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On the October 12th edition of Mad Money, Jim Cramer interviewed Carl Icahn and congratulated him on the bid by software giant Oracle to acquire BEA Systems (BEAS), which Icahn had been working on for months. Cramer had been recommending BEAS consistently since the summer of 2006 on a takeover possibility. In the December 11, 2006 Lightning Round, Cramer again reiterated his recommendation on the stock stating, "It has obviously been hurt by the options ugly stick, but BEAS should not be punished. That is a legitimate software transaction platform that I think one day, if they don't get the stock up, will be purchased by Oracle (ORCL)."
Again on September 18, Jim recommended BEA Systems (BEAS) on account of billionaire investor Carl Icahn's increasing share of the company, saying a buyout was imminent. Investors pocketed nearly a 40% gain in less than a month when Oracle (ORCL) announced a bid to buy the lesser competitor. (A chart of Cramer's BEAS recommendations is shown below)
Near the end of the interview with Carl Icahn, Jim turned the discussion to Mr. Icahn's ongoing interest in Motorola (MOT), saying that MOT should now be bought (overturning a previously negative view on the stock) because of the activist investor's stellar success with BEAS, calling Icahn the "great value investor of our era." (A chart of Cramer's MOT recommendations is shown below)
Despite the large gains from the BEAS recommendation, however, using the stockTagger database, I set out to discover whether Cramer's piggybacking off Icahn's picks has been a worthwhile activity for Mad Money viewers, or simply a one time opportunity with the BEA Systems (BEAS) buyout. Using the 5 (trading) day, 10 day, 30 day, and 60 day closes after Jim Cramer's recommendation, I examined the performance relative to the S&P 500 of the five stocks he has recommended in the past because of Carl Icahn's activist holdings, including WCI Communities (WCI), Temple-Inland (TIN), Vector Group (VGR), Kraft Foods Inc (KFT), and BEA Systems (BEAS). For each recommendation, the relative S&P 500 gains are calculated from the same date and the cumulative returns for both the stocks and the S&P 500 are calculated below.
| Date of Call | Symbol | next day close | next day S&P |
| 1/18/2007 | WCI | 22 | 1430.5 |
| 3/20/2007 | TIN | 59.75 | 1435.04 |
| 6/20/2007 | VGR | 21.31 | 1522.19 |
| 7/17/2007 | KFT | 35.4 | 1546.17 |
| 9/18/2007 | BEAS | 13.38 | 1529.03 |
| Symbol | 5 day close/return | 5 day S&P |
| WCI | 19.81/ -9.95% | 1423.9/ -0.46% |
| TIN | 59.81/ +0.10% | 1428.61/ -0.45% |
| VGR | 22.26/ +4.46% | 1506.34/ -1.05% |
| KFT | 34.55/ -2.40% | 1511.04/ -2.27% |
| BEAS | 13.27/ -0.82% | 1517.21/ -0.77% |
| Cumulative | -1.72% | -1.00% |
After 5 trading days, the stocks have underperformed the market, although Cramer has told viewers many times to wait 5 days before buying his recommendations, so we won't get too flustered about this.
| Symbol | 10 day close/return | 10 day S&P |
| WCI | 21.75/ -1.14% | 1445.94/ +1.08% |
| TIN | 61.22/ +2.46% | 1437.77/ +0.19% |
| VGR | 22.15/ +3.94% | 1525.4/ +0.21% |
| KFT | 32.48/ -8.24% | 1455.27/ -5.88% |
| BEAS | 13.73/ +2.62% | 1546.63/ +1.15% |
| Cumulative | -0.07% | 0.24% |
After 10 trading days, the recommended stocks have only slighty underperformed the market, losing only -0.07% versus a gain in the S&P 500 of 0.24% for the period. Of these, Vector Group (VGR) performed the best relative to the index. Overall, not bad, but not good.
| Symbol | 30 day close/return | 30 day S&P |
| WCI | 20.26/ -7.91% | 1387.17/ -3.03% |
| TIN | 59.78/ +0.05% | 1495.92/ +4.24% |
| VGR | 21.75/ +2.06% | 1472.2/ -3.28% |
| KFT | 31.52/ -10.96% | 1432.36/ -7.36% |
| BEAS | 18.82/ +40.66% | 1548.71/ +1.29% |
| Cumulative | 4.78% | -1.63% |
For the 30 day returns, the BEA Systems (BEAS) buyout is included, and the stocks have wildly outperformed the market by about 5%, but take away BEAS and the cumulative return of Cramer's Icahn recommendations are losing you -4.19% versus a loss of -1.63% in the S&P 500. Vector Group (VGR) is again holding up the other three losers.
| Symbol | 60 day close/return | 60 day spy |
| WCI | 22.18/ +0.82% | 1471.48/ +2.86% |
| TIN | 61.46/ +2.86% | 1522.97/ +6.13% |
| VGR | 23.08/ +8.31% | 1484.25/ -2.49% |
| KFT | 34.04/ -3.84% | 1562.47/ +1.05% |
| BEAS | 18.82/ +40.66% | 1548.71/ +1.29% |
| Cumulative | 9.76% | 1.77% |
The 60 day returns are again including the BEAS gain of 40% (we are not arbitrageurs!), but without it, we are sitting on a gain of only 2.04% versus a gain of 1.77% in the S&P 500 index! Vector Group (VGR) beats the index by over 10% while WCI Communities (WCI), Temple-Inland (TIN), and Kraft Foods Inc (KFT) are losers.
So, ineffectively, without the BEA Systems buyout, the gains from piggybacking Carl Icahn via Mad Money are merely inline over a three-four month period. From a statistics perspective, 1 out of 5 is not enough to make any sort of reliable future predictions on an 8% lead over the S&P. Viewers will have to decide whether to follow these piggybacking recommendations in the future, but suffice to say, I will not be one of them. And if you waited to buy these stocks after the five day rule that Cramer frequently advises, then your gains only increased by a modest 0.72%. Based on these findings, Cramer should stop recommending stocks based on the Icahn factor. Will investors follow Cramer's latest call to buy Motorola (MOT) on account of Carl Icahn's activities? In later posts, I will unveil more ways that Jim Cramer tries to make you money, and the real performance you won't find anywhere else. Readers are welcome to give their feedback below.
23 comments:
Hmm, yet another way Cramer fails to make anybody money. Ratings... \/...\/...\/
You know this is the first day I found your blog and already I have learned a ton. I thought I knew a lot about stocks but now I see I can be lazy. You really go all out, now I can just read your blog to stay up on all the important stock news. Cool!
Hi :
Thanks for the insight.
Wonder whether we should take Cramer's pick as a contrarian indicator.
Yours Truly,
Tony Chai
My Options Trading Blog
Good analysis of cramer's recommendations. Did you do the same type of research on cramer's original calls? ( i mean not icahn's picks)
Thanks
Its very useful info for making short investments.
Very informative post. You included a lot of good points too
In my opinion, a portfolio should be judged as a whole. There is idiosyncratic risk in any given stock. I will take one big winner and several loosers as long as I am up overall.
You should do a Beta analysis of the entire portfolio before judging.
Hiya everybody, I just signed up on this marvelous discussion board and wanted to say howdy! Have a stunning day!
Great read! I wish you could follow up to this topic!?!
Alice
Very enlightening and beneficial to someone whose been out of the circuit for a long time.
- Kris
last week our class held a similar talk about this subject and you illustrate something we have not covered yet, thanks.
- Kris
Is there anymore information you can give on this subject. It answers a lot of my questions but there is still more info I need. I will drop you an email if I can find it. Never mind I will just use the contact form. Hopefully you can help me further.
- Robson
Great information! I’ve been looking for something like this for a while now. Thanks!
Not surprising at all, that's why I don't like Cramer's show. Hey, you should start posting again on this blog. Good job.
thanks for this nice post 111213
hi, new to the site, thanks.
thanks for this tips
Quhen all men speaks, no man hears.
Awsome article !! What blog platform do you use on your site ?
Thankfully all that cramer hype died down. Sometimes he's right sometimes he's not, but so are we all. Just to many stocks to quickly to use him as an aid.
Nice blog..I am looking forward to read your next great article.
Hi there can you please describes this with pics .. Thanks
Great share, looking forward for more!
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