in what really mattered.
At the time of original publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long ADBE.
A Love Supreme
Posted at 2:28 p.m. EDT on Thursday, Dec. 12
I have a confession to make. I want my family to love me the way the market loves Twitter , Tesla , Netflix and Amazon .
It's the kind of love that means you never have to say you're sorry. It's the type of love that's sweet and kind and with you every day -- a gentle hug, a warm holding of the hand -- and it doesn't need any reassurance. It's a love that says, "Just be as you are, don't go changin'."
I admit, I'm jealous of the affection I know I will never get because it is so pure and unstinting.
I'm not the only one who is jealous, by the way. The people who compete against these companies are jealous, too. When you get off the desk and speak to the managers who compete with these companies, whether they work in the auto business, the entertainment business, retail or even on-line, they are green with envy.
[Read: Amazon Pantry: Amazon's Latest Venture]
I can't tell you how many execs in retail tell me how unfair the love is for Amazon. "When do they have to make money?" is probably one of the most asked questions in my lexicon. The whole retail industry was livid at the Amazon "chopper" story appearing just when everyone was scrambling for on- and off-line customers. I can't tell you how many complained to me about the chopper stunt. They always say that Amazon doesn't play fair, but what they really mean is that investors love Amazon so much more than they love their store chains that it doesn't need to show profit to get the stock up. I always wonder how much the stock will go down when it is bound by earnings instead of dreams. Then again, a Jackson Pollock's worth a heck of a lot more than a Rembrandt, the old gold standard, so don't hold your breath.
People at Ford have worked so hard to get the company's costs down worldwide while boosting sales, only to find that Tesla gets a valuation that's outrageous per the 25,000 cars it might make this year. Ford sells that many cars in a day. Yet Tesla's worth $17 billion and Ford's worth only $64 billion. That's affection personified. No one wants a car fire, but I am sure that the execs at the other car companies were glad to see that something can stop the juggernaut. But the more days we go without a fire, the higher the stock will go.
Netflix annoys the heck out of all the purists. How can a company owe as much money as it does and be so at the whim of the entertainment industry and, presumably, at the mercy of the cable companies? Yet that's not how the buyers see it. They prefer Netflix to TV. Members of the younger generation who are drawn to stocks want to put their life savings into the darned thing. They aren't thinking about off-balance sheet obligations. They are thinking about how they can get into The Walking Dead, even when they are late to discovering it.
[Read: Help Your Company Out: Appoint Women to the Board]
Of course, they also love the original programming, even though Netflix doesn't own the programming. Orange is the New Black? House of Cards? Arrested Development? How many times did you have to tell someone not to spoil the show? How many times did you binge on Netflix to catch up? The younger generation loves the push, the suggestions and the ability to watch what their friends are watching. They even love the fact that so many cool documentaries are available. So why the heck shouldn't they love the stock?
Which brings me to Twitter. You hear about how corporations are embracing Twitter and love the format? Let me make one thing perfectly clear: The real reason they like it is that, unlike Facebook, they typically don't have to pay for the good word of mouth. So why is the stock at $54 and being valued at more than 2x any metric you can choose in a head-to-head comparison with Facebook? Simple: The users love it. In a twist on an old razor ad, they love it so much, they bought the company.
How long will these amorous relationships last? I have no idea. But those who thought that Amazon, Netflix or Tesla would have somehow jilted their customers/investors have lost fortunes betting against the love. I bet the same thing will happen with those who bet against the crush these buyers are showing for this new wonderful darling of a stock and a company. They love retweeting and favoriting stuff over and over again. And this is just the very beginning, the going-steady phase. Just wait until they get engaged!
At the time of original publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the stocks mentioned.
- knowing your metric
- the market's love for certain stocks