Cramer: Fund managers are ditching high-growth stocks for Lyft, IPO season

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Investors should expect high-growth technology stocks to be sold off as investment funds free up cash to buy into the wave of new initial public offerings, CNBC’s Jim Cramer said Wednesday.

A few companies slated for IPOs this year include ride-hailing apps Lyft and Uber, hospitality platform Airbnb, data intelligence company Palantir, and workspace operator WeWork.

The Dow Jones Industrial Average dropped more than 32 points on the session, the S&P 500 fell 0.46 percent, and the tech heavy Nasdaq slid 0.63 percent.

Cramer noted that there was weakness particularly in the Nasdaq as big institutions reconsider their stock allocations with the looming Lyft IPO.

“You need to be prepared for many more not so hot days like today. In the end, the stock market is like any other market— it’s controlled by supply and demand,” the “Mad Money” host said. “With all of these big IPOs coming … these deals will push the rest of the market down until the tide goes out with a whimper, not a bang.”

Behind the scenes, Cramer said, Lyft management is gauging interest of potential shareholders across the country. As Lyft’s Friday IPO approaches, fund managers are finding out how much of the equity will be allocated to them. The transportation platform is set to offer more than 30 million shares in the boosted range of $70 and $72 a share, up from $62 to $68, he said.

“And you know what, it might not be done being lifted. I’ve seen [IPOs] go up another level and even expand the size of a deal. With that revised range tonight, they’re planning to raise approximately $2.2 billion and that’s before you count the underwriter’s percentage of the greenshoe, which could add another $300 million or so to these companies’ IPO haul.”

Most funds that will get first dibs at Lyft don’t have much cash on hand coming in, he said. In order to raise more capital for Lyft, they are taking money off the table from other stocks that they own, such as Workday, Facebook, or Alphabet, he added.

“Because the Lyft deal will make these money managers so much more money, they’re desperate to raise cash for it and they don’t care how low they sell those stocks,” Cramer said. “So the selling will be indiscriminate and vicious as it was this very morning. Price becomes irrelevant when you’re trying to raise money for a red hot deal.”

After the IPO, Cramer said the largest funds may decide to load up on even more shares at the open. With IPO season underway, Cramer said he has been short-term bearish on the market and is raising money for his charitable trust,

“It’s not Lyft that’s the problem, it’s not the fundamentals, it’s not the inverted yield curve,” he said. “It’s the fact that Lyft is merely the first of many deals. I’m betting you’ll see an identical series of sales when fund managers need to raise money for Pinterest or Palantir or Slack, not to mention the big daddy of them all: Uber.”

By the time Uber goes public, the funds may be exhausted and willing to sell anything that’s growing, Cramer said, pointing to health care, semiconductor, retail, and restaurant stocks.

“When we get to Uber, if that’s the last one, you can expect the buyers will be exhausted and the existing stocks will be so darn cheap that they’ll represent real value. They may even make you more money than the lower-quality IPOs … At that point and only at that point can this really be considered terra firma for many of the stocks in the market.”

Disclosure: Cramer’s charitable trust owns shares of Facebook and Alphabet.

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