10 Jim Cramer Sell Ideas Gone Wrong

|
 |  Includes: A, ADBE, ARMH, BX, MCPIQ, MHS, NOK, NXPI, THOR, WDC
by: Investment Underground

By Roger Choudhury, Lead Editor

Just how good a stock picker is Jim Cramer? Here we review 10 of Cramer's March sell recommendations gone wrong.

Agilent Technologies (NYSE:A) is up by 8.8% since Cramer told Mad Money viewers to sell on his March 18 show. In FY 2010 through October, revenues grew by 21.49% to $5.44 B, and GAAP EPS returned to positive territory to $1.94 from -$0.09. The profit margin also improved to 53.82% from 51.15%. In Q1 2011, the company reported non-GAAP EPS of $0.60 versus $0.38 in Q1 2010. Revenues decreased by 1.93% to $1.519 B compared to Q1 2010. The next earnings release is on May 16. For Q2 2011, analysts estimate that the company will earn $0.65 per share, an increase of 113.16% over Q2 2010, and analysts also forecast that the company will generate revenues of $1.6 B, an increase of 26.20% over Q2 2010.

Given the calamitous disasters in Japan, management reassured investors that it does not see any material impact on either supply or demand now. There may be a production disruption later in the summer, but subsequent demand from rebuilding should outweigh it. We also look favorably upon the company’s end-product mix. Agilent shares trade above our fair value estimates, but we place a price target of $53. At current price levels, this is a decent buy opportunity.

Adobe (NASDAQ:ADBE) is up by 6.2%, since the March 23 close, when Cramer told his viewers to sell this. The company made $3.8 B in revenues in FY 2010 through November, which was an increase of 28.99%, after declining by 17.71% in FY 2009. GAAP EPS grew by 101.37% to $1.47 in FY 2010, after falling by 55.67% in FY 2009. The respective EBT margins were 24.82% and 23.81%. In Q1 2011, the company produced non-GAAP EPS of $0.58, which was 45% higher than Q1 2010, and revenues grew by 9% to $1.028 B. The next earnings release is on June 21. For Q2 2011, analysts estimate that the company will earn $0.51 in non-GAAP EPS, an increase of 81.79% over Q2 2010, and analysts also estimate that ADBE will generate revenues of $996.2 M, an increase of 5.64% over Q2 2010.

We are concerned about slower growth in Japan, which is the company’s second-largest geographic region for revenues. However, we are bullish on ADBE shares over the long-term, and recommend it for investors looking to hold onto a company for at least 18 months. We believe that ADBE is a $50 stock by the end of 2012. ADBE shares trade with a P/S ratio of 4.4 with a 5 year P/S average of 6.5. From 2004 to 2006, the P/S was in the 9’s. The company also has a debt to equity ratio of 0.28.

Alcatel-Lucent (ALU): Cramer gave a convincing sell recommendation on his March 23 show. However, since the market close then, ALU is +12%. He reiterated this sell suggestion on April 12. In 2010, revenues grew by 5.54% to 15.996 B euros ($22.93 B), and GAAP EPS became less negative to -0.15 euros from -0.23 euros. The profit margin also improved to 34.83% from 33.72%. For 2011, analysts estimate ALU will earn $0.27 per share and revenues of $22.8 B, an increase of 7.45%. The next earnings release is on May 6. For Q1 2011, analysts estimate that the company will earn $-0.03 per share from -$0.08 in Q1 2010 as well as make revenues of $5.2 B, an increase of 15.71% over Q1 2010. The company also has a debt to equity ratio of 1.52.

Restructuring is taking too long to implement, and it is reasonable to expect market share losses as operators shift from CDMA to LTE and a further slowdown in high margin 2G revenues. The company also trades well above our fair value estimates. This is a great short opportunity.

Alcatel-Lucent provides products, solutions, and transformation services offerings, which enables service providers, enterprises, governments and strategic industries (such as transportation or energy) globally to deliver voice, data and video communication services to the consumers. It offers fixed, mobile and converged broadband networking, Internet protocol technologies, applications and services.

ARM Holdings (NASDAQ:ARMH): Cramer recommended selling ARMH on his March 21 show, and since the market close then, ARMH is up by 13.6%. In 2010, revenues grew by 33.30% to $407 M, and GAAP EPS jumped by 106.45% to $0.19. The EBT margin also improved to 27.06% from 15.49%. For 2011, analysts estimate that the company will earn $0.47 in non-GAAP EPS, an increase of 375.07%, and generate revenues of $694.6 M, an increase of 10.51%. The next earnings release is on April 27. For Q1 2011, analysts forecast ARMH will earn $0.11 in non-GAAP EPS, an increase of 395.41% over Q1 2010, and also make revenues of $172.9 M, an increase of 20.07% over Q1 2010.

ARMH shares trade comfortably above our fair value estimates, and for good reason: ARMH has a forward P/E of 58.3, compared to 4.9 for the semiconductor sub-industry. We are optimistic on the smart phone and tablet sales, which stand to benefit ARMH revenues. ARMH is a buy for those looking to add exposure to the semiconductor sector or looking to shed slower growing companies in this sub-industry.

ARM designs the technology that lies at the heart of advanced digital products, from wireless, networking and consumer entertainment solutions to imaging, automotive, security and storage devices. ARM’s comprehensive product offering includes 32-bit RISC microprocessors, graphics processors, video engines, enabling software, cell libraries, embedded memories, high-speed connectivity products, peripherals and development tools.

Blackstone Group (NYSE:BX) is up by 12.9%, since the March 16 close. In 2010, revenues jumped by 83.13% to $3.119 B, and GAAP EPS became less negative to -$1.02 from -$2.46. For 2011, analysts estimate BX will earn $1.60 in non-GAAP EPS with revenues of $4.2 B, an increase of 34.23%. The next earnings release is on April 21. For Q1 2011, analysts estimate BX will earn $0.40 in non-GAAP EPS compared to $0.32 in Q1 2010. They also forecast revenues of $1.0 B, an increase of 48.93% over Q1 2010. The company also has a debt to equity ratio of 1.85.

We are bullish on BX, and expect its real estate and private equity segment to fare well compared to other years. We expect revenues to expand by 25% to $3.9 B, and place a price target of $23.50, which is about 5.25 points from present or the potential to make 25%. This is a good buy opportunity.

Blackstone is one of the world’s leading investment and advisory firms. Its alternative asset management businesses include the management of private equity funds, real estate funds, hedge fund solutions, credit- oriented funds and closed-end mutual funds. The Blackstone Group also provides various financial advisory services, including financial and strategic advisory, restructuring and reorganization advisory and fund placement services.

MolyCorp (MCP) shares are up by 68.1% since the March 18 close. In 2010, revenues surged by 395.66% to $35 million, but GAAP EPS became more negative to -$0.79 from -$0.73. For 2011, analysts estimate MCP will earn $1.24 in non-GAAP EPS with revenues of $262.5 M, an increase of 646.59%. The next earnings release is on May 11. For Q1 2011, analysts estimate that the company will earn -$0.04 per share from -$0.16 in Q1 2010, and generate revenues of $43.2 M, an increase of 1,329.75% over Q1 2010.

There is tremendous growth potential and opportunity in this company and in other non-Chinese rare earth oxides mining companies. We have been bullish on MCP since late February, and continue to recommend it as a buy. Colorado-based Molycorp is the only rare earth oxides (REO) producer in the Western Hemisphere and currently produces approximately 3,000 metric tons of commercial rare earth materials per year. Following the execution of Molycorp's “mine-to-magnets” strategy and the expected 2012 completion of Phase 1 of its modernization and expansion efforts at its Mountain Pass, California processing facility, Molycorp expects to produce at a rate of approximately 19,050 metric tons of REO equivalent per year. The company expects to achieve an annual production capacity by the end of 2013 of ~40,000 metric tons of REO equivalent per year after the completion of Phase 2. Molycorp intends to provide to the market a range of rare earth products, including high-purity oxides, metals, alloys, and permanent magnets.

Medco Health Solutions (NYSE:MHS) is up by 6.6% since Cramer told his viewers that he did not like this on his March 17 show. He restated this on March 31, but changed his mind on April 6 and said that it was a buy. In 2010, revenues grew by 10.31% to $65.968 B, and GAAP EPS rose by 21.07% to $3.16. However, gross and EBT margins remain razor thin at 6.57% and 3.54%, respectively. For 2011, analysts estimate that the company will earn $4.06 in non-GAAP EPS, an increase of 28.53%, and they also estimate revenues of $69.2 B, an increase of 4.88%. The next earnings release is on April 28. For Q1 2011, analysts forecast that MHS will earn $0.88 in non-GAAP EPS, an increase of 31.14% over Q1 2010. Also, in Q1 2011, analysts estimate that the company will make revenues of $17.1 B, an increase of 4.61% over Q1 2010.

S&P sees strong fundamentals for the PBM industry as health plans, governments, and employers seek to control drug costs. Also, MHS shares trade well below our fair value estimates, and we have a $70 price target on MHS. Now would be a good time to get in.

Medco Health Solutions is pioneering "the world’s most advanced pharmacy" and its clinical research and innovations are part of Medco "making medicine smarter" for approximately 65 million members.

NXP Semiconductors (NASDAQ:NXPI): Since Cramer’s March 14 sell recommendation, NXPI is +21.7%. In 2010, the company grew revenues by 14.55%, and GAAP EPS went more negative to -$1.77 from -$0.81. However, the profit margin improved to 41.41% from 25.21%. NXPI reported 2010 non-GAAP EPS of $1.28. For 2011, analysts estimate NXPI will earn $2.36 in non-GAAP EPS. For 2011, analysts estimate NXPI will generate revenues of $4.5 B, an increase of 2.15%. The next earnings release is on May 4. For Q1 2010, analysts estimate NXPI will earn $0.42 in non-GAAP EPS, and generate revenues of $1.0 B, a decrease of 12.20% over Q1 2010.

On April 11, Credit Suisse raised the price to $40 from $30 in February 11. Keep in mind that the company also has a debt to equity ratio of 4.19. We recommend NXPI for investors seeking to add significant risk to their portfolio.

SanDisk (SNDK): Cramer told his viewers to sell, sell, sell SNDK shares on his March 21 show. Since the March 21 close, SNDK is +6.2%. In 2010, the company grew revenues by 35.33% to $4.827 B, and GAAP EPS surged by 203.91% to $5.44. The EBT margin also improved to 30.19% from 14.12%. For 2011, analysts estimate SNDK will earn $4.20 in non-GAAP EPS, a decrease of 22.86%, and generate revenues of $5.6 B, an increase of 16.94%. The next earnings release is on Thursday, April 21. For Q1 2011, analysts estimate SNDK will earn $0.98 in non-GAAP EPS, a decrease of 1.42% over Q1 2010. Analysts also forecast that the company will generate revenues of $1.3 B, an increase of 15.19% over Q1 2010.

We believe that the company will enjoy robust demand growth in flash memory, spurred by the increasing production of tablet devices and a stagnant to modest economic recovery. SNDK shares trade above our fair value estimates, but we place a price target of $57. This is a buy at current price levels.

SanDisk Corporation is the global leader in flash memory cards, from research, manufacturing and product design to consumer branding and retail distribution. SanDisk's product portfolio includes flash memory cards for mobile phones, digital cameras and camcorders; digital audio/video players; USB flash drives for consumers and the enterprise; embedded memory for mobile devices; and solid state drives for computers.

Thoratec (NASDAQ:THOR) is +17% since Cramer’s sell statement on his March 18 show. In 2010, revenues grew by 2.42%, and GAAP EPS jumped by 81.63% to $0.89. The profit margin also improved to 67.70% from 58.79%. The next earnings release is on May 3. For Q1 2011, analysts estimate THOR will earn $0.33 in non-GAAP EPS, an increase of 55.26% over Q1 2010, and generate revenues of $101.1 M, an increase of 1.84% over Q1 2010.

On April 18, THOR shares jumped after data from a clinical trial revealed that HeartWare International’s (NASDAQ:HTWR) ventricular-assist device posed much higher risk of blood clots than expected, comparing unfavorably with Thoratec’s HeartMate II device, and Thoratec may continue to enjoy its market share. THOR shares trade slightly above our fair value estimate; however, there are plenty of companies clamoring and positioning to enter into Thoratec’s niche. Thoratec is a world leader in therapies to address advanced-stage heart failure. The company's products include the HeartMate LVAS (Left Ventricular Assist System) and Thoratec VAD (Ventricular Assist Device) with more than 18,000 devices implanted in patients suffering from heart failure. Thoratec is headquartered in Pleasanton, California.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.