Cramer: Another Fine Secondary Awaits

 | Nov 05, 2013 | 7:25 AM EST
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You can judge a great market by its secondary offerings and the reactions to them. Take two deals from last week: Yelp (YELP) and Western Digital (WDC), each of which sold shares at $67 apiece.

I am a huge fan of Yelp. Of all the recent underwritings, Yelp may have the most powerful mobile offering -- one that is rapidly becoming the preferred way to access the site, since you can now write reviews while on the go. Yelp is expanding quickly worldwide in order to box out others who might have the idea of going in against it, and this is something I love, because it reminds me of Amazon (AMZN) during the old days. Yelp is rapidly building out its international presence and, like any great regional-to-national-to-international story, it is getting terrific traction.

I love a model like that of Yelp, which is built on user content. Yelpers write reviews on companies that need reviewing and want traffic place advertising, so all of this creates a virtuous circle. I know from my co-ownership of the DeBary Inn, located down the block from me, that Yelp reviews can make or break a service business. Yes, it is that powerful a force.

Yelp is indeed a global, online yellow pages. The opportunity is so great for this company that I actually told you the company would most likely do a secondary in order to raise some money -- and I said not buy the stock until it does, but to pounce when you see it. Of course, last week Yelp reported spectacular 68% revenue growth, as well as $8.1 million in adjusted earnings before interest, taxes, depreciation and amortization -- a 270% rise from the prior year. So when it also filed an offering, people ran from the stock.

But that's where the opportunity came in, and the $67 pricing made for a terrific buy, one that I think will stand up over time.

Turning to Western Digital, a year ago the company bought Hitachi Global Storage Technologies from Hitachi with 25 million Western Digital shares. The stock has appreciated 80% since then -- in part because of the Hitachi division, as well as a buy of Stec for $340 million in cash -- as the company endeavors to expand beyond just the traditional hard drive business.

So Hitachi decided to ring the register on 10.9 million shares. Made sense. The stock was at $73 at the time, and the shares priced deliciously in the hole, $6 below that. Again, it was a fabulous opportunity, as Western Digital shares sold at about 8x earnings at that price, and the stock is doing much better than it used to do because of the higher margin change in the mix.

Now, we have a new deal filed Monday night for Carrizo Oil & Gas (CRZO), 3.75 million shares to help finance acquisitions and drilling in the Eagle Ford and Utica shales. Carrizo reported record revenue and record adjusted net income when it filed earnings Monday evening. It also posted an amazing 41% production increase in oil as the company shifts dramatically and successfully away from glutted natural gas.

Now, I am sure people are disappointed that the company is selling stock, because they are always hopeful of takeovers with these smaller independents. But, that said, this is company is on a major growth path. Also, I love equity vs. expensive debt, which is what wildcatters still have to pay.

I say this Carrizo offering will be every bit as successful as were those of Western Digital and Yelp. Best of all, you will be able to get some at a terrific price, at much lower levels than you would otherwise. A third successful secondary is in the offing.

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