When is it enough already? When can we say, "You know what? I don't care. The stock's too cheap. It has to be bought?" Or when can we say, "Look out, that one's still radioactive."
This battle happens every day with individual stocks, and they can end up setting the backdrop for an entire session. Let me give you some cases in point so you know what I mean.
Let's start out with FedEx (FDX) . A prominent research firm came out today and cut numbers for FedEx, and lowered its price target. At the same time, the firm suggested that there is nothing new here; it's just the same old slowdown story, and it's probably in the stock. I read the piece as incredibly negative and thought, OK, here we go, they are going to take this sucker down again. What happens? FedEx powers up more than two bucks. Given the relentless decline this stock has had: $199 down to $152, before a little bounce up to $159, I figured the price-target cut and earnings reduction would knock the stock back at least to $157.
Nope. The stock rallies more than two bucks. To me that's a file away -- meaning that the worst may at least be over at FedEx, and the stock's now able to bounce on bad news.
If you think that the trade war with China could end, that says to me this stock may now be the one to buy, because even if estimates are too high, the stock might not get hit. The risk-reward is fabulous.
How about Salesforce.com (CRM) ? We have seen this stock get pummeled ever since the company decided to buy Tableau Software (DATA) . I think that this acquisition is brilliant, because it is what the customers wanted. I was with a tech guy just today who was raving about how easy it is to use Tableau Software to analyze trends. When you combine the data Salesforce gives you with the analytics that Tableau provides, it could be an unbeatable combination, or at least one that beats Microsoft (MSFT) , which is the biggest contender.
But people don't want to hear that. Investors have been fleeing this stock like there is no tomorrow knocking it from $162 to $139 over worries about dilution.
Now we saw a similar downtrend in Salesforce's stock when the company bought MuleSoft last year. Now that deal is one-third the size of this one, but the decline of Salesforce's stock lasted only a couple of weeks, and then it came roaring back.
Maybe it is too soon to buy Salesforce's stock. But I have simply been waiting for it to bounce to start forming a bottom. Looks like that might be starting just now. I think if you have been waiting to buy Salesforce's stock, tomorrow might be the day.
Or how about United Technologies (UTX) ? On Sunday this company announced a merger with defense contractor Raytheon (RTN) . It was a confusing deal, but it was also one that, if allowed by the Justice Department could create one of the greatest defense companies out there.
It was confusing for two reasons: one United Technologies is splitting up into three companies, a climate control company, an elevator company and an aerospace and defense company. Only the latter is merging with Raytheon, so there are a lot of suppositions of what the entity would be worth. It may just be too hard for most investors to even get a bead on it.
The second reason? Raytheon has been reporting a series of below-optimal quarters, because of some low-margin classified work, and because of some problems in missile manufacturing execution.
Yesterday we found out that notorious hedge fund manager Bill Ackman owns a stake and thinks the deal is troubling and told UTX chief executive Greg Hayes that he might have to fight the transaction.
The stock has now fallen $122 from $132, and today it has bounced a couple of bucks. At these prices, I think that you can buy the stock of United Technologies and get the three pieces, and then get Raytheon on top of that. In other words, I think the stock's gone down enough.
But you have to be so careful with sentiment-bottom calling. Take the stock of Facebook (FB) . I saw the stock go down today on news that Mark Zuckerberg knew about problematic privacy practices. When I read it, I thought I was reading an old headline, something that had run multiple times already. Same old, same old.
Well, that was sure wrong. The stock got rocked for almost $4. I couldn't believe it, especially because I thought that a piece of research yesterday out of MoffatNathanson suggested the impact of the negative news may at last be neutered.
Nope, this this is a story that, incredibly, still has legs. I am shocked that investors still care. Aren't they bored with this stuff yet? Unless they have a smoking gun memo about Zuckerberg demanding that all privacy is forbidden and that he wants an Orwellian, 1984 world coupled with a secret Stasi-like police force for all those who "like" anything, I know I don't care. I say you buy the stock now, because I know we are close to Facebook fatigue. Not yet, but good place to get started.
OK, how about this one: Lam Research Corp. (LRCX) . It makes semiconductor equipment -- the kind you need to make DRAMs and other kinds of chips. Today it got a downgrade, suggesting that there are some big-order pushouts. When I read it, I said tell me something I don't know. It seemed liked FedEx to me.
Turns out that was an ill-advised judgment. The stock gave up more than ten bucks. Unless the company pre-announces a shortfall -- always a possibility in the semiconductor world -- I have to think the bad news is in the stock at this point. The fact is, though, with tech there's always someone who doesn't know things aren't so hot and my knowledge that things are just OK there was simply too early, which is code for, well, "wrong."
Spotting a bottom is a very tough thing. You have to figure out three things: 1. How bad is the news really, in terms of actual estimate cuts?; 2. How primed is the stock ahead of it, meaning how much has the stock already gone down?; and 3. How clueless are your fellow shareholders? The real bottoms are spotted when the estimate cuts have been made, the stock's been softened like a beach before an invasion, and all the clueless hot money's gone.
That's a bottom.
Less than that? And you will be too early, which, alas, means you are going to get hurt.
(Lam Research Corp., Facebook, Microsoft, and Salesforce.com are holdings in Jim Cramer's Action Alerts PLUS charitable trust. Want to be alerted before Cramer buys or sells these stocks? Learn more now.)
