30 September 2005

Shit, now Cramer's on board with WMT.

From the 9/28 Mad Money recap:

Cramer issued a "triple buy" on Wal-Mart (WMT:NYSE - news - research - Cramer's Take) Wednesday on his "Mad Money" TV show.

Cramer, who has long been bearish on Wal-Mart, is changing his opinion for three reasons. First, with consumer confidence low and the Federal Reserve "going after the economy," Cramer said people will start shopping more at the "lowest-price" retailer.

Second, Wal-Mart is "actually thinking about style and taste" in bringing on former Target (TGT:NYSE - news - research - Cramer's Take) executive John Fleming and in contemplating buying Tommy Hilfiger.

Third, with Wal-Mart's stock at a six-year low, the stock is finally "cheap," said Cramer.

A caller asked if dollar stores are good investments now. Cramer said he expects Wal-Mart to turn around first and then the dollar stores' business will follow. He would not buy the dollar stores' stocks yet though.

In response to a question about Target, Cramer said he sees Target flat-lining while Wal-Mart goes up.

Since his mention, the stock's up about 1.5%.

Part of me is glad that I arrived at a similar conclusion, with the focus on WMT, while still keeping an eye on FDO. But part of me would prefer Cramer to keep his big yap shut, and focus on, y'know, tech stocks.

1 comment:

John Coumarianos said...

If your previous analysis of the business is correct, then you can still get it at roughly 50-cents on the dollar. What's 1.5% to you? Now, your estimates may be ambitious, but you seem to have an adequate margin of safety to make 1.5% meaningless.

Notice how Cramer has no explanation of what he thinks the business is worth based on the balance sheet and/or future cash flows. It's all short-term trading considerations. It's all what consumers may do over the next few months. That's a game you can't win as an individual investor. You'll never have the information the pros have. But, not to worry, if you're patient and have a longer term perspective, you can still make money. In fact -- and I know this sounds cheesy -- you can beat them with a longer term perspective. If you buy WMT, it's for the next decade or so, not because of what consumers might do in response to oil, a slowing economy, or whatever over the next quarter. It's madness to consider that and let it affect your decision.

Also, what does it mean if the stock is at a six year low? That's a kind of "relative value" approach, which can have some validity, but what if the stock was grossly overvalued six years ago? The textbook definition of what the stock is worth is the future free cash flows of the business discounted back to the present. You do the best you can estimating future cash flows, coming up with a reasonable discount rate, and going from there. That's what tells you if the stock is cheap or not.

As far as seeing Target flatlining. How does he know that? Again, what's the value of the business, and is the stock trading at a discount or premium, based on that value? That's all that matters.

I caught part of the show, and I thought I heard a woman calling in to ask about Apple Computer this Christmas. Are you kidding me? An individual investor trying to play that game is beyond masochistic.

Think about two things that a real investor -- Warren Buffett -- says. 1. You're not buying a squiggly line on a chart. You're buying a piece of a living, breathing business. What's the business worth? 2. Invest as if you have 20 or 25 opportunities in your lifetime. Is WMT cheap enough to qualify as one of those 20 or 25 lifetime opportunities? It might be, but only you can decide that for yourself. You'll never decide it if you're thinking about next quarter. If you buy the stock, let it be because of your own valuation analysis.