It’s time to take profits on a few of Cramer’s speculative technology picks, he said Thursday. The money’s been made, so investors should cash out.
Tech as a whole had taken a beating by the time Cramer had made his call, but Ciena, Skyworks Solutions, Tellabs and AMD had seemingly caught the worst of it. Going after a group of damaged stocks is a classic Mad Money investing strategy. It’s a field bet of sorts. The idea is that at least one or two will snap back enough to generate a decent return. But with tech bottoming just as Cramer made his call, all these companies have since rebounded nicely, earning 22.5% for buyers who owned all four.
Since these stocks were the worst of the bunch, they had the most room to move, especially because much of the bad news had already been priced in. Tech is a tough market right now, but Wall Street knows that. And there’s the fact that yearend tax-loss selling had pushed these companies lower than fundamentals required.
Now Ciena is up 42.7%, Skyworks 20.4%, Tellabs 14.2% and AMD 12.8%, all since Cramer’s initial recommendation (Dec. 12 for the first three and mid-November for AMD). Smart investors would bank those profits, or at least recapture his or her original ante plus a little extra. You want to be playing with only the house’s money going forward.
This trade is very similar to one Cramer executed back in 2002. He bought telco-equipment makers Lucent (before the Alcatel deal), Nortel, JDSU, Corning and Qwest. The difference is that these companies’ customers, the telco carriers, are in much better condition today. Network capacity is right-sized, companies are maintaining tighter inventory, and vendors are more focused. That didn’t stop Ciena, Skyworks, Tellabs and AMD from dropping back to 2002-2003 levels, though. But with strong demand for high-definition content, faster data services, better broadband networks and newer smartphones, all of these stocks were able to regain their losses.
This was, however, a pure speculation play. And there have been signs – a profit warning from Intel that’s bad for AMD, a pending earnings report from Skyworks – that the upward trend in these stocks could be over. So Cramer recommended that investors lock in their gains before that happened.
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