3 perfect stocks that morphed into lemons

None of these names would be problematic in a more hospitable environment.

By Jim Cramer Jun 5, 2013 9:32AM

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Stock market report (© ULTRA.F/Digital Vision/Getty Images)It's funny how strongly the tape can color your thinking. I had the CEOs of three terrific companies on "Mad Money" Tuesday night, and each of their companies, in its own way, is problematic at this moment -- but none would be in a more hospitable environment.


First, there's Salesforce.com (CRM), which just signed a deal to buy ExactTarget (ET), the premier digital marketing company, for $2.5 billion. That's a 53% premium to ExactTarget's closing price the day before, but this is a company that definitely complements Salesforce's existing business.


Sure enough, the market viewed that purchase as a huge overpay -- plus, Barron's came out with a very negative article about what would happen if Salesforce.com had to replace its stock-based compensation with cash. That all shook the stock to its core, despite the company's guide-up in its earnings report just last week. It didn't matter that SAP (SAP) and IBM (IBM) had both been rumored to be buyers, and that this would have been a setback for ExactTarget, which has partnered with Salesforce.com in many situations. It didn't matter that ExactTarget has almost nothing overseas, and that Salesforce.com can plug ExactTarget's best-in-class technology into its huge foreign network.


What mattered was that Salesforce.com -- with its 30% growth rate and terrific operating cash flow -- was now down 20%, trading like a broken growth stock, because it failed to beat and raise huge as it has done so many other times.


Or let's take Radian (RDN), the mortgage insurer. Here's a company that's a gigantic beneficiary of the housing revival: Many of the so-called bad contracts it had written on homes before the crash are now coming back to life, which is no doubt leading to reversals of reserves. As the losing policies roll off, they're being replaced by new business of considerable size, given that Radian is now the biggest player and home sales are picking up. Radian is setting up for a gigantic 2014.

But mortgage rates have ticked up, and that's enough to frighten away the buyers. That's despite the fact that the company just took a look at May and said it was the best month ever, while CEO S.A. Ibrahim has noticed no decline in home-buying because of the rate back-up. So Radian just looks like a stock that's run up huge and is ahead of the fundamentals, even as the fundamentals are literally improving by the day because the bad business regularly rolls off.


Then there's AMN Healthcare Services (AHS), a $600 million company that's a one-stop shop for all of the staffing needs for hospitals -- a terrific story that should get better with age as we go into Obamacare and more and more people become elderly because of the nation's changing demographics. This is a terrific little company that's the largest in its industry with a very bright CEO, Susan Salka, and an even brighter future.


Many businesses will be challenged by Obamacare, but hospitals are not one of them -- and when they need doctors or nurses and don't want to put them on full staff, they will call AMN Healthcare. I found myself wondering why this stock's market capitalization is only at $600 million, as this company's total addressable market is huge and it's recognized as best in class in the industry.


But then I thought about it and recognized that, with a tougher market, no big mutual fund is going to want to get trapped in a junior growth stock with no place to go if things go wrong. Stocks like AMN are magic-carpet rides until they become roach motels when the tape morphs from glorious to toxic.


Salesforce.com, a cloud play; Radian, a housing play; and AMN, a healthcare play: These stocks were all perfect just a few weeks ago. Now they're facing challenges as the buyers reassess their commitments and sellers ring the register.

 cramer

 

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and has no positions in stocks mentioned.

 

 


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83Comments
Jun 5, 2013 12:21PM
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If we want jobs in America we must change our tax system!!! Taxes have got to come off business. If tax are take off business jobs and money will move to America in a big way.

 

Final consumption sales tax only - no person or item exempt. However, there are major political problems.

1. Congress doesn't want the American people to know the real cost of government. That would take power away from congress.

2. The American people want to believe they are getting government programs for free. There is a real question, do the American people have the guts, intelligent and the moral structure to face the real cost of government.

3. If you calculate the cost of local, state and federal government it takes up a large amount of our per capita income. I did this for my state. Local taxes were 5%. I consider this a good buy. State taxes is 25% of per capita. This to high and will cost the states economy. Federal tax is 30%. If we add a payoff of the federal debt (15 years, 5%, 17 trillion pay off) that adds another 14%. Then you have to add in inflation 10%. As you can see the real cost of government and inflation is 84% of per capita income. When you buy $100 in groceries and the clerk adds $74 plus inflation the sh*t will hit the fan!!! We maybe better off just going bankrupt!!!

Jun 5, 2013 1:28PM
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Very glad I took some profits last month, diversified some more, any correction or what ever will hurt me much less this time.  Also, t-minus 10 months until my family and I are mortgage free!!!!!!!  That is our last debt and it will be gone!!!!
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Cramer the stock market is doomed to collaspe ..

 

It's a case of the Death Spiral of Lost Jobs and an ever weaker and weaker economy. Pretty much take out the top 10 percent of the wage earners and we are in a Greatest Depression Cramer. No matter how much money Bernanke throws at the super rich main street is a total disaster.

 

Quote

The report says the country simply isn't creating enough good jobs.

End Quote

 

I have been telling them that since 2008

 

Jun 5, 2013 11:13AM
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Cramer's idea of a "perfect" stock does not include an analysis that confirms long-term prosperity, it's all short-term stuff.  Perfect stocks that became lemons include Sara Lee, Montgomery Ward and J.C. Penny, not this collection of hot-then-not stocks.

Defining perfection based on short term metrics is why Cramer  beat the S&P 500 by only 0.9% over a decade where many of us who bought "boring" stocks with proven, predictable, slow-growth records that you can NOT dance, break, scream, climb on tables, and point fingers about on TV, like Abbott Labs, General Mills, Exxon, Caterpillar, etc. typically beat the market by 25% over the same period.

Jun 5, 2013 10:08AM
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Doing due diligence is like an athlete practicing.  Seems the more practice the better the performance.  Due diligence is the same and results seem just as connected when picking a Company's stock.  Like the game of golf, those who show up at the course or range, practice, discuss different aspects and philosophies with their Pro or buddies all seem to show up at the top of the money list at the end of the day.  Stock picking is no different.  Those who show up here or somewhere every day, due their due diligence, talk and listen to others all seem to end up making more profits at the end of the year.  We who do such things all have a built in loss acceptance where we know we can't be right 100% but believe in our bones that if we work hard, suffer a bit, fail on occasions,  we will succeed.  So Jim having a few stocks morph and turn a bit sour are all normal parts of this game and many others.  You can strive for perfection but most know achieving it is most improbable in the short run and impossible in the long run. The secret is learning from our mistakes, not beating yourself up too bad, then moving on looking for a better day.   And yes there are several who come here everyday whose work ethics I admire.  Tog, Ice, Steve Chris, 4LM, V.L. Brutus, doda, Dlh2448, and damn I know I missed  many.  Their passion and youthfull interest never wanes.  I know these folks know of what I speak and are able to move on after a setback and find a better day, much like you are talking here Jim. JMHO
Jun 5, 2013 11:54AM
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So Re-Tog - good advice an all but basically I am here because I think cramer is a crook who essentially cons people out of money selling his newsletter .....all I am doing is giving my review of his advice - people are free to do whatever they want - but before they pay $700 a year I would suggest they look at his returns - last time I checked he had basically made nothing in 12 years on a fund that started AFTER 9/11 when the market was at an all time low !!  Not very good right ----

This is also a man that said there is no housing bubble in 2007 (WTF) --- said EVERY sub prime mortgage in America could go bad and it would not affect the economy -- said angelo mozilla of countrywide was a great CEO as he was bleeding his company dry .....

Bobo numnutz wants to post in public then it's "slings and arrows" time !!  : )
Jun 5, 2013 11:29AM
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I was going to look up the dates on the U.S.S. Pueblo; So I could play this game...BUT,

I'm just too lazy to do it...

Jun 5, 2013 1:29PM
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Hey............. V_L worked her magic and turned the "Bandwagon" crowd into the "Chuck Wagon" crowd.............. let's eat. How do you like your rich man cooked?
Jun 5, 2013 4:00PM
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Crap.......... and I just got my Dow 15000 cap in the mail from Regal.
Jun 5, 2013 2:56PM
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Think I made #100....My work here is done...

Lesson learned: Never talk to a woman in a knit dress, with nipples protruding and other stuff that looks like fuzz.....It just doesn't work out well...imo.

 

All this talk about Vegas...Think we will hit Casino again tonight..

We have about $55 in "free play" and another $30 bucks in "food comps"..Dinners are on me..

Last trip, I won $25-30...Miss Lilly lost $30....

It was a good night and we got two free gifts for our Christmas stash....Life ain't too bad.

Jun 5, 2013 2:23PM
Jun 5, 2013 1:09PM
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Barry, I own the bluest of blue chip stocks.Even when the market was down 37% when

your buddy Bush pretended to be pres. they did fine.With the stock market, I`m playing

chess, when most people are playing checkers.You`ve been saying all along, the market

doesn`t matter.Live in that fantasy world.I`ll continue to cash dividend checks weekly.When

the market is back up you won`t mention stocks.Just stay in CD`S and be thrilled to get

1% on your money.Denny`s awaits you.

Jun 5, 2013 11:15AM
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I think that Cramer has morphed into a cartoon of himself.
Jun 5, 2013 5:05PM
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Barry, I admit that DODA goes over the top.There`s wingnut in every party.I have relatives

that claimto be Dems and yet they never vote for Dems and could easily support Hitler

for Pres.People have forgotten what conservative means.A concervative would conserve

the environment,conserve the military,conserve the budget,etc,etc.Like Teddy Roosevelt.

I don`t see any Republicns like that.

Jun 5, 2013 11:50AM
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NTU....Thanks for the kudo earlier..

Passion I do have, along with conviction..For self serving purposes and family.

My work ethic today, would probably not be desirable compared to 15-20 years ago..?

Today I work for myself as a self directed investor, or Garden and lawn caretaker..

And of course, a never ending remodeler of a home....Plus a collector of mostly junk.

Life is good when you fully retire, You can make out of it, what you want..Alleviate STRESS.

I don't worry about weather or conditions, appointments or other committments..

There is always tomorrow, which might be a better day.?

We do what and when we want....And we are comfortable, especially myself with what we have.

The sooner a person can enjoy their lives the way they want or can, the better....IMO.

Jun 5, 2013 2:47PM
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I dunno, but in Vegas years ago, it was 104* at 1 o'clock in the mid of the night...

 

But waiting to catch a bus downtown, standing next to me was a young lady in a large squared knit dress..Just the dress, nothing else...And Miss Lilly wasn't too happy when I started chatting with her.

Jun 5, 2013 2:18PM
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Well, I dunno.  The Dolphin Bar at the Mirage swimming pool is one of my favorite places in the world.  Smoke a cigar, read the paper, drink Blue Hawaiians, and watch the pretty girls.

 

 

Jun 5, 2013 1:29PM
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Barry, when you own the bluest of blue chip stocks,it`s not gambling.It`s a slam

dunk.I was well off because of my job, but, the market has made me rich.You could

learn a lot from me.

Jun 5, 2013 2:51PM
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On June 8, 1967, US Navy intelligence ship USS Liberty was suddenly and brutally attacked on the high seas in international waters by the air and naval forces of Israel. The Israeli forces attacked with full knowledge that this was an American ship and lied about it. Survivors have been forbidden for 40 years to tell their story under oath to the American public. The USS Liberty Memorial web site tells their story and is dedicated to the memory of the 34 brave men who died.


The Attack

After surveilling USS Liberty for more than nine hours with almost hourly aircraft overflights and radar tracking, the air and naval forces of Israel attacked our ship in international waters without warning. USS Liberty was identified as a US naval ship by Israeli reconnaissance aircraft nine hours before the attack and continuously tracked by Israeli radar and aircraft thereafter. Sailing in international waters at less than five knots, with no offensive armament, our ship was not a military threat to anyone.

The Israeli forces attacked without warning and without attempting to contact us. Thirty four Americans were killed in the attack and another 174 were wounded.   The ship, a $40-million dollar state-of-the-art signals intelligence platform, was later declared unsalvageable and sold for scrap.



The Cover Up

Despite a near-universal consensus that the Israeli attack was made with full knowledge that USS Liberty was a US Navy ship, the Johnson administration began an immediate cover-up of this fact. Though administration officers continued individually to characterize the attack as deliberate, the Johnson administration never sought the prosecution of the guilty parties or otherwise attempted to seek justice for the victims. They concealed and altered evidence in their effort to downplay the attack. Though they never formally accepted the Israeli explanation that it was an accident, they never pressed for a full investigation either. They simply allowed those responsible literally to get away with murder. 

In an ongoing effort to reveal the truth about the attack, the USS Liberty Veterans Association has filed with the Secretary of the Army in the manner prescribed by law a detailed, fully documented Report of War Crimes describing the circumstances of the attack on our ship and evidence that it was a crime under international law. In accordance with international law and treaties, the United States is obligated to investigate the allegations. So far, the United States has declined even to acknowledge that the report has been filed. 


Jun 5, 2013 11:56AM
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And yes there are others who suck (monica)  but Bobo is the Queen - he shouts loudest and longest that he is right - even when he knows he is full of **** .....

Off to catch a flight to rainy ole tampa bay !! 

Happy Trading .....

QID calls - up 30% this week!  It's nice to go against Bobo's "advice" ..... 
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