As someone who values the fundamentals of a company, Jim Cramer reminded investors of the dangers of waiting for a takeover. After all, the real reason to own a stock is because of the fundamentals that it has today, not because of a bid it might get tomorrow.
"If you aren't happy with the fundamentals, the odds are the acquirer you are dreaming of isn't happy with the fundamentals either, and if you don't know the fundamentals what is the point of owning the stock to begin with?" the "Mad Money" host said.
One prime example for Cramer is Twitter. Every day Cramer's Twitter feed is filled with questions from investors asking when it will be bought by Facebook, Google or Apple.
In Cramer's opinion, all of these questions would make sense if Twitter were doing well. But Twitter is a disaster. It is not doing well at all and has no real growth versus successful Internet companies and the management does not have its act together.
What Cramer fears the most about Twitter is another Zulily situation. Zulily was once a red-hot Internet apparel retail stock that cooled, and ultimately was crushed. Then Liberty Interactive swooped in and purchased it for below where Zulily even was when it came public.
What is the difference between Twitter and Zulily?
Zulily is a tiny $2.4 billion acquisition for a big company like Liberty. Twitter's market cap is $19 billion, and Cramer thinks it would be at least $24 to acquire it. That is almost 10 times the value of Zulily, a huge pill to swallow for a company that has a lot of work to do.
"I think it has to go down before it attracts suitors," Cramer said.
The good news is that Cramer thinks it will attract multiple bidders when it goes down. But the bad news for investors is that if they own it now, they own a stock that is a bet that a bad company will get better. That is a tall order for a disjointed company like Twitter.
Cramer also has heard the same acquisition speculations over the small oil companies. But the "Mad Money" host thinks the stretched balance sheets and free-fall of the price of crude is enough to make any potential acquirer stay away.
There are certainly exceptions to Cramer's view, as well. Netflix should have been bought by someone when it had the chance. He also thinks Rite Aid would make a fantastic acquisition for a rival. But the difference with these examples is that they are well-run companies that make sense to own, even without a takeover.
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So if you are an investor hoping and praying for a takeover for a position in your portfolio because you think something should be bought, Cramer recommended thinking twice.
"Just ask yourself, would you like it on the fundamentals as they are currently configured, not as how you think they might be if everything goes right," Cramer said.
If the answer is yes, then you have Cramer's blessing. If the answer is no, then don't expect anything good happen. Sure, you could get lucky, but luck is not a sound investment strategy.
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