Cramer: Sometimes the Market Just Doesn't Seem Fair

 | Oct 24, 2016 | 4:11 PM EDT
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,We have three markets going on here all masked as one. First, we've got the stock market that seems heavy every day with most stocks headed down because they are considered overvalued and often are. Then we have the overvalued stocks that people can't live without. And third, we have the stocks that actually represent living, breathing companies, no companies hostage to the market's gloom or the Fed's on-again-off-again pronouncements. They all combine and on days like today, the bulls win out.

Let's start with living, breathing companies because that's all people were talking about today, namely the merger between AT&T (T) and Time Warner (TWX) . I will describe the merits of the deal and what I think you need to do about both of these stocks, but I want to raise a larger point. Jeff Bewkes, the terrific CEO of Time Warner, has been arguing for years with Wall Street that his company is worth substantially more than what it has been selling for.

And while the stock's been a good one, candidly, it traded at what I thought was a discount to what it was worth because Wall Street has a bias against networks and movies. The network bias has to do with time-shifted programming and cord cutting. The younger generation just doesn't watch TV the way the older one does. And with a bunch of programming that Wall Street believes to be less relevant and easily skipped, the notion of the advertising dollars going away just couldn't be shaken -- no matter how Bewkes explained that there was tremendous value in the enterprise. Plus, Wall Street regarded studio content as too episodic in success to judge even as Time Warner's been a long-term hit machine.

One by one, he shed the parts that he thought kept valuation back (AOL, the actual cable company and the physical magazines) allowing the goodness of the crown jewel, HBO, to shine through.

It seemed for a moment that all of Bewkes' hard work would go to naught because with the restructuring at last complete, Rupert Murdoch's Twenty-First Century Fox (FOXA)  snuck in with an $85-a-share bid, $20 more than where the stock was trading. Bewkes thought it was highway robbery and refused to negotiate, which caused Fox to go away. Subsequently, the stock enjoyed a good run, going a few points past the $85 bid, but then it fell back to the $60s on the same old worries last year. At no point would Bewkes waver about the valuation, spurring calls to break up the company or do a tracking stock that would show the unlocked value of HBO. I know he got frustrated with Wall Street for not seeing all the good news when the stock languished in the $60s. But in the end the man was dead right. Patience yielded a $107.50 bid, more than $20 higher than the Fox foray, and while the stock's a far distance from that, if the deal goes through you will get that amount.

Here's the point. Wall Street, in retrospect, completely mis-valued Time Warner as an enterprise. The stock did not reflect the company's worth because the ultimate arbiter is another acquirer, not the fickle nature of buyers, sellers, index funds and doubters of the strategy that this great American company has come up with.

I would argue that, to a much smaller extent, the stock of BE/Aerospace (BEAV) , which also got a bid today, simply didn't reflect all the good of BEAV, the primary maker of aircraft seating, lavatories and galleries. The stock of this excellent company has been hovering in the high $40s for ages. Why? Because the market thinks the aerospace cycle has peaked and that everything in it is overvalued. But if you are Rockwell Collins (COL) , an aircraft parts supplier, BEAV represents a chance for you to combine with another supplier to take out costs and have one strong salesforce calling on Boeing (BA) or Airbus or Bombardier.

That's how BEAV gets a $6.4 billion bid, valuing the company at $62 a share.

Both companies simply were worth more than they were selling for.

Then there are the overvalued stocks, the ones that the market loves because they have such growth. Action Alerts PLUS holdings Facebook (FB)  and Alphabet (GOOGL)  as well as Amazon (AMZN)   come to mind because they are regarded as companies that are what we used to call category killers. If content is king, all three have the kind of content that you can't get enough of, supplier and user-generated free content or content they pay you to list that doubles as advertising spend. None of the networks offers that kind of product. So they are charmed. Just loved. They get bought on every dip.

Finally, there are the companies that generally have to suffer through the hazards of just being enterprises that are valued off what the Fed says and the direction of interest rates.

Companies like VF Corp. (VFC) and Kimberly Clark (KMB) , which issued results that were, quite simply, disappointing. VF, the apparel company, guided down sharply and showed weakness in almost every line but especially North Face and jeans. The former may have been hurt by weather, but I think the brand has peaked. The latter? We recently had Levi's on and we speak to PVH (PVH) , which makes Calvin Klein jeans, and I think VF has lost a step or two against the competition.

Kimberly Clark? Gee, that was a downer of a call with weakness pretty much across the board. There was very little growth in any business and the organic growth numbers were flat because, as CEO Tom Falk said on the call, the numbers "reflected a more challenging economic and competitive environment. We just don't tend to think that can be the case when you are selling Kleenex and diapers." Falk -- point blank -- said he wasn't satisfied with the growth and said things will improve but, frankly, it's hard to believe anything's about to turn here. Just stunningly disappointing.

How disappointing? It caused people to circle back to the stock of PepsiCo (PEP) , which is now looking like it is among the lone consumer packaged-goods companies with fantastic actual top- and bottom-line numbers with some very strong organic growth. That's how its stock could rally more than $2. The charitable trust, which you can monitor by reading Action Alerts PLUS, owns PepsiCo and I don't think it is done going higher.

Of course, there are other companies that get revalued up on a different day, too. If AT&T hadn't bought Time Warner today, you know what we might be talking about? How about how T-Mobile (TMUS) crushed AT&T and Verizon Communications (VZ) and added far more subscribers than anyone thought. As one of the most aggressive competitors of our time, CEO John Legere, said on his call, "We delivered the best results in the industry again and we beat the competition in key metrics such as net postpaid phone customer additions, prepaid additions, service revenue percentage growth and adjusted EBITDA percentage growth, just to name a few."

In other words, T-Mobile took no prisoners, including those of Verizon and AT&T, the latter of which is losing customers. And we wonder why it had to go big. It's otherwise going home.

The market, to me, does seem unfair on days like today. A fine exec like Jeff Bewkes shoudn't have to wait for years until the value is recognized on Wall Street. The lack of valuation parameter ceilings of a Facebook or an Amazon galls and stuns to all other execs (with the exception of Tesla's (TSLA) Elon Musk) who are bound by the four walls of the spreadsheets and the mundane prosaic questions about earnings per share and price-to-earnings multiples.

But then you do get a Legere who's rewarded for his good works with a stock that's gotten too high to be bought by other companies because he's been phenomenally successful at bringing out value in the here-and-now regardless of the Fed or interest rates or the competition of others in his space.

It's a panoply -- an upsetting one at times -- but what we are stuck with. Rather than denigrating it, though, I think today's a lesson in patience. Those who wait were rewarded big today, except if they backed the most impatient T-Mobile, where the future, most clearly, is now.

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