Sometimes we make picking stocks much more difficult than it needs to be. Jim Cramer saw a classic case of this scenario with AOL and Verizon.
On Tuesday morning, Verizon announced that it would be buying AOL for $4.4 billion, or $50 a share. (Tweet This) And despite the fact that last week AOL reported an amazing quarter that showed all of CEO Tim Armstrong's hard work paying off, Wall Street still wanted nothing to do with the stock even though the positives were staring at it right in the face.
AOL proved that it has reinvented itself, with a transformation from an old dial-up internet provider into a company with various attractive online properties. These include the Huffington Post, TechCrunch and Engadget websites, which would help to give Verizon the edge in video that it is looking for.
Cramer is always looking for companies that have products that work on a cellphone at least as well as they do on desktop. This is the primary reason why he is a believer in both Facebook, and also believes that Twitter might be able to figure out how to monetize itself and why Yelp will ultimately be taken over.
"It is also why I had such high hopes for AOL after its latest quarter when I saw how mobile was truly taking off for them, including mobile video," Cramer said.
In the company's release Armstrong shared how AOL has managed to grow its consumer base strongly, especially in the area of video, mobile and programmatic advertising. This might sound like typical CEO conference call jargon to some, but Cramer recognized that perhaps AOL is on its way to be a real alternative to Google when it comes to advertising technology that works with video.
"In other words, Armstrong cracked the code of how to make money from video online," he said.
So then what happened?
An analyst from the research firm CLSA downgraded the stock to a sell from a hold, based on the rapidly declining AOL desktop business, and the reasoning that its aggressive promotional tactics from the quarter's strength are not sustainable. Yikes!
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However, the CEO of Verizon, Lowell McAdam didn't let that deter his opinion on AOL. He didn't care about the declining desktop business, because he is all about mobile and he realized that AOL held value from its online video. This was perfect for the wireless provider that is looking to expand into content and production.
"Sometimes you just have to believe. You have to trust," Cramer added.
While AOL made a compelling case on its conference call, it was quickly torn down by Wall Street research. Fortunately, McAdam ignored those sirens and the shareholders who believed in Armstrong are all richer for trusting the man who saved AOL.
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