Analysis of Cramer's Lightning Round Picks From July 18

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Includes: CRM, DNKN, KKD, KMX, MWE, OWW, RHT, SAH, TEF, TIBX, TZOO, VMW, VOD
by: Efsinvestment

After a peaceful weekend, Cramer showed up with vital stocks like Sonic Automotive (NYSE:SAH), CarMax (NYSE:KMX), and Travelzoo (NASDAQ:TZOO). Moreover, he mentioned an excellent European company for investors that seek to play in Europe, regardless of this euro turnoil. He made four bullish, three bearish, and one neutral call in this program. Here is a fundamental analysis of the stocks mentioned in Cramer’s Lightning Round on July 18 (data from finviz/morningstar, and current as of July 18’s close):

MarkWest Energy (NYSE:MWE): MarkWest returned 36.5% in a year, and Cramer is bullish on this stock. As of July 18, the oil company showed a forward P/E of 25.09. Estimated EPS growth for the next five years is 8.00%, which is reasonable given the 6.72% EPS growth of last 5 years. Although profit margin is terrible (-9.2%), dividend yield is enjoyable (5.59%). Target price is $51.63, which indicates a 7.7% increase potential. The stock is trading 6.73% lower than 52-week high. Debt-to assets ratio is going down for the last 3 years. SMA200 is 10.49%. The company has a strong momentum, which might continue for the long term. Insiders have been mostly selling stocks for a while. I would rather wait for a pullback.

TIBCO Software (NASDAQ:TIBX): Although Cramer avoids recommending any tech stocks until September, he says that, along with TIBX, Red Hat (NYSE:RHT), VMWare (NYSE:VMW), and Salesforce.com (NYSE:CRM) are the best picks. Here is a small comparison between these four:

Current as of July 18 close.

TIBCO Software

Red Hat

VMWare

Salesforce.com

P/E

51.45

72.97

106.08

448.91

Forward P/E

24.79

37.11

43.25

83.86

Estimated EPS growth for the next 5 years

13.40%

24.03%

23.92%

30.64%

Dividend yield

-

-

-

-

Profit margin

11.14%

11.99%

13.20%

2.82%

Gross margin

73.11%

83.47%

82.56%

80.09%

Upside movement potential

2.2%

16.9%

0.2%

7.3%

Click to enlarge

As you see, all of them are priced with extremely high P/E ratios. Forward P/E ratios are also high. TIBCO has a two-star rating from Morningstar, whereas the other three has one-star. Apart from VMWare, insiders of the three companies have been selling and exercising options for a while. I believe none of them should be bought for now.

Sonic Automotive: SAH was a great profit maker in the last twelve months. $1000 invested in Sonic Automotive one year ago is approximately $1642 now. The automotive retailer shows a trailing ratio of 8.69, and a forward P/E ratio of 9.54, as of the July 18 close. Analysts estimate a 16.30% EPS growth for the next five years, which sounds overdone when its EPS growth of last five years (-8.13%) is considered. With a profit margin of 1.47%, Sonic pays a 0.68% dividend. SMA50 is 8.50%, while SMA200 is 11.75%. The stock is trading 5.98% lower than 52-week high, whereas target price indicates a 22.8% increase potential. Earnings increaseds by 47.22% this year, and 119.92% this quarter. Along with CarMax, Cramer says these automobile dealers ”have been doing terrific."

Krispy Kreme Doughnuts (KKD): Cramer avoid making estimations about this stock until Dunkin (NASDAQ:DNKN) goes public. I admire Krispy’s performance. Although it has a terrible P/E ratio of 53.94, it returned 162% in a year. Earnings increased by 4764.38% this year, while analysts expect the company to have a 35.38% EPS growth next year. However, the next-5 year EPS growth estimation (50.00%) sounds utopic to me, given the -50.46% EPS growth of past five years. The stock is trading 9.03% lower than 52-week high. SMA50 is 11.55%, and SMA200 is 36.89%. Although assets are unstable, debts are falling for the last three years. Insiders have been mostly selling stocks for a while. A company with a P/E ratio of that high does not fit my criteria, and I would wait for a pullback if I were to invest in KKD.

Orbitz Worldwide (NYSE:OWW): Orbitz has been an underperformer for a long time, and Cramer prefers Travelzoo over OWW. $1000 invested in OWW one year ago is about $710 now, while the same amount invested in TZOO one year ago is $5888. Insiders of OWW own 1.67% of the stock, while it is 51.64% for TZOO. Analysts estimate an annualized EPS growth of 10.00% for Orbitz in the next five years, while earnings increased by 85.65% this year. Travelzoo, on the other hand, is expected to have an EPS growth of 33.00% in the next five years, and earnings increased by 104.54% this year. Given the target price estimates OWW has a 8.3% upside potential, whereas TZOO has 28.8%. While Travelzoo has zero debts for the last five years, debt-to assets ratio of Orbitz is rising at alarming rates. Moreover, analysts give a 3.10 recommendation for Orbitz, and 1.40 for Travelzoo (1=Buy, 5=Sell). I love Orbitz but The Street does not. You do not want to go against the current. Thus, Orbitz should be avoided, while Travelzoo can enter portfolios as a long-term pick.

Telefonica (NYSE:TEF): Cramer says that investing in Spain-based companies is too risky for the time being, so he recommends Vodafone (NASDAQ:VOD) instead. As of the July 18 close, TEF was trading at a P/E ratio of 6.87, and a forward P/E ratio of 8.89. Estimated EPS growth for the next five years is 0.35%, which is truly conservative given the 20.41% EPS growth of past 5 years. With a profit margin of 14.9%, TEF has an enjoyable dividend of 7.86%. ROE is 43.68%, while target price indicates a 28.2% increase potential. The stock is currently trading 16.63% lower than 52-week high.

Vodafone, on the other hand, has a P/E ratio of 10.47, and a forward P/E of 8.46, as of the July 18 close. Analysts estimate a -5.50% EPS growth for the next five years, while the stock had a 4.12% EPS growth during the last five years. With a net profit margin of 17.15%, Vodafone pays a 7.69% dividend. ROE is 8.96%, whereas target price implies a 30.5% upside potential. The stock is trading 11.35% lower than 52-week high.

Moreover, Telefonica returned only 4.8% in a year, while Vodafone returned 15.5%. Telefonica’s debt-to assets ratio is around 50%, whereas that of Vodafone is around 25%. It is quite hard to make a choice between the two. Although both are good stocks capable of beating the market, Vodafone’s overall performance and the economic unrest in the euro zone makes VOD a reasonable pick for now, as the U.K. is in a relatively better position than that of Spain in terms of economy. On the other hand, Telefonica has a significant presence in South America and will surely benefit from the strong economic growth in the region.

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