• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Jim Cramer

Jim Cramer: The Market's Judgment on Price Isn't Perfect

Wrong valuations -- such as those in Conagra Brands and Rite Aid -- exist, and they can make you money.
By JIM CRAMER Dec 19, 2019 | 01:57 PM EST
Stocks quotes in this article: CAG, RAD, CVS, WBA, AMZN, VIAC, FB, GOOGL

Once a month I do a conference call for the Actionalertsplus.com club and my most recent theme centered on the idea about how wrong the market can be about how stocks are valued. It's a controversial thesis: Stocks are supposed to represent the value of future earnings power and how much you should pay for them. The conventional texts say that because everyone has the same information about a company, the market's judgment -- the sum of all knowledge -- is perfect.

But almost every day we see imperfections that can make you fortunes if you just lose the idea, or I should say, the nonsense, about the perfect information thesis.

Take Thursday.

In the morning Conagra Brands (CAG) reported. Right about now one year ago Conagra missed the quarter big time. The judgment at the time? Conagra had bought Pinnacle Foods for $10.7 billion back in June of 2018 and judging by how poorly some of the Pinnacle Brands performed, Conagra had gotten had. It had bought a bunch of has-been brands like Wish-Bone salad dressing, Duncan Hines, Hungry Man, Aunt Jemima, Lender's, Mrs. Paul's and most importantly Birds Eye vegetables.

At the time the Conagra people were steadfast about the acquisition saying that it built out their frozen food presence. It made them the number two in the froze aisle which was incredibly important because millennials crave frozen food because it's cheap and can be heated up at the drop of a hat. The issue was that Conagra management simply hadn't had a chance yet to reinvent the brands using the "Conagra Way."

I spent a lot of time with CEO Sean Connolly and his team and I came around to the fact that the market had way too little faith in these guys and it was just plain wrong to put them in such a penalty box.

The company Thursday reported a quarter and it was magnificent, now that the Conagra Way has had a chance to work its magic. That's why the stock had rallied an astounding $5 or 17%. I expect to hear much more about this triumph over the skeptics when the company attends the Consumer Analyst Group of NewYork or CARGNY conference in mid-February and it would not shock me if the stock weren't substantially higher by then, given how off the market was in its calculations.

You want to know another totally mistaken valuation? The valuation of Rite Aid (RAD) . Last night I took a caller on Rite Aid and actually made fun of the company, saying it simply could not be bought. I had thought it was getting its clock cleaned by Amazon (AMZN) , Walgreens (WBA) and CVS (CVS) . I could not have been more wrong. It delivered better-than-expected numbers and the stock went wild jumping 42%.

You see the conventional wisdom, which I certainly represented, was so sick of the management changes, the competition, the balance sheet, you name it. What I didn't count on besides them actually eking out a better number was that there are a huge number of shares sold short in the stock, about a quarter of all the stock that's traded. So when it didn't blow up you got a short squeeze of humongous proportion, propelling the stock far more than it would normally go.

Misvalued to the max.

One more to consider, a company with a stock that is just starting to be valued correctly: ViacomCBS (VIAC) . In my last club conference call I talked about how the merged company is entirely misunderstood and the notion that it should sell for six to seven times earnings is insane. Now it's moved up to eight times earnings, but in an era where content is king and so many companies need something to stream, what could be better than having Paramount, CBS and the CBS library of reams and reams of shows.

Why is it misvalued? I think that people are too worried about Facebook (FB) or Alphabet (GOOGL) or Amazon (AMZN) buying the rights to the sporting events that CBS treasures, especially the NFL. But CEO Bob Bakish made it clear on "Mad Money" that the NFL actually cares tremendously about how games are televised and it regards CBS' coverage as something that can't be replicated.

I don't see it getting a market multiple, but this discount, which makes one of the cheapest stocks in the entire S&P 500 is unwarranted.

Misvaluations exist. And they make you money. The easy money's been made in Rite Aid. The harder money's being made in Conagra. And you are just starting to make it in ViacomCBS. So why not go along with the club for a ride?

(AMZN, VIAC, CVS, FB, GOOGL are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells them? Learn more now.)
Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
TAGS: Stocks | Food & Staples Retail | Retail | Agriculture | Jim Cramer |

More from Jim Cramer

Jim Cramer: I'll Put My Money With 'Boring but Lucrative' Any Day

Jim Cramer
Sep 29, 2021 1:28 PM EDT

Let's look at that recent downgrade of 'dull' Morgan Stanley and see why exciting is best left for the stadiums and amusement parks -- and not stocks.

Jim Cramer: America's Toughest Job? Finding Workers

Jim Cramer
Sep 28, 2021 12:17 PM EDT

It's the question of our time: Where are the people willing to take on these better paying gigs? Let's see what's going on and what we need to happen.

Jim Cramer: Here's How Analysts Can Be Off By a Wide Margin

Jim Cramer
Sep 24, 2021 12:02 PM EDT

Let's look at the reactions to Nike, Costco and Salesforce to see what happens when they're viewed from a real world perspective.

Jim Cramer: It's Pure Insanity That We Don't Make Chips Here in the U.S.

Jim Cramer
Sep 23, 2021 11:05 AM EDT

While the big guns meet at the White House about the global chip shortage, the president and these companies are approaching this all wrong.

Jim Cramer: Go Ahead, Have a Cow, but I Say Powell and Xi Are Bulls

Jim Cramer
Sep 22, 2021 3:51 PM EDT

We rallied, because China's President Xi and Fed Chair Powell made decisions that they knew would lead to rallies.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 11:45 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Bulls, Bears, and Market Predictions
  • 11:31 AM EDT CHRIS VERSACE

    We're Adding to a Position on Weakness

    Check out what's going on in the Action Alerts PLU...
  • 07:19 PM EDT CHRIS VERSACE

    AAP Podcast: This Company Is Not Going 'Solo'

    Listen in as I talk with the very diversified Solo...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login