Investors are looking for safe stocks to invest their money, as markets are in a downward trend. Jim Cramer, the āMad Money hostā, made ten calls in Aug 17ās Lightning Round. His calls were divided into two this time: Five of them bullish, and the other five are bearish.
I have examined these stocks from a fundamental perspective, adding my O-Metrix Grading System where possible. Here is fundamental analysis of these stocks from Cramer's Lightning Round:
Stock Name | Ticker | Cramer's Suggestion | O-Metrix Score | My Take |
Crocs | Buy at $24 | 5.10 | Buy on Dip | |
Alcoa | Buy | 1.79 | Avoid | |
Covidien | Buy | 5.29 | Buy | |
First Niagara Financial | Avoid | 5.54 | Long-term Buy | |
Alcatel-Lucent | Sell | 2.71 | Hold | |
Dolby Labs | Sell | 6.09 | Long-term Buy | |
Apple | Buy | 6.76 | Top Pick | |
MedcoHealth | Alternative is better | 5.67 | Neutral | |
Express Scripts | Buy | 5.65 | Neutral | |
Robert Half International | Avoid | 4.14 | Avoid |
Data obtained from Finviz/Morningstar and is current as of Aug.17
While Cramer admires Crocsā performance, he recommends buying when it falls to $24 a share. The company was trading at a P/E ratio of 22.8, and a forward P/E ratio of 16.4, as of Aug 17. Analysts expect the company to have a 20.0% annual EPS growth in the next five years, which is reasonable given the 24.73% EPS growth of past 5 years.
With a profit margin of 11.6%, Crocs has no dividend policy. Earnings increased by 67.33% this quarter, and 254.40% this year. O-Metrix score of the company is 5.10, while it is trading 15.77% lower than its 52-week high. Crocs returned 103% in a year, and target price indicates a 34.6% upside movement potential. Debt-to assets ratio is nearly 0%, whereas gross margin is 53.7%. I would wait for a pullback.
Alcoa is āback,ā says Cramer, āand it will be bigger than ever." Alcoa has a trailing P/E ratio of 14.1, and a forward P/E ratio of 8.1, as of the Aug 17 close. Estimated annualized EPS growth for the next five years is 3.0%. With a profit margin of 4.0%, Alcoa paid a 0.98% dividend last year. Earnings increased by 121.72% this quarter, and 124.28% this year.
Target price implies a 61% upside potential, while it is trading 33.36% lower than its 52-week high. Alcoa has an O-Metrix score of 1.79, whereas it returned 12.1% in a year. Operating margin is 5.9%, and debt-to equity ratio is 0.6, both of which are worse than its industry averages. Although Alcoa is capable of beating the market, I do not think it will perform well for a considerable time.
Covidien is the only medical instruments company Cramer wants to hold. As of Aug 17, it shows a trailing P/E ratio of 13.9, and a forward P/E ratio of 11.76. Analysts estimate a 12.0% annual EPS growth for the next five years. It paid a 1.59% dividend last year, while the profit margin was 16.7%. Covidien had an EPS growth of 52.35% this quarter, and 66.25% this year.
It is trading 12.19% lower than its 52-week high, whereas target price indicates a 20.9% increase potential. Covidienās O-Metrix score is 5.29, and debts are decreasing for the last four quarters. Debt-to equity is 0.4, below the industry average of 0.6. Moreover, it has a five-star rating from Morningstar. This stock is a compelling long-term profit-maker.
Cramer is bearish on banks for now, including First Niagara Financial. The company has a P/E ratio of 16.3, and a forward P/E ratio of 8.8, as of the Aug 17 close. Five-year annualized EPS growth forecast is 8.0%. With a profit margin of 15.8%, and a dividend yield of 5.91%, First Niagara is a charming stock for dividend lovers. O-Metrix score of the company is 5.54, whereas earnings increased by 53.02% this year.
The stock is trading 26.48% lower than its 52-week high, while target price implies a 37.2% increase potential. It returned -15.4% in the last twelve months. Debt-to equity ratio is 1.5, better than the industry average of 2.1 Insiders have been buying stocks for a while. Although it was a rough year for First Niagara Financial, I believe it will beat the market in the long-term.
Alcatel-Lucent shows a trailing P/E ratio of 14.6, and a forward P/E ratio of 8.6, as of Aug 17. Estimated annual EPS growth for the next five years is 6.3%. With a thin profit margin of 2.4%, Alcatel-Lucent pays no dividend. Its O-Metrix score is 2.71, and it returned 34% in the last twelve months. Debt-to assets ratio is increasing since 2007, whereas the target price indicates a 42.2% upside potential.
Earnings increased by 81.22% this year, and the stock is trading 24.60% lower than its 52-week high. Debt-to equity ratio is 1.2, better than the industry average of 1.6. Moreover, it recently had multiple-topped. Alcatel-Lucent will not show a significant performance in the next five years, and it has a poor O-Metrix score. Moreover, it has a thin profit margin with no dividend policy. Hold if you own it, but it is not worth buying for now. Cramer comments:
That (Alcatel-Lucent) has been one of the worst stocks ever, and I've been telling people to sell since $80, and I reiterate it here, sell, sell, sell.
Dolby, as of Aug 17, was trading at a P/E ratio of 12.94, and a forward P/E ratio of 12.5. Analysts expect the company to have a 15.5% annualized EPS growth in the next five years. Profit margin is 31.36%, while it pays no dividend. Target price implies a 23.8% upside movement potential, and O-Metrix score of the company is 6.09.
Dolby returned -42.1% in a year, while it is currently trading 51.73% lower than its 52-week high. SMA50 and SMA200 are -17.63% and -35.86% respectively. Insiders have been selling stocks for a while. Dolby is in a downward trend since Jan 2011. I guess this will continue for a while. However, it is a good pick for the long-term. Cramer Says:
Take the money and run
This (Dolby Labs) is not a bull market stock.
Apple returned 50.3% in a year, and Cramer remains bullish on it. The tech giant has a P/E ratio of 15.1, and a forward P/E ratio of 11.8, as of Aug 17. Analysts estimate an 18.2% annualized EPS growth for the next five years. Profit margin in 2010 was 23.5%, and it offers no dividend yield. Earnings increased by 122.15% this quarter, and 66.91% this year.
Appleās O-Metrix score is 6.76, while target price implies a 29.5% increase potential. The stock is trading 5.95% lower than its 52-week high, whereas it has zero debts for the last five years. ROA and ROE are 27.53% and 41.99%, respectively. 42 out of 51 analysts covering the company recommend buying. My fair value estimate for Apple is $430 per share. Apple is still a buy at this price.
Cramer recommends Express Scripts instead of MedcoHealth. Here is a brief comparison between these two companies:
Current as of Aug.17 close. | MedcoHealth | Express Scripts |
P/E ratio | 15.79 | 19.39 |
Forward P/E ratio | 11.5 | 12.26 |
Estimated EPS growth for the next 5 years | 15.5% | 17.9% |
Dividend yield | - | - |
Profit margin | 2.12% | 2.88% |
Gross margin | 6.62% | 6.82% |
Upside movement potential | 30.4% | 37.3% |
O-Metrix scores of MedcoHealth and Express are 5.67 and 5.65, respectively. Medco is trading 19.58% lower than its 52-week high, while Express is trading 21.66% lower. Medco returned 14.6% in the last twelve months, whereas Express returned 2.9%. Both have debt-to assets ratios around 25%s, and both have a four-star rating from Morningstar.
I would pick more profitable stocks instead, as these two companies do not have any dividend policies. You may read my article on 8 high-dividend healthcare stocks, here.
Robert Half International, a California-based company, as of the Aug 17 close was trading at a P/E ratio of 30.73, and a forward P/E ratio of 14.96. Analysts expect the company to have a 16.5% EPS growth in the next five years, which is overdone given the -20.16% EPS growth of past five years. With a profit margin of 3.11%, shareholders enjoyed a 2.46% dividend last year.
RHI has an O-Metrix score of 4.14, and target price implies a 62.3% upside potential. The stock returned -9% in the last twelve months, and it is trading 32.99% lower than its 52-week high. P/B is 4.0 and P/S is 0.9, both of which are above industry averages. SMA50 and SMA200 are -12.14% and -21.41%, respectively. P/E ratio does not fit my criteria, and long-term EPS growth estimation sounds utopic to me. Cramer said:
We do not want that right now... people think we are going into a recession. This (Robert Half International) is not the stock to own.
Find more information on O-Metrix Grading System here.
Disclosure: I am long AAPL.