Jim Cramer went on CNBC last night, talked for several minutes in front of two apple-filled wheelbarrows, and created $5 billion in wealth for Apple (AAPL) shareholders.
Apple shares were up more than 3% this morning after Cramer touted the stock on his nightly show, Mad Money. This morning’s stock move added $5 billion to Apple’s now $162 billion market value.
Traders are used to the “Cramer Effect,” in which stocks spike after Cramer makes his pronouncements. An evening showing of Mad Money typically attracts less than 260,000 viewers, according to TV by the Numbers, but many traders keep an eye on his recommendations. He’s not necessarily watched for his wisdom as a market pundit, but because of the immediate effect he can have on a stock. (Often, those stocks give up their gains in subsequent days.)
Cramer, a former hedge fund manager, is a complicated figure. His shoot-from-the-hip trading style has been criticized for inspiring reckless investing. In March, he faced off with the Daily Show’s Jon Stewart, who faulted Cramer and CNBC for their coverage prior to the financial crisis.
But Cramer’s last book offered sober, responsible investing advice. “Trying to game short-term movements in stocks [is] almost impossible,” he admitted.
Wednesday’s price move is notable both because of Apple’s large size and the boldness of Cramer’s call: He raised his price target for Apple shares from $200 to $264, a 50% move from yesterday’s closing price.
Cramer’s rationale is offbeat, too. He is not more optimistic about the company’s fundamental prospects. Rather, he says, an “incredibly important accounting change” could allow Apple to recognize all iPhone sales up front, rather than over two years. This change could boost 2011 earnings at Apple by as much as 50%, he says. He used two wheelbarrows filled with apples to explain the effect of the accounting change on earnings.
Cramer admits this will have no effect on Apple’s actual cash flow, or even its long-term earnings potential. But, he insists:
The markets aren’t as efficient as you think. They are oftentimes dumber than we are.
Watch the video here.
I’m not so sure. But Cramer’s call comes at a time when tech stocks are hot. The Nasdaq has outperformed other major indexes by a wide margin this year.
And there are other reasons to be optimistic about Apple. On Sept. 15, Needham analyst Charlie Wolf raised his price target for Apple from $200 to $235, based on improving prospects for the firm’s iPhone driven by the “explosive growth of the iTunes App Store.”