In August’s first Lightning Round, Jim Cramer made calls to six stocks and offered alternatives to two of them. In this article, I explain my opinion about all of these stocks, investigating them from a fundamental perspective. I also used my O-Metrix Grading System where necessary. Here is a fundamental analysis of the stocks mentioned in Cramer’s Lightning Round on Aug 1:
Hyperdynamics Corp. (HDY): Hyperdynamics returned 350% in a year, and Cramer believes that this is a "very speculative stock," that it should not be bought above $5 a share. The Texas-based oil & gas explorer, as of the Aug 1 close, was trading at a P/E ratio of -69.4. Estimated EPS growth for the next year is 44.40%, while earnings increased by 32% this year. Howard Weill has a target price is $8.00, which implies a 52.9% upside potential. However, I am not sure whether this target is based on fundamental reasoning. SMA50 is 16.87%, whereas SMA200 is 19.19%. SMA20 is 10.30%. The stock is trading 32.78% lower than its 52-week high. The stock is extremely volatile. Moreover the share price is extremely expensive for a company with no profits. Avoid buying shares at this price.
City Telecom (CTEL): Cramer rather prefers Windstream (WIN) over City Telecom, although he believes that City Telecom has a safe dividend yield of 6.5%. Here is a brief comparison between these two stocks:
Current as of Aug 1 close. | City Telecom | Windstream |
P/E ratio | 12.70 | 22.7 |
Forward P/E ratio | 10.6 | 14.29 |
Estimated EPS growth for the next 5 years | 19.00% | 0.18% |
Dividend yield | 6.54% | 8.23% |
Profit margin | 16.60% | 6.69% |
Gross margin | 87.06% | 61.90% |
Upside movement potential | 35.5% | 18% |
O-Metrix scores of City Telecom and Windstream are 10.96 and 2.27, respectively. City Telecom returned 8.2% in the last twelve months, while Windstream returned 5.1%. City Telecom’s debt-to assets ratio is having a free fall for the last five years, while that of Windstream is hovering around alarming rates. City Telecom is currently trading 28.12% lower than its 52-week high, and Windstream is trading 10.72% lower than its 52-week high. Average analyst recommendation is 1.00 for City Telecom, and 2.40 for Windstream (1=Buy, 5=Sell). I like the yield of both companies . City Telecom seems to be a better deal for me.
General Motors (GM): As the automobile industry is facing some problems for the time being, Jim recommends avoiding General Motors. As of the Aug 1 close, the auto maker shows a trailing P/E ratio of 5.6. Analysts expect the company to have an 11.40% annual EPS growth in the next five years. General Motors has a profit margin of 5.0% with no dividends so far. P/S is 0.30, and earnings increased by 220.04% this quarter. Target price is $42.92, indicating a 52.8% increase potential. The stock is trading 28.90% lower than its 52-week high. Debt-to assets ratio is decreasing sharply for the last three years. The stock is still trading in a downward channel which might continue for a while. However, at some point the trend will reverse. Although it has been a rough year for General Motors, I believe current prices offer a compelling entry point.
Magnum Hunter Resources (MHR): Cramer would rather go with Chesapeake Energy (CHK) as Magnum Hunter is “too risky” for now. Here is a brief comparison between these two companies:
Current as of Aug 1 close. | Magnum Hunter Resources | Chesapeake Energy |
P/E ratio | -20.2 | 27.6 |
Forward P/E ratio | 19.7 | 11.12 |
Estimated EPS growth for the next 5 years | - | 9.08% |
Dividend yield | - | 1.02% |
Profit margin | -52.0% | 8.9% |
Gross margin | 60.5% | 83.94% |
Upside movement potential | 30% | 13.5% |
Magnum Hunter returned 58.1% in a year, while Chesapeake returned 58.5%. Magnum Hunter is trading 15.82% lower than its 52-week high, and Chesapeake is trading only 3.94% lower than its 52-week high. Magnum Hunter’s debt-to assets ratio is falling sharply for the last five quarters, while Chesapeake’s debt-to assets ratio is unstable. Analysts give a 1.50 recommendation for Magnum Hunter, and 2.30 recommendation for Chesapeake (1=Buy, 5=Sell). Chesapeake is relatively less volatile and has an acceptable P/E ratio when compared to that of Magnum Hunter. Moreover, magnum Hunter has a negative profit margin with no dividend policy. Cramer’s alternative pick is obviously better than Magnum Hunter.
eBay (EBAY): Cramer is a “buyer of eBay,” and he wants investors to “buy some Tuesday morning." The company has a P/E ratio of 25.02, and a forward P/E ratio of 14.29, as of the Aug 1 close. Estimated annualized EPS growth for the next 5 years is 11.92%, which is quite reasonable given the 11.81% EPS growth of last 5 years. Profit margin in 2010 was 17.4%, while the California-based company offers no dividend yield. Target price implies a 16.7% upside movement potential, and the stock is trading 6.59% lower than its 52-week high. eBay returned 52.8% in the last twelve months. SMA50 is 5.31%, and SMA200 is 6.72%. Debts are far from being a threat. This stock is a nice pick to go long. However, current price is slightly expensive.
Lincoln Electric Holdings (LECO): Lincoln Electric returned 22% in a year, and Cramer remains bullish on the stock, saying:
"I will always be a buyer of this one. The stock has come down. I think it is a mistake."
Lincoln Electric shows a trailing P/E ratio of 18.9, and a forward P/E ratio of 11.96, as of Aug 1. Analysts expect the company to have an 18.10% annual EPS growth in the next 5 years, which sounds overdone when its 1.08% EPS growth of past 5 years is considered. With a profit margin of 7.0%, Lincoln Electric pays a 1.82% dividend yield. Target price is $51.80, implying a 51.9% increase potential. Its O-Metrix score is 6.45, while the stock is currently trading 13.55% lower than its 52-week high. Earnings increased by 77.94% this quarter, and 168.26% this year. Debt-to assets ratio is slightly going down for the last five years. PEG value is 0.7. If the analysts’ estimates hold, Lincoln could be a sweet stock to go long.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
