Another fine secondary awaits in Carrizo

The share offering from the energy company should be every bit as successful as those of Yelp and Western Digital.

By Jim Cramer Nov 5, 2013 11:13AM

TheStreet.com logoImage: Oil derricks (© Comstock/Corbis)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.

Jim Cramer's headshot


At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the securities mentioned.




More from TheStreet.com

14Comments
Nov 5, 2013 1:17PM
avatar
Yelp is a modern day version of the old school protection racket .....if you advertise with them you can control poor reviews if you don't you are SOOL .......

Check out the insider selling and see how much max levchin and jeremy stoppleman ("friends" of cramers no doubt) are taking out of this company each month.

Cramer gets more "assured" the closer the market gets to "fleecing time" so caveat emptor !! 
Nov 5, 2013 1:18PM
avatar

No Tweedledee, Tweedledum & Tweedledumber this morning ?
Nov 5, 2013 11:26AM
avatar
I'm going to have my own issue.  It will be called Success Technology.  I will build nothing, offer nothing, and promise everything.  But I will offer Yelp employees a third of the shares to carry me through with a positive recommendation until after the intitial public offering.  Yes I am an American success story you can believe in.  You must  buy my stock before it gets too expensive or then you will be unable to afford it.  So act fast and not be left out in the cold.  Immediate purchase is your safest action for financial independence. There we go,  Wall Street in one paragraph.
Nov 5, 2013 11:49AM
avatar
These ads paid for by Cramer's latest buds! 
Nov 5, 2013 11:44AM
avatar

I'm always a bit skeptical of "follow-on" offerings, not much different then splitting a stock..

It's a dilution factor to dropping the value of the share price...

And in most cases the people to reap the bounty, are:

The executives and owners..

And the banks carrying the deals..

Some advantages to existing shareholders, if they bail on the stock well in advance of announcements.

Cramer may have some good points, but also bad that aren't being mentioned..

And like with a scenario that NTU mentioned is the reasoning for myself being skeptical.

Nov 5, 2013 2:59PM
avatar
Hi, ho Merryday....More fun to gloom...
Nov 5, 2013 12:01PM
avatar

And our old friend (?) Antman Mirhaydari pops up with a general article...

But kind of about the "Ides of November"...or the "Winds and Storms of November.."

And the Church bell rang 29 times..

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

125
125 rated 1
267
267 rated 2
455
455 rated 3
612
612 rated 4
682
682 rated 5
695
695 rated 6
632
632 rated 7
472
472 rated 8
279
279 rated 9
147
147 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
VZVERIZON COMMUNICATIONS9
TAT&T Inc9
CTLCENTURYLINK Inc8
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.