Cramer Explains Stanley Black & Decker's Bogus Sell-off
Tensions are running high this earnings season, but investors should remain calm and reject the impulse to buy during the peak of it, Jim Cramer said Friday on CNBC's "Mad Money."
The main stock in question? Stanley Black & Decker, which plummeted 7 percent Tuesday after the company reported earnings. "This was a totally needless sell-off caused by a bunch of quick-draw McGraw traders who couldn't bother to wait for the conference call," Cramer said.
The "Mad Money" host loves the stock himself and bought it last year for his charitable trust as a play on both the housing bottom and on improvements in manufacturing activity. He also said Stanley had a fabulous management team with massive merger expertise and a "pretty darned cheap stock," selling at 11 times next year's earnings.
But Tuesday's sell-off was spurred on by an excessive runup early on and by over-the-top expectations.
Ahead of earnings, people were expecting great things. Stanley had run up 31 straight points, or 66 percent, from the lows of last October, and the stock had rallied 16 percent year-to-date. Investors were looking for a beat and raise, helped by warm weather and a handful of strong economic data and retail sales.
So when the company failed on both counts — coming in three cents shy of $1.12, reporting revenue that was in-line with analyst estimates and projecting growth of 10 to 15 percent — the stock got pounded.
It didn't help that the company also withheld its conference call until the next day, which then sparked some misguided speculation. "The company's moronic policy of holding the call the next day made it much easier for people to shoot first and ask questions later," Cramer said. "Even though the conference call is where you get the all important details and the real analysis."
But when the call finally came through, Stanley's management said it was seeing a housing recovery, much higher demand and lower raw material costs in the latter half of the year — all of which should improve margins and leads Cramer to believe that a special dividend is still to come on top of Stanley's "already solid" 2.1 percent yield.
The bottom line: When you combine over-the-top expectations with disappointing headlines and a postponed conference call, you're bound to get some hideous declines, Cramer said. He said now is the perfect time to buy into the pullback until the market comes to its senses and the stock goes back up.
"Out of quick-draw hedge funds and management that doesn't understand the market at all comes a tremendous opportunity that you need to pounce on," he said.
When this story was published, Cramer's charitable trust owned Stanley Black & Decker.
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