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tv   Mad Money  NBC  April 3, 2012 3:00am-4:00am EDT

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just really excited to get the word out to parents and adults. >> well, good for you. it is so important. i'd like to thank pat o'brien for helping me out today. >> thank you, sister. hoda won't be here until thursday. >> plus shannen doherty going to stop by tomorrow. >> we will see you tomorrow! i'm jim cramer and welcome to my world. you need to get in the game! firms are going to go out of business and he's nuts! they're nuts! they know nothing! i always like to say there's a bull market somewhere -- "mad money," you can't afford to miss it! hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends, i'm just trying to save you some money. my job is not just to entertain but to educate and coach. so call me, 1-800-743-cnbc. tonight i'm giving you a little driver's ed. that's right, driver's education. on a day where the dow gained 52 points, s&p climbed .747%, nasdaq up .9%. we're going to get behind the wheel to explain what's happening right now with your stocks, because i think people
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are being misled by who's actually driving and who's just along for the ride. over the weekend, we got really positive numbers out of, yes, china? numbers showing real nice growth, growth so strong you could argue the possibility of a hard landing and economic crash in the prc taken oft tables. the numbers cheered me when i heard about them saturday night while attending an elk's club bash to help the new jersey educational foundation, i toasted those chinese communists with an ice-cold brewski, because it looked like we could move higher monday morning thanks to china's strength. perhaps because of all that good cheer win temporarily forgot about all this geographic landmass called europe that be stands between the asian book dominated by china and the u.s. book. what the heck does literature have to do with all of this? on wall street, we talk about a different kind of book than you might read at home. i, at the moment, thought that the book handoff, another technical term, might somehow go
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from china right to the united states, not stopping in europe! do not pass go, do you know what i mean? stupid. very stupid. even how you consider how my judgment was probably a little impaired. and sure enough, just as we've seen ever since the european crisis began, that whole darned continent takes its cue from the weakest countries, not the strongest ones. while germany's got a smoking hot economy with extremely low unemployment, the rest of the country seems to be getting weaker, in exchange for the money they need to stay afloat. buttressing the negatives, a weak european purchasing manager's report showing contraction in manufacturing. so what happens? all right. get this. so saturday night, high as a kite off of the china thing. then between 4:00 a.m. and 6:00 a.m. this morning, europe gets hit, spain, and then the italy. the two weakest major economies, obliterating the positives out of china. i mean, everything looks in free
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fall again in europe. in fact, by 5:15 a.m., do you know what the chatter was? chatter among traders? that we didn't really want china to be strong. because that lowers the chance of rate cuts that can stimulate global growth. in other words, no, the glass isn't half full with good growth from china. it's three quarters empty because the news wasn't bad enough to trigger interest rate relief. the idea being that china can't offset european weakness, because the chinese government's not doing enough to promote growth. i tell you, i could barely believe my ears when i heard this stuff. it's nonsense. however, these days, nonsense often passes for intelligence. so, of course, that twisted logic then gets imported to the united states, right inside the european book, and we are suddenly weaker at the opening, thanks to the interpretation by europe that china's very solid news is actually bad news. but at 10:00 a.m., we get information from here, from our country, about our own economy.
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data from our manufacturing sector, our purchasing manager's report, and it's real strong. it's showing an acceleration of our economy. at that point, our averages go from red to the green and they never look back. oh, get this -- we take europe right along with us to the point where their averages close even higher than ours! which brings me full circle to our driver's ed lesson for today. first, in 2011, europe was most certainly in the driver's seat. china was riding shotgun! u.s., we were in the backseat, hobbled by divided congress, dysfunctional washington. how dysfunctional? at a time when it looked like the economy might finally be able to grow on its own accord, the president and congress couldn't agree to extend the debt ceiling. we were almost the first nation in history to default on its obligations by choice, not because we couldn't pay. worst, as the fall went on and morphed into winner, our european driver lost the car, while the shotgun-riding chinese
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was busy shooting itself in its 2 billion feet -- 2 billion people, 2 billion feet, an arithmetic issue there. at the time, what were we doing? well, we were asleep, doing nothing. periodically waking up and asking our parents in front, are we there yet? we should be given some dvds or some ipads to keep ourselves busy. but a funny thing happened when 2012 began. we changed drivers! as our domestic data got storied, the united states has been able to seize control of the wheel. europeans, they've been trying to sober up. fortunately, they've been sleeping it off in the back. you give those suckers 20 white castle burgers worth of growth, and they can join us up front again. on our side, riding shotgun remains china. the difference being the europeans want china to cut rates asap, we're satisfied if they simply avoid a hard landing. the transition to the chinese fire drill, if you want to belabor the analogy, seems lost on many. it's almost as if we refuse to recognize that our european cousins are now merely along for
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the ride and it's a good ride, as we saw with the averages going from hideous to beautiful, after our strong economic numbers come out, we can take solace that china's not teetering on the bripg. but most important, our stocks are now in charge. the rest of the world now falls us. that's the way it used to be. it's that way again. what does it mean to have the u.s. driving? it means that our tech stocks, our retail stocks, our travel and leisure stocks, our housing stocks, our retail stocks, and our restaurant stocks can all go higher. and that's what happened today. we got an across the board rally in all of those areas. sure, the chinese riding shotgun played a role, but thank heavens they aren't driving the the car, because we saw what happens when they're doing the driving back in 2008. the the only stocks china can take higher are the stocks we want to be tame, coal, ag, oils. ag being agriculture. they cannot lead, because when they do, inflation rages, and the purchasing power of everyday americans like you and me goes down. i'm thrilled that the chinese are now emphasizing internal consumption, not capital
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spending, because that means there are american companies that are either already doing business or just started doing business there get a tailwind from the prc. starbucks, coach, yum brands, procter & gamble, coca-cola, pepsi, imax. bottom line, if you know who's driving the car, you'll be able to make some terrific buys every time we pull back, because misled investors think europe's behind the wheel, wearing spanish glasses, peering through a broken italian windshield. the united states is driving the car. just like it did during the great bull markets of the '80s and '90s. and as we enter a brand-new quarter the same way we exited the last one, you might very well be surprised by how far this car can go with a robust and sober driver behind the wheel. let's go to richard in illinois, please. richard? >> caller: hey, jim, how are you? >> real good. how about you, rich? >> caller: i'm good. i'm good. hanging in there. >> good.
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>> caller: so, yeah, my question was with groupon, i bought it at its highest peak, but now i'm just getting killed on it. should i keep it or sell it? >> you know, the wall street promotion machine still behind it. they said a lot of positive things about it and they couldn't get the stock higher. so what i want you to do is i want you to wait two or three more days, because the wall street promotion machine has got to get this higher, because they want a lot of investment banking business in this area and i want you to dump it. wherever it is three days from now, after the hoot and hollers get behind it, i need you to go. i do not think it is a sustainable business. john in virginia, john? >> caller: jim, interested in kkr. i bought some in february and the price hasn't gone up. today kkr announced a $300 million purchase of natural gas fields and has more to invest. what do you think, jim? should i increase my position, sell, or hold? >> you know what, i don't think there's any -- you know, to me, i have been saying that the one you want to be in is kkr financial holdings. that symbol is kfn. that is a 7% yield.
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that's the one i want you in, not the other one. okay, before you follow the leader, you need to figure out who it is. guess who it is! guess who's behind the wheel? we are! "mad money" will be right back. coming up, natural selection? annie's shocked the street when it ran like a rabbit after debuting. but was it too fast or is it just getting started? and later, investing in 3-d! more flicks are moving from the big screen to the bigger screen. with audiences flocking to fill the seats. but should you be buying a ticket? don't miss cramer's blockbuster exclusive with the ceo of imax. plus, hats off? red hat jumped nearly 20% last week after blowing away earnings expectations. could this red-hot cloud stock get even higher, or is it upside capped? cramer speaks to the company's ceo, just ahead. all coming up on "mad money."
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i don't know about you, but it seems like lately every stock that becomes public experiences a massive first-day pop. exact target, the man of bright cove, millennial media. we witnessed ipo after ipo that's going through the roof. but just because a company spiked when it becomes public doesn't necessarily mean it's overvalued. and not everything that ipos with part of a bang is in a bubble. they're dangerous to purchase once they begin trading. however, very rarely, we'll get a stock that becomes public with a gigantic spike and it's still worth buying afterwards. a stock where the fundamentals just justify the hype. take annie's, bnny for you home gamers. the organic foodmaker that became public just last wednesday. a lot of buzz about that thing.
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an instant 64% gain and then finished the day up 89% at $35.92. the next danger annie's surged again before pulling back. after that kind of right off the bat move, it's easy to assume that the stock must be wildly overvalued. up 89% in a single day? how can annie's not be incredibly expensive? this is just some sort of absurdly overhyped stock that was driven to irrational hype, right? wrong. wrong. just because annie's skyrocketed after it became public does not mean that you've missed the move. you missed some, but stay with me here. when you're dealing with these newly minted ipos, you've got to look at them like you would any other stock. you can't let the initial move throw off your judgment. this is not a dot-com. it doesn't matter that annie is now up 81% from this was priced. they priced it way too low.
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like they did with kors, the apparel company. annie's was a total giveaway for anyone who got in at the ipo, but like kors, after it became public, it was still worth buying. which has made me rethink my analysis. i normally would have said bear, now i'm saying bull. what makes me so confident about this one? it's the simple mathematics of value comparisons. i think of annie's that makes organic mac and cheese along with snack crackers and frozen pizza's as being the faster-growing little brother of hain celestial. hain made a ton of money over the past few years. so if you want to figure out whether annie's is actually expensive or not, you can't look at the initial pop. that's not going to do anything for you. you've got to look at its price-to-earning multiple compared to hain's and consider the growth past of both companies. now, i would admit, candidly, when i was on "squawk on the
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street" and on the show, before i saw the numbers, i was ready to can conclude that annie's had flown too high, too quickly. that was a snap judgment. now i think the stock represents a bargain. so right now hain is selling for 25 times this year's earnings estimate. annie's, well, if we assume the company grows its earnings at a 15% clip, and i think that's way too conservative, annie's is selling at 23 times earnings. in other words, annie's actually cheaper on a valuation basis than hain. now, why shouldn't hain play at a premium price? i mean, it's the established company, right? it's bigger, it's got greater scale, wider assortment of products, a more diversiied customer base than annie's, and i think it's a great company. however, when you consider the growth rates, it's clear that annie's does represent a terrific buying opportunity for yone who's willing to take the risk in investing in a newer, less-proven company. we know hain has a 13% growth rate. because annie's just became
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public, it's much harder to extrapolate what their future growth would be. that said, last year annie's posted a 150% earnings per share increase on 25% research growth. i think it's safe to assume that annie's will be growing faster than hain, probably a whole lot faster. yet annie's has a lower price to earnings multiple than hain. this suggests to me that the growth-oriented money managers will be bidding up annie's to much higher levels to account for the company's rapid expansion. not only is this stock not expensive versus its compare, but frankly there's a strong case to be made that it's still cheap versus its compare. and that's how we think on wall street. we don't think of cheap versus general motors, okay? we think of cheap versus some company that isn't apple to an apple. plus, you have to figure that the wall street promotion machine is going to get way behind this thing. i bet it will be pushd hard when the quiet period ends from the
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brokers who wrote the deal 40 days from when it became public. bottom line, don't with be scared off from a newly minted ipo just because it had a huge first-day pop. a lot of times that just means the deal was posted way too low. that's what happened with kors, that's what's happening's with annie, who after a huge spike is still cheaper an its compare, hain celestial. you want to play the analogy game? annie's is to hain what under armour is to nike. and i bet the stock goes higher from here, especially as we approach the end of the quiet period and the beginning of the analyst promotional push. tom in florida, tom? >> caller: hey, jim, thanks for taking my call. >> my pleasure, tom. what's up? >> caller: my question is regarding domino's pizza. given the $3 per share dividend they originally had and the subsequent pullback in the stock price, what's your thoughts on the long and short-term outlook? >> well, one of the things that -- first of all, i tend not to recommend these right after the dividend. if you take a look at what happened last time after domino's, you have a little churn.
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the stock does churn. yet i do think mr. doyle is going to do a great job and the stock is not expensive, but we did just have that catalyst. that catalyst is done. i want you to wait until it goes to $33.34 before i would pull the trigger, as much as i think doyle is fabulous. let's go to phil in washington, please. phil? >> hey, jim, i've got a holding in kraft and unilever, and i'm thinking about letting go of unilever and piling it all on kraft. what do you think? >> assist exactly what my charitable trust, did. we both felt because kraft is splitting, it offers more value than unilever. unilever had a good day today. maybe that's your chance and plow it into kraft. worried that an ipo came out of the gate too quick like a bunny and you want to bet on the tortoise? well, you know what? it isn't tortoise and hare. what it is here, hain is a good stock and so is annie's, but annie's is actually a little bit cheaper.
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after the break, i'll try to make you even more money. >> coming up, investing in 3-d! more flicks are moving from the big screen to the bigger screen, with audiences flocking to fill the seats. but should you be buying a ticket? don't miss cramer's blockbuster exclusive with the ceo of imax. and later, hats off? red hat jumped nearly 20% last week after blowing away earnings expectations. could this red-hot cloud stock get even higher? or is its upside capped? cramer speaks to the company's ceo, just ahead, all coming up on "mad money." when a carpet is clean and fresh, it's irresistible. experience this in your home with resolve deep clean powder. its moist powder penetrates deep, removing three times more dirt than vacuuming alone
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after years of struggling, has imax finally made it? it sure looks that way. the stock's up 35% year to date. imax reporting that their global first quarter box office figures were up 99% year over year, thanks in part to the success of the "hunger games." now the studios are begging imax to show their films, with many studios like disney and warner brothers signing multi-film deals, extending years into the future, in order to ensure that they have imax slots with their releases. the 3-d technology has finally caught up to imax. plus, imax now has a massive
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international growth kicker, probably the most important part. this used to be a domestic company. now they're expanding all over the world, especially in china, with international expected to account for 60% of the company's sales in 2012, what a switch! it's huge. imax's international screens tend to be a lot more profitable than the domestic ones. transformation seems incredible to me, which is why i'm thrilled after multiple years of watching him on all the other shows and all the other networks, we have the ceo of imax with us here tonight to talk about where his company is headed. welcome to "mad money"! >> great to see you. >> great to see you too. there's a couple of companies that have been able to make it so china is more important than any other part of its business. it's yum, it's starbucks now, in the next few years, it's somewhat coach wants to be there. you're actually more likely than all those companies to have your business be bigger in china than
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the united states. >> well, we have, including our backlog, about 225 imax theaters in china, about 100 are open today. that compares to 350 in north america. but just to give you some statistics on scale, when we opened "the dark knight" in 2008, we had 140 imax theaters in the world, now we have 225 in china alone. we opened "avatar" in 2009, we opened on 13 screens. now we're looking at 225 in a couple years. so it's been meteoric. >> the reason why i think this is is important because a lot of people feel that it's been a rocky ride. look, some of it is just an embarrassment in riches, you do "avatar" and the next year you can't possibly live up to "avatar," because it was gigantic. but it looks like now you're building in a couple of steady revenue streams, both technological and with studio fees, but also, of course, with motion pictures, with theater houses all over the world? >> exactly. if you look at it, we've been growing at about a 30% compound
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growth rate for the last three years. we have over 250 theaters in backlog. so that growth rate looks in place over the next couple of years. so what happens is, you have this steady line of theaters that generate recurring revenues to imax. both the theaters pay us royalties and the exhibiters pay us royalties and the studios pay us royalties. as you grow that network, you'll get more recurring networks. the problem is, it's the movie business, right. so you have "avatar" one time, a movie that doesn't work so well the next time. but i don't look at the company that way. i look as build this recurring revenue machine. and over time, if you have a big portfolio, you should perform. >> that's what i want. if you would come on a year ago, i would have been worried about the episodic earnings per share. it looks like you're really getting away from that. at the same time, individual movies do spike things. you did have that great number that you released today. some of it is from "wrath of the titans," which is 3-d, but people want to see 2d on your screens too. why? because of the sound? the beauty of it? >> because of the scope of it.
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imax is something that really transports you, where you otherwise couldn't go. and you didn't mention it yet, but the economy. if you can't go on vacation or gas is high, you go to an imax theater and feel like you really went away some place. so "mission impossible 4," "the dark knight," they're both 2d, they've been some of our most successful films of all-time. this year we've got "the dark knight rises," which is a 2-d film. we've got "dark shadows," a 2-d film. "james bond," which is a 2-d film. so you're right, i don't disagree with you. 3-d is the right movie, but not for everything. we have these internal sayings, if it's 2-d or 3-d, it doesn't matter, as long as it's imax. >> very good. now, as long as it's imax, you talk a lot about saturation. i live in jersey, okay? the two theaters closest to me are in jersey city and elizabeth city. there's only nine theaters in all of new jersey. how can that be saturation?
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>> well, we try to give exclusiviies to a film zone. we don't want one right across the street from each other. it is expensive to put in the equipment and you need a certain base before you can go in. some areas are too rural or too affluent to have that concentration of population. so you really want to go in those population centers. >> okay. now, i know that a lot of people, there was a lot of articles this weekend about "titanic," and cameron spent 60 weeks, $18 million. he's obviously, you know, "avatar" was terrific. but this is -- these re-makes are not part of your core business. they're not the things that could spike things, right? they're too expensive and probably not a logical business stream. >> we're much more in the day-in-date business. there are certain movies like "lion king" that did fantastic when disney re-released it, but they're really an richal. and on imax, we have a different
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aspect ratio, it's more square than rectangular, but it's not going to move the needle. >> a lot of people know imax because they take their kids to the different imaxs that might be in museums, in -- the ones that we first saw. still a good source of business, or you just kind of do that for, as a good gesture? >> we think it's important to our brand, first of all, was that's our heritage. one of the problems in those museums is they're still film-based systems, so when your film, believe it or not, it costs about $30,000 for one print in one theater. on our commercial side, we transitioned to digital, where it costs $150 per print. so we're in the process of converting over the museums. so it's not a great business right now, but we acquired some technology from kodak, we bought a bunch of patents from them. >> i saw that, for very little. >> to do some laser technology. and that will enable us to convert the museums.
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and then i think it will be a profitable business again. >> all right. one last thing. you know, i'm just trying to understand the economics. india, the ticket price is very low, so therefore you can't mark up enough imax. in china, it costs a lot of money to go to the movies. >> yeah. an imax ticket is averaging about 15 bucks in china. >> how can they afford to go to the movies?! they can barely eat. >> i think, fortunately, for us, there's enough that can eat and go to the movies. but if you look at the per-screens in china, they're almost double what they are in the united states. and i also think we became part of the growing film-going culture in china. so in the u.s., as you said, you had to get people from the museum mind-set to the commercial -- >> right. >> and in china, when they grew up, this is the way to see blockbuster movies. >> and you think this summer is going to be -- we have new blockbusters to continue the progress of imax for 2012? >> well, if i could predict movies, i would be one of the smartest people in the world, but "the dark knight rises," which chris nolan is directing,
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over half of it is filmed with imax cameras, which is going to bring a lot of audiences in. "spider-man," "men in black," "promethius," there's a lot of good movies. >> and the movie theaters, warner brothers and disney, multi-film deals very important. >> well, now that our business is good enough, there are a lot more people want to put their films in what we do. so "the hunger games" as you mentioned. we've got sony, paramount, universal, pretty much everyone. >> but you're able to insert "hunger games" and then take it out when you get "wrath," right? i'm trying to just figure out. if there is a 3-d movie, you can insert that and take out what was the week before? >> whether it's -- it doesn't matter if it's 2-d or 3-d, whatever the movie is, we have some flexibility in our schedule. so a film like "the dark knight rises" you're going to want to play for six weeks, because you know it's going to bring a lot
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of people in. but in the more shoulder periods, you do have some flexibility to move films in and out. >> and last thing, i know it's easier to build a new imax theater in china versus converting a u.s. i was watching what starbucks was saying over the weekend. starbucks is talking about literally hundreds of cities that still don't have starbuckses. i have to presume that even though you have all those screens, there are major cities of more than 1 million people that do not have an imax right now in china. >> well, i offer this as a caution, because i heard it secondhand. but i heard there are over 30 cities in china with over a million people that don't have a movie theater, let alone an imax theater. so, yes, there's a very good on-tap market in china. >> all right, excellent. that's rich gelfond, ceo of imax corporation. guys, this is no longer a movie -- a stock that i think is going to vacillate like crazy. i think we're finally at that level with where we're going to have that great secular growth story, and that's what should make imax more attractive for you. stay with cramer. thank you.
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>> thank you, jim. coming up, hats off? red hat jumped nearly 20% last week after blowing away earnings expectations. could this red-hot cloud stock get even higher, or is it's upside capped? cramer speaks to the company's ceo, just ahead.
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it is time, it's time for the lightning round on cramer's "mad money."
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rapid-fire calls, buy, buy, buy, sell, sell, sell. i don't know the callers or the questions ahead of time. when you hear this sound, then the "lightning round" is over. i want to start with carmelo in new york. carmelo! >> caller: jimmy! >> yo-yo, what's up! >> caller: i want to bring you a big buffalo, bring on the bulls boo-yah! >> all right. why not? i'll take it. what's up? >> caller: i want to thank you. i'm an action alerts plus subscriber and you've done well for me. >> thank you. >> caller: my question was on titan international, twi? >> yeah, if we're going to buy the auto parts, i'm always going to send you to meghna. i think meghna's better than titan. mga is your play. let's go to brent in texas? >> caller: boo-yah, jim. hello from irving, texas. >> you're where the action is, irving! >> caller: yes. sears holding, shld, what in the world is going within sears olding? >> eddie lampert trying to get
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the -- let's just say he's rationalizing the business. finally getting the stores that aren't any good, trying to bring the business model up to date. i think that the stock is a don't buy. because a lot of them is just a short squeeze at this point. you need to see real numbers. that's what moves stocks. jerry in florida. jerry?! >> caller: boo-yah, jim, how you doing? >> real good, jerry, how about you? >> caller: i'm wondering about apc. >> if you like oil, you'll like apc. it's that good a company. all that said, i went over the charts this weekend, had them delivered to my house, these charts are nasty for oil and gas, don't bulk up right here. let them come down more. let's go to charlie in florida. charlie! charlie?! >> caller: hello? >> charlie? >> caller: my name is charlie, yes. >> you're up, charlie, what's up? >> caller: i want to know what you think of cerner. >> cerner's much better.
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let's gone to stanford in oregon. >> caller: how you doing? >> good. >> caller: my question is regarding google. >> i think google is still good. i think they've really improved, they've really left everybody else in the dust and the stock is undervalued at a price to earnings multiple. let's go to steven in connecticut. steven! >> caller: boo-yah to you, jim bo. >> you too. >> caller: the stock is alrt. i bought it three years ago, i've doubled my money, got an 11% return, but the epa doesn't like coal -- >> i think you've got to move on. wasn't that really the takeaway of the american electric power interview we had on friday? epa, maybe starting to get to their senses when it comes to natural gas, but boy are they anti-coal. and that makes me want to take profits in your name. i say ring the register. john in alabama, john! >> caller: well, reporting to
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cramerica from southern headquarters in alabama, jim. >> that is our satellite office down there. what's up? >> caller: i'm checking on -- i'm checking on cisco systems. >> i think cisco's a buy. i think cisco's has a good quarter. seeing some teleco spending, i think cisco works. and that, ladies and gentlemen, is the conclusion of the "lightning round"! of that head? uhhhh... -i don't. -no. ♪ oh!, that's cool, like i said. sweet mamasita [ koch ] a good head on a beer tells you that beer was made with a lot of malted barley. and that's going to deliver a lot of flavor. [ cannon ] a good thick rocky head -- that's really releasing a lot of the hop aroma. you taste the barley, you taste the hops, feels bold. good head on a beer shows that you did your job right and it's going to add to the enjoyment of boston lager.
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what do you do when a company reports a blowout quarter and its stock shoots through the roof? that's the conundrum we face
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right now with red hat, rht. the cramer fave company that knocked the lights out last wednesday, causing stocks to surge. thanks to that move, red hot became the second hottest tech stock of 2012, up 47% year-to-date. right behind its colleague and partner, that's pretty darned impressive for a company that literally gives away its main product. it's the maker of lenox, the big competitor of microsoft. red hat, different model, totally, they give away the lenox software, to anybody, it's free think software. and they let you fiddle with the source code, but commerce have to pay red hat a regular subscription for support, like update and bug fixes, which happen constantly, because there's lots of developers on this stuff. businesses love red hat because the up-front cost is lower and the company is so adept at fixing problems.
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most personal computers run on windows, but the future is in the cloud, and red hat works on 80% of workloads. but it's not just their lenox building. they've been moving into other categories, all of which provide massive cross-selling opportunities that red hat's been exploiting aggressively. plus, red hat's core business, very much plugged into the big data biz. you know, that's another huge tech trend that we've been highlighting here. so what about the staggering increase in digital information produced worldwide, and the need to store, process, and analyze it. i've been a big fan of this company because its subscription-based business model means 85% of its profits are recurring. that should make it predictable, but red hat delivered a 2 cent earnings beat on a 27% basis, with stronger than anticipated revenues that rose 21.3% year over year, but the big surprise was red hat's increase in billings.
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the stock now up over 56% since the last time we spoke with the ceo in early october, as red hat become too red hot, or does the stock have more room to run? let's check in with jim whitehurst, president and ceo of red hat, to find out more about the company and profits. mr. whitehurst, welcome to "mad money". >> hey, jim, it's great to be back. >> jim, this was a monster quarter. i'm trying to get into the psychology of how a monster quarter could have been missed by many. because i've got to tell you, i expected big things from you and it seemed like wall street is just looking at a different model from what you're doing. you've been consistently saying that all these things can happen. they consistently underrate you and overrate your competitors. they overrate microsoft. why is it that they don't understand the power of your business model? >> well, because of the fundamental business model is so different. right? it's a very different model where rerely on broad the communities of users and the web 2.0 companies to develop our software.
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that means in the end, our cash flow characteristics are far superior to other companies with a different revenue size. which makes us much, much profitable from a cash perspective. so, obviously, we've been able to continue to grow that. and every year, the analysts seem to model that our growth rates get to decelerate, and we continue to accelerate over the last couple of years. that's really where the disconnect's been. >> well, i think that when i go through your xl website, you've got a particular analogy that i want to walk our viewers through, because it's the first time that i've used it, but you can really make a lot of sense for us. you say that you're like boeing. each iteration, they change a 747, but you've got to maintain the old boeings and introduce new boeings. why is that analogy a better analogy than what the analysts use, which frankly they're looking at it from microsoft or something. >> someone will pick a big smer, the new york stock exchange, when they spend hundreds of millions of dollars building a trading platform to set on that
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version of software, they want to make sure that fiver years from now and ten years from now, they don't have to change the underlying operating system. so we offer multiple versions against or software to make sure that people can run these big platforms for, you know, dozens of years. and so it's a big, big, big source of value, and it's very, very sticky to our big customers. i think that's a big source. the other source is that we're taking that same model and we're expanding into other areas. obviously, data is exploding. we've entered the storage market with a really disruptive storage platform, very, very similar to linux. think of it the linux for storage. and that market is growing dramatically, as people are storing more video, more audio. and so we have multiple revenue streams like that that we can do the same thing that we've done with linux. >> there you're talking about the gloucester acquisition? >> yes. >> but you didn't even have a lot of gloucester in this most recent quarter. and yet the analysts aren't really modeling in what this business can do. this is a 2012 business, this
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acquisition, right? >> absolutely, yes. we just acquired it, and you know or model, because of subscriptions, anything we did this quarter doesn't show up in revenues over the most recent quarters. so we see a huge opportunity there. we see a big opportunity in virtualization, continuing to build our middleware business on top of continuing growth along with the cloud of the core linux business. so we have multiple drivers of growth that together have loud us to accelerate our bookings growth. >> also, what i thought was interesting, you candidly admit that you're pretty far along with the investment banks, but you say that you're very early innings with the rest of the banks -- obviously, investment banks are only a handful of those. we've got thousands of banks. are you in, to be able to get those as customers? >> oh, absolutely. absolutely. in fact, really the best commercial bank customers for us are the ones that are integrated with investment banks. so the big investment banks have been using our systems to run their trading platforms for years, because it's faster. those banks are now saying they want to move all of their core
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banking systems on the retail side over, because not only is it faster, but it's also cheaper, and they've seen it can run the most mission-critical systems. so the entire banking sector on the commercial side is a massive opportunity. same thing on the telecos, same thing on health care. so we're going back to the early days of the linux business. >> you actually called out in that conference call that teleco hasn't even been spinning yet. that could be this quarter or next quarter's business. >> absolutely. absolutely. we have a lot of those core businesses, whether it's the core teleco billing and operating systems, the core banking systems, we're just scratching the surface on those. i actually was asked in the call, what quarter are we in linux, i said, we're probably in the third inning. we've a long way to go on linux. >> one last thing, because i know everyone will understand this. you've got a case study there about how dreamworks need to be able to do render forms, and the only way they could do it was with red hat. walk us through that, because if they don't understand an analogy
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or what you're doing with investment banks, maybe they will get with what you do with dreamworks. >> if anyone's done a home movie, recognizes that it takes a lot of computer power to put a regular home movie together. when you're rendering an animated picture in high-def, it takes literally millions, and in some cases, tens of millions of processor hours to render a full-length movie. so if you can imagine a studio like dreamworks needing to spend millions of processor hours, that means they need tens of thousands of processors running for many, many hours. and we have, by far, the fastest system, as well as the capabilities that allow them to run all of those in parallel. there's no other operating system that can do that. and there are myriad examples like that. obviously, movie studios are one and you can imagine huge render farms that are sitting there with computers, just whole data centers crunching away on that. same thing can be said with travel and when you go to any of the major travel sites and you're doing a search. >> you know that because you're from delta.
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>> absolutely. >> well, jim, unfortunately, i've got -- i have to wrap things up. but, you know, this is a joyful quarter for everyone who's ever listened to you on our show would know that you can do this quarter, but these highly paid, multi-million dollar analysts keep missing the story and they're going to miss it again, which is where the real opportunity is. jim whitehurst, ceo of red hat, thanks for coming on the show. >> thank you, jim. >> guys, we are in the early innings. we'll catch some bad day because of oil or because of europe, and you've got to be thinking about red hat when that happens, because this business is exploding just now. stay with whitehurst, rht, stay with cramer. sooo good. ♪ oh pepperoni ♪ makes all my subs-a ♪ taste so much bettah ♪ how much i love yah
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what do i think about avon? you give the company a new ceo, you move the colossally confident andrew young from any sort of role at all, you take the tough actions that are so necessary after years of mismanagement, and no takeover is needed to get some serious value creation here. of course, i'm reacting to the kraft's lowball bid on the table from the french fragrance company that gets avon back to where it was a couple of quarters ago, before the whole world knew what a wealth destroyer andrew young was. that being said, i think this stock would have been higher than the $23.25 bid if the board of directors had only taken the tough action that's so warranted here and given young the boot, rather than allowing her to hang on to her job until they find a successor. by getting rid of her months ago and bringing in a new ceo from outside the culture, the company would be in the position to buy cody. how terrible is young? a longtime denizen of the "mad
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money" wall of flame, she was fired in december, which precipitated a bottom in the stock. we only induct those executive that could instantly send their stocks higher simply by stepping down or being removed or wanting to spend more time unrequited with their family. we want them to take a real question, along with the permanent intellectual one they've been on. the problem here, as much as young may have been able to damage avon with what i guess were well-meaning actions, although if you deliberately tried to destroy the institution, i doubt you could have had the success she's had, there was plenty to work with. that's why i think avon was right to say no to cody and why i believe the company should go about another thorough, jungless search. and managed almost immediately to take the stock well above the offering price. avon too would be wise to stay
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the course and ignore cody's intentions. without jung at the helm, there's too much value. one, cody should be told no thanks. and two, i believe jung should be removed from all jobs and a new ceo brought in to right the ship. then and only then can avon restore its luster and experience the growth that others in the marketing industry have enjoyed during jung's simply abysmal tenure. stay with cramer. [ male announcer ] this is lois. the day starts with arthritis pain... a load of new listings... and two pills. after a morning of walk-ups, it's back to more pain, back to more pills. the evening showings bring more pain and more pills. sealing the deal... when, hang on... her doctor recommended aleve. it can relieve pain all day with fewer pills than tylenol. this is lois... who chose two aleve and fewer pills for a day free of pain. and get the all day pain relief of aleve in liquid gels.
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okay. we're back in the driver's seat. the united states is why we've got the best economic data, we've got the clearest vision of how to be able to grow without a lot of inflation, and that means you've got to stay long u.s. stocks. do i think it's a fabulous time? well, obviously the beginning of this year was a better time than the beginning of this quarter, but if we get weakness like we had at the opening this morning, i am now telling you that the weakness out of europe is buy, okay?


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