Stocks discussed on the in-depth session of Jim Cramer’s Mad Money TV Program, Tuesday, October 10.
Are activist investors good for stocks? “This is very much a case-by-case thing. There are some ‘scorched earth’ activists who seem to specialize in creating ill will and not much else. But you know what? I think those days are largely behind us, at least when it comes to smart activists who know what they’re doing,” said Cramer. He explained the influence of activist investors on stocks by discussing 4 cases.
- Procter & Gamble (NYSE:PG): Activist Nelson Peltz lost the proxy vote against the company for a board seat by a narrow margin. Cramer said PG is one of his favorite companies with a strong brand presence. While CEO David Taylor is cutting costs and pushing R&D initiatives, it has rescued the company from the 5-year. However Peltz thinks this is not enough and more can be done. “All that said, the biggest winners here are you, the shareholders. Any spur from outside that creates more accountability is always going to be a good thing. I like that kind of challenge. I feel comfortable enough in my skin to have one, though obviously the board of directors didn’t. Still, they would’ve been better off with him than without him,” said Cramer.
- General Electric (NYSE:GE): Cramer was happy when Trian Fund founding partner Ed Garden was given a board seat. Unlike PG, GE needs help and new CEO John Flannery can turn to Garden for it. “It’s another situation where activism could have done a lot more good if management had just listened in the first place. I think the stock would be a heck of lot higher if Trian had been heeded,” added Cramer.
- Honeywell (NYSE:HON): In more activist related news, Honeywell is planning to spinoff its non-core assets to create two standalone companies. They are retaining their aerospace business however against Third Point’s activist Dan Loeb’s recommendations. “I think the split will create a ton of value, even as some expressed disappointment. The disappointment is your buying opportunity, as the breakup here will create two best-in-class companies that don’t necessarily belong under one roof,” said Cramer.
- Smith & Nephew (NYSE:SNN): Activist investor firm Elliott Partners revealed their 8% stake in the company. Cramer thinks this will work well for the company. “This is good news for Smith & Nephew shareholders, as Elliott can put pressure on management to conduct its business in a more rigorous fashion; that’s one of the firm’s hallmarks. My charitable trust owns Arconic (NYSE:ARNC) and NXP Semiconductor (NASDAQ:NXPI) in part because of the pressure Elliott’s putting on both businesses to unlock more value,” said Cramer.
Whether the activist investors succeed or not, it is a positive for the market. “Some of these activists are better than others, but generally speaking, when a smart activist like a Peltz or an Elliott Management’s Paul Singer gets involved, it’s a good thing for you at home. Even when the activists fail to get everything they want, you, as a shareholder, should be grateful for their work. Believe me, these stocks, many of these, would be even lower, maybe much lower, without the pressure these funds put on management,” concluded Cramer.
CEO interview – Workday (NYSE:WDAY)
The stock of Workday is up 64% in 2017. Cramer interviewed CEO Aneel Bhusri who is speaking from his company’s annual investor conference. Bhusri said that the number of people watching the conference has increased 10 times compared to five years ago.
“Since we started the company, we were really focused on building out platform for our own use, for human resources and financial management software, but our customers and partners kept asking for access to it to build their own applications on top of it,” said Bhusri. They have transformed into a platform company from an application company.
“We finally felt it was ready to open that up. So what it means is that customers and partners can now build applications on top of the Workday platform, use our rich set of APIs, our security services, our data services,” he added.
Their new data services now allow companies to compare their metrics to that of industry’s peers. “For Workday, over time, it’ll become another significant revenue stream much like we’ve seen from other companies. And I think the important piece for Workday is we’ve evolved from an apps company into more of a platform company as time has gone on,” said Bhusri. He also added that when two companies merge, they look to Workday for combining the HR services.
Off the charts
Cramer went to the charts with the help of technician Bob Lang to know the direction of semiconductor stocks after their recent up move.
The chart of Intel (NASDAQ:INTC) shows that it has reached its dot-com high. Its RSI and Chaikin Money Flow indicators show a bullish signal and that institutional investors are buying the stock. Land and Cramer think that a pullback in the stock will be a buying opportunity.
The chart of Qualcomm (NASDAQ:QCOM) shows forming an inverse head-and-shoulders pattern which is a bullish signal. It has surpassed the $53 ceiling of resistance and is picking momentum. It could reach $56 soon.
The chart of Broadcom (NASDAQ:AVGO) shows a series of higher highs and higher lows. The stock has traded sideways for some time and is forming a bullish flag pattern that tends to break the upside. If the stock can rally above $250, then it will go to $300 easily.
“The charts, as interpreted by Bob Lang, suggest that Intel’s got more upside, although it would be even better after a pullback, while Qualcomm’s stock might finally be getting it together, and Broadcom could be ready for another big move after a long-term breather. Now, I think he’s got a point. I agree with him on Intel. I’m hopeful about Broadcom. Qualcomm’s got a tougher road to hoe because it’s got a long-running patent dispute with Apple,” concluded Cramer.
Chairman interview – Tellurian (NASDAQ:TELL)
Cramer interviewed Charif Souki, co-founder and chairman of Tellurian to know his take on the energy sector. Their first facility in LA is expected to open in 2022 and till that time the company is buying assets around the globe.
“Two things have happened that are dramatically different. The first one is that the U.S. is now unquestionably a provider of low-cost natural gas on a global basis. The second one is that the business has grown so much, LNG, that it’s now a true commodity,” said Souki.
He adds that Tellurian is well-positioned for building liquefaction facilities. Giving his take on oil prices, he said, “I am fairly comfortable between $50 and $60, but I’m starting to have a little bit of a bias because the risk around the world is increasing and I don’t think the U.S. will be able to keep up. I don’t know the timing yet, but I think I’m starting to get a little bit nervous and we might see prices start to go up.”
Viewer calls taken by Cramer
Caesars Entertainment (NASDAQ:CZR): Cramer likes Wynn Resorts (NASDAQ:WYNN) better. Caesars does not have a good balance sheet.
Fluor Corp. (NYSE:FLR): Cramer is concerned, as the company requires higher oil prices to make money. Don’t buy this one.
Analog Devices (NASDAQ:ADI): It’s a winning stock.
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Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.