The Ottawa Citizen reports today that shares of Zarlink Semiconductor (ZL, TSX: ZL), a local tech company, zoomed 22% shortly after opening on the NYSE amid heavy trading (44 times its volume on an average day). The reason for the frenzy wasn’t any fundamental development with the company, but a mention on Jim Cramer’s Mad Money show on CNBC as a “speculative pick”. It is certainly clear that investors are speculating (a.k.a. gambling), because the last time Zarlink made a profit was way back in 2000, when it earned $0.36 per share. In the last five years, the company has been a dog, posting losses of $1.83, $0.98, $0.49, $.0.33 and $0.18 starting in 2001. Investors must be mad to bid up the shares of this company just because it was mentioned on a TV show!
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10 responses so far ↓
1 Scott // Jan 12, 2006 at 11:23 pm
I am not a Cramer fan by any streatch of the imagination, but I would not blow of his opinion so quickly. The fact that Cramer promoted Zarlink shows that he must have had some reason for doing so, maybe a new technology?. Have you done any research other than a quick yahoo finance search on Zarlinks earnings?
As the disclaimar goes past performance is no guarantee of future performance. Zarlink has been a poor performer in the past but this doesn’t mean this trend will continue into the future.
On a side note if you had purchased Zarlink in the after market the day before you would have made your self have a pretty nice return in a very short time period.
I don’t know much about Zarlink nor the intellectual or investment capacity of the individuals that watch Cramer’s show, but I would suspect that more research is necessary to determine the quality of Zarlink and the sanity of these viewers.
Cheers
2 Canadian Capitalist // Jan 13, 2006 at 8:46 am
Scott: I have been following Zarlink for years because it is a local company and I had friends who worked there. And many failures have taught me the importance of looking forward and not through the rear-view mirror. I am not saying Cramer doesn’t have a point. The company has a new CEO, it is selling assets and trying to become profitable (forecasting a break-even quarter). In fact, after a long slide, revenues edged up 8% last year.
The point I was trying to make in the post was the insanity of viewers who bid up the stock on little or no research. I am certain that there were at least a few “investors” on the buy side of the trade that didn’t figure out they were the patsy.
3 Scott // Jan 13, 2006 at 11:32 am
The madness of the asses usually ends badly.
I also find it incredible that people are willing to part with their money so easily. Lets just hope that Cramer pumps some of the positions we own so that we can make a quick 20% in a day.
Cheers,
Scott
4 Toro // Jan 13, 2006 at 2:53 pm
Oh pish, posh.
You guys don’t get how semis work. Unless this company is absolutely broken (which it is not), it will trade up with the cycle. The equity last topped up at US$5.76 in Q3/03, when it went to 4x annualized sales per share. It currently trades at 1.5x sales. It can get to 3x sales easity, and it can generate $2 per share in sales if it gets to 70% of its sales a few years back. (SPS is $1.50 now). They’ll lift the stock with the group, and the MoMo guys will pile into it as they search for what hasn’t gone up as much. Happens every cycle.
Besides, the company made money in the second and third quarters of 2004.
5 Michael Patzer // Jan 13, 2006 at 7:29 pm
Jim Kramer has that effect. If you watch Mad Money on CNBC you can watch live after-market trades on the ticker. As soon as he mentions a stock symbol, you see countless trades in that company on the ticker.
6 Michael Patzer // Jan 13, 2006 at 7:29 pm
*Cramer
7 Canadian Capitalist // Jan 13, 2006 at 8:31 pm
Toro: I have miserably failed to communicate what I meant. I am not saying someone like you, who has researched the company and know the odds of success is making a mistake betting on Zarlink. How many of the “investors” who bought the stock because they heard Cramer talk about it can honestly say that they are buying because on a P/S basis ZL is cheap?
Michael: You are right. And I’ve noticed that a favourable mention in Barron’s gives a stock a nice boost too.
8 K // Jan 16, 2006 at 8:23 am
It’s just a math thing.
The base is so small ($2 range) and so thinly traded (small supply) that any news positive or negative will move the stock greatly as a percentage.
To move a $2 stock by 20% is only an in/decrease of $0.40.
To move, lets say Google ($466) by 20% requires a $93.20 in/decrease.
That’s why risktakers love their penny stocks.
9 Toro // Jan 18, 2006 at 11:49 am
CC
My answer would be “zero”.
The Citigroup equities desk reports to their salesforce the stocks Cramer talks about on MadMoney.
10 Investing Intelligently // Apr 19, 2006 at 3:21 pm
Cramer…
This article, “Cramer Google-Coaster (GOOG)” lists Cramer’s recent recommendations on Google stock:
January 3……….Buy…….$435.23 (going to $500)
January 4……….Buy…….$445.24 (going to $500)
January 13……..Buy………
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