Sell-Off In Tech – Cramer's Mad Money (9/26/17)

Stocks discussed on the in-depth session of Jim Cramer’s Mad Money TV Program, Tuesday, September 26.

Many investors are wondering what’s wrong with the high flying tech stocks. “Let me give you my take on the dramatic see-saw-like action in the leaders of this market. First, let’s tackle the real cause of the weakness that started last week: technology. Come on, you all know the epicenter here. It’s Apple (NASDAQ:AAPL).” The talk about tepid iPhone 8 sales along with iPhone X coming in November, Apple and its suppliers stocks fell on this news.

Cramer reiterated, “Buy Apple, don’t trade it.” Betting against Apple means getting odds of losing in your favor. Apple makes the best consumer products and is cheap trading at 14 times 2018 earnings compared to consumer product companies and the average stock of the S&P500. It’s worth noting that they have $ 260B in cash as well.

“So, the proximate sell-off cause, at least number one? Apple. Now, I am saying it’s been pretty neutralized. Sure, the stock can go lower, but at these levels, it’s beginning to reflect the failure of the iPhone 9, and that product doesn’t exist,” said Cramer.

The second concern of the tech stocks is the cloud. After Adobe (NASDAQ:ADBE) reported a surprise disappointing quarter, CEO Shantanu Narayen said on the conference call that cloud growth is slowing temporarily. This led to investor panic. Which led to a sell-off in everything cloud-related.

“Remember, the cloud lives in the data center. So if the cloud’s slowing, the data center should be slowing, too. Yet last night Nvidia (NASDAQ:NVDA) announced that its new line of chips won business from three of the largest Chinese data center operators out there: Alibaba, TenCent and Baidu, which are growing like mad. I’ll match those orders against a defeat at Tesla any day of the week,” added Cramer.

“Bottom line? We’re at the end of a good quarter in a good year, and we’re seeing profit-taking and forced selling of the winners while some money’s going into cheaper stocks and, when you put it that way, there’s a kernel of rationality to the entire move,” concluded Cramer. This does not mean selling is over, but the weakness should be used as a buying opportunity.

CFO interview – Red Hat (NYSE:RHT)

The stock of open source software solutions provider Red Hat went up on better than expected earnings and guidance. Cramer interviewed CFO Eric Shander to find out more about the quarter.

Shander said that the cloud world is changing. “Everybody’s talking about it being a hybrid cloud world; I can tell you, whether it’s on-premise, off-premise, they’re looking for optionality, they’re looking for multiple cloud providers, they’re looking for flexibility,” he added.

The company has been investing in application development and emerging technologies which made them $ 150M in the last quarter. The result of their investments can be seen in the strong growth. “Every single industry is transforming. And not only that – there is an IT implication related to that. They’re looking for agile development and that’s where a lot of our technologies are helping enable that,” he added.

Their sales to the Federal government have been strong and not capped as thought by many. Apart from that, Europe is a growing category for the company’s business. Bottom line is that Red Hat has all the components to enable companies to run successfully in the cloud.

Carnival Corp (NYSE:CCL)

The stock of cruise-liner Carnival went down on fears of hurricane damage. However, after the solid earnings and hurricane-adjusted guidance, the stock rallied.

“The most valuable currency in this business isn’t dollars. It’s not gold. It’s not even bitcoin. It’s the benefit of the doubt. When the market realizes that a CEO deserves it, their stock tends to catch fire. If there’s one thing we can bank on, it’s that he’s not going to be tripped up by some storms, even really bad ones,” said Cramer referring to Carnival CEO Arnold Donald.

Donald held the Costa Concordia catastrophe, which resulted in 32 deaths, really well. Apart from that, they got through the Ebola and Zika crisis as well. “Donald seems ready for any disaster and he always seems to have a back-up plan,” said Cramer.

Donald raised the lower end of the guidance despite the hurricane and said that there is only 1% cancellation rate. Cramer calls the weakness in the stock a chance to buy it.

COO interview – VMware (NYSE:VMW)

VMware is the virtualization infrastructure solutions provider which reported a good last quarter and its stock is down just $ 4 from its recent highs. Cramer interviewed COO Sanjay Poonen to hear what lies ahead.

Poonen said that more companies turn to cloud-based solutions in order to cut costs and connect with the digital world. Many companies are adopting to the hybrid approach to the cloud. “As you think about companies and their future, they have to decide how much data center capacity they want to use now. Some people feel they run a data center very well. We can help them modernize it with software, and that’s what we do very well. Some of the companies say, ‘Listen, I don’t want to expand a lot of my data centers. I want to use the new hardware economy.’ The new hardware economy is not just the traditonal players, but Amazon Web Services, Microsoft Azure, Google, IBM,” he added.

VMware is an important name in data center business and they have saved enough energy with their virtualization to power 40% of US homes for a year. They have partnered with AWS to bring scalable solutions to the public and private cloud.

“If you could get the benefit of both worlds, the same tools that you’ve known at VMware for managing and automating that, but get the data center capacity on the fly, that’s what we’ve brilliantly innovated here,” said Poonen. Their aim is to help high-profile customers on-premise and private cloud operations, pair those functions with public cloud etc.

“We think there’s going to be a good amount of spending in the private cloud on-premise and into the public cloud. And we feel we’re one of those quintessential companies that can bridge both sides of that chasm. I think there’s innovation to be had in tech,” concluded Poonen.

Viewer calls taken by Cramer

Emerge Energy Services (NYSE:EMES): Cramer thinks the entire fracking group is a sell.

Supernus Pharma (NASDAQ:SUPN): The migraine business is very competitive.


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