Jim Cramer Blog

On Tuesday's show Cramer gave out 5 rules for investing in the stock market. His first rule is that there is a market for everything, including the stocks themselves. He said an example was how ethanol stocks were very hot about a year ago, and then several IPOs came on the market, so there was an oversupply of ethanol stocks on the market and the entire sector went down. So the ethanol business and news didn't matter because there were too many ethanol stocks available. Cramer said another example was his recommendation of Sealy (ZZ) at its IPO where he liked the stock, but didn't realize that there was a glut of IPOs, so the IPO market was saturated and the stock tanked.
Cramer took soma calls. The first caller asked how you can know whether an IPO is a good investment or not, and Cramer said that the key is the offering price for the shares. Another caller asked if there are any sectors that Wall Street overlooks, and Cramer said that you should look for a sector that used to have 10 analysts and only has 1 or 2 now and consider that sector for a turnaround. The next caller asked about the Vonage (VG) IPO, and Cramer said that this IPO was overhyped and that they should not have let the company sell stock to its customers.
Cramer's second rule is to know what you own. Sectors don't always matter since stocks within a sector can rally without others. Industries within a sector are the key to rallies, not the sector itself. An example occurred a couple years ago when he called for a tech rally and recommended Cisco (CSCO) and Microsoft (MSFT) because they were the big tech stocks, and he should have been thinking more specifically about the gadget industry within tech, since stocks like Apple (AAPL) were up big. He also said that he wants you to do at least 1 hour of homework each week for each stock you own. He thinks you should give your money to a mutual fund if you don't have enough time.
A caller asked why you don't see big rallies in the biotech sector, and Cramer explained that biotech stocks are moved by FDA rulings, not broader industry moves. The next caller asked how to find the pin action within a sector that Cramer talks about, and he used an example where Boeing (BA) reported a great quarter, and you should look to see who makes the components of the planes they make, since their sales will rise with Boeing's. The next caller asked how to predict performance if a sector is split, like Internet search with Yahoo! (YHOO) and Google (GOOG), and Cramer said that you need to look at management and other company specific factors in that case.
Cramer's third rule is that Latin America should always be treated as a shorter term trade since Wall Street has preconceived notions about the region that prevent it from being a long term investment, and they are the ones who move the market. You should always take profits as a Latin American stock moves up so you don't get caught when the big investors move out of their trade. A caller asked how important our economy is to Chinese stocks, and Cramer said that he doesn't like to recommend Chinese stocks because he doesn't trust their economy. The other caller asked about stocks like Wal-mart (WMT) and Starbucks (SBUX) that are expanding in China, and Cramer said that Starbucks could be the next Yum! Brands (YUM) which doubled their stock price after they doubled their stores in China.
Cramer's next rule is that being a lemming is ok, but he still wants you to go your homework, but if you agree with the moves that big investors are making, then it's good to go with the momentum.
His last rule was to not be afraid to say that something is too difficult to invest or trade on. His example is restaurant same store sales, which he has been crushed on in the past since there are so many factors that contribute to the number and the reaction. He said you aren't being weak, but smart by focusing your time someplace where you can make money.

Labels: AAPL, BA, CHINA, CSCO, GOOG, IPO, Jim Cramer, Lightning Round, Mad Money, Mad Money Lightning Round, Mad MOney Recap, MSFT, SBUX, VG, WMT, YHOO, YUM, ZZ

When a company "goes public" with an IPO, it usually doesn't sell all of itself. For example, imagine the Bergen Bell Co. (ticker: RINGG), owned entirely by a woman named Adrienne. Adrienne decides to sell about 10% of the company to the public, via an IPO, to raise money for expansion. Adrienne, who currently owns all of the 90 million shares of the company, will sell 10 million new shares, so there will be 100 million shares after the offering.
Investment bankers help Adrienne determine the value of the company and how much of it she should sell, based on how much money she wants to raise. Let's say they decide to price the offering at $20 per share. This means that Adrienne's company will collect about $200 million when the shares are sold (less the investment bank's fee of roughly 7%). Adrienne will retain ownership of 90% of the firm, or 90 million shares.
This is often how the millionaires and billionaires you see in lists of the world's richest people become millionaires. Like Adrienne, most of their "wealth" is on paper and is tied to the number of shares they hold in their companies, multiplied by the current share price.
Search specialist Google's (Nasdaq: GOOG - News) IPO wasn't a typical one -- instead, it featured a "Dutch auction" process, like that used by Overstock.com (Nasdaq: OSTK - News) and RedEnvelope (Nasdaq: REDE - News). Learn all about IPOs and Dutch auctions in this Bill Mann article that preceded the IPO. Then read Bill's thoughts after Google's IPO.
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By Selena Maranjian

Labels: GOOG, IPO, OSTK, REDE

Interesting article in Business Week on NetSuite’s potential IPO. NetSuite is a Larry Ellison-backed software company that is like Salesforce.com (NYSE: CRM - News) in the sense that it’s web based, but unlike Salesforce.com which focuses on sales planning and account management, NetSuite helps small and medium sized businesses with accounting and financial statements, the “underpinning of a business,” according to Oracle’s (NASDAQ: ORCL - News) Ellison.
For one thing, it’s odd that Oracle’s board has not raised an issue with Ellison owning well over 50% of a company (after a potential IPO, he owns much more now, having invested the bulk of the $100M NetSuite has raised) that is technically competing in a space that Oracle should have a foothold in, but alas…
Second, the article has an interesting stat that is explained partially by Sarbanes Oxley making it more expensive for companies to go public, and by the fact that Google (NASDAQ: GOOG - News) and Microsoft (NASDAQ: MSFT - News) have continued to scoop most companies early on before they scale enough to file for an IPO.
Anyway, the stat: in 1999, there were 323 IPOs which raised $31.6 billion, compared to a paltry $4.9 billion raised in 2006 through a mere 32 IPOs.
Of course, there’s also much less VC money being invested, and 1999 was the beginning of the before the Nasdaq bubble… but still; that’s 90% less IPOs a mere seven years later.
The company’s 2006 revenues were in the $70M range, backing what I have been saying for some time, when it comes to IPOs, $50M is the new $100M (at least for online companies).
-Ashkan Karbasfrooshan

Labels: CRM, GOOG, IPO, Larry Ellison, MSFT, ORCL

There's a billion dollar side benefit to Wall Street's fourth-quarter march into record territory -- 2006 looks to be one of the best years for initial public offerings since the end of the dot-com boom.
With $8 billion of deals, last month was the biggest for IPOs since June, 2001, according to data provided by Dealogic, a market analysis company. It also was the best November since 1999, when technology stocks roared into the public markets.
There have been 172 IPOs so far in 2006 on the Nasdaq Stock Market and New York Stock Exchange, compared to 199 at the same point last year, according to Dealogic. However, the amount of money raised because of the robust stock markets has risen 4 percent to $40.1 billion so far this year from $38.6 billion in all of 2005.
The trend is widely expected to continue, with investors seeing a varied crop of companies looking to float stock, observers said. Small to mid-cap growth companies are expected to be the biggest group pursuing IPOs this month and into early next year, and those have traditionally shown the best performance.

Labels: IPO, Wall Street

Shares of First Solar Inc. (FSLR.O: Quote, Profile, Research), a maker of solar power modules using a proprietary semiconductor technology, on Friday rose more than 23 percent in its market debut.
Shares of the company surged 23.7 percent to close at $24.74 on the Nasdaq.
On Thursday, the company raised $400 million with a 20 million share offering that sold for $20 per share, compared with a $17 to $19 forecast.
The offering, which gave the company an initial market capitalization of about $1.4 billion, was increased from an initial 17.5 million shares.
Paul Leming, analyst at Soleil Securities Group, said First Solar is a "well-positioned company in a high-growth market."

Labels: First Solar Inc., FSLR, IPO

Shares of First Solar Inc. (FSLR.O: Quote, Profile, Research), a maker of solar power modules using a proprietary semiconductor technology, on Friday rose more than 23 percent in its market debut.
Shares of the company surged 23.7 percent to close at $24.74 on the Nasdaq.
On Thursday, the company raised $400 million with a 20 million share offering that sold for $20 per share, compared with a $17 to $19 forecast.
The offering, which gave the company an initial market capitalization of about $1.4 billion, was increased from an initial 17.5 million shares.
Paul Leming, analyst at Soleil Securities Group, said First Solar is a "well-positioned company in a high-growth market."

Labels: First Solar Inc., FSLR, IPO