NEW YORK (TheStreet) -- Kicking the can down the road is working
Jim Cramer
He reflected on the economic policies in both Europe and China over the past year, noting that this time last year U.S. markets were caught off guard by the faltering global economies.
This year, the U.S. has become important again.
Cramer said "kicking the can" has been scorned but in retrospect it's been working. Last year the Europeans had no idea how badly their economies were faltering, but the strategy of endless delays gave the markets time to process and prepare for the worse-case outcomes. U.S companies, he said, have moved to contain their losses in Europe, which is why they're able to thrive this year.
In China the same is true. As the Chinese have made small steps to stabilize their economy, U.S. companies have also been given time to prepare and adjust. More importantly, U.S. investors have taken the time to realize that not that many U.S. companies are even affected by China.
Look at today's biggest winners, said Cramer, companies like Netflix (NFLX), Carmax (KMX) and Marathon Petroleum (MPC) are all domestic stocks with no European or Chinese exposure. Other winners today included Eli Lilly (LLY), Petsmart (PETM) and Chipotle Mexican Grill (CMG). No international worries there either.
Even Cliffs Natural Resources (CLF), which is dependent on China, was able to rally today on the hopes of a "bad news is good news" scenario where things get so bad in China that the country is forced to act to save itself.
Cramer gave "three cheers" for the kick-the-can strategy, as its helped put American stocks back on the map.
Know Your IPO
In the "Know Your IPO" segment, Cramer featured Workday, the enterprise resource management company that's set to come public later this week under the ticker WDAY.
Cramer said Workday plays in the same space as Salesforce.com (CRM), only instead of offering cloud-based software solutions for sales and customer service, Workday is offering similar software for human resources, payroll and employee expense management. This is a red-hot sector, said Cramer, which is why Workday should be on everyone's radar.
Workday is not yet profitable and only has 340 customers thus far, but Cramer said what's important to note is both the market opportunity, $39 billion, and Workday's growth rate -- the company increased revenue by 98% last year. While Workday is still losing money while it invests in its business, the percentage of the company's costs versus its revenue is declining rapidly, which is a very good sign.
So how much should investors be willing to pay for Workday? The IPO is expected between $21 and $24 a share, but Cramer said strong demand may send shares higher. At the middle of that range, Workday would be trading at 18 times sales, which is expensive by traditional metrics, but well below stocks like Guidewire (GWRE) and Palo Alto Networks (PANW), two recent IPOs that popped on their first day of trading and continued higher.
Based on the valuations those companies received, Cramer said he'd be willing to pay up to 20 times sales for Workday, which would put the share price at no more than $27.50 a share. He said this premium is justified given how fast the company is growing and how solid its management team has executed thus far. Beyond $27.50 a share however, Cramer said he'd take a pass.
Looking for Winners
As we enter the fourth quarter of the year, Cramer said growth and momentum fund managers follow a predictable pattern, they identify a handful of stocks that they deem winners and start piling in. These "anointed" stocks just cannot be stopped, noted Cramer, which is why he's featuring 10 of them throughout the week.
His first two anointed winners were Amazon.com (AMZN) and Google (GOOG).
Shares of Amazon are already up 50% for the year, while Google is trading just 17% higher. But these gains won't stop money managers from taking them a lot higher, said Cramer, as there is a lot to like at both companies.
Amazon has become the Wal-Mart (WMT) of the Web, said Cramer, a beloved retailer with prices and selection that are second to none. But Amazon hasn't stopped there. Under the leadership of CEO Jeff Bezos, the company has expanded into making hardware like it's successful Kindle tablets, as well as into online media distribution, making it a true online marketplace for the world.
With over $5 billion in cash on its books, Amazon currently trades at a whopping 110 times earnings. That may sound wildly expensive, noted Cramer, but fund managers look at the "out years," like 2015, where Amazon is expected to trade for a more reasonable 35 times earnings. This makes the stock not so expensive given its 36% growth rate.
Google is in a similar position. It dominates online search, commanding a 66% market share in the U.S. The company is a major in mobile with its Android operating system and it has a mobile and social strategy, as well as YouTube and other opportunities.
Given that online advertising still represents only 10% of all advertising, Google clearly has lots of growth ahead of it. Google trades at only 11 times its expected 2015 earnings of $67 a share.
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