Cramer is one of the most popular stock pickers in the market. In this article, I brought four of Cramer's stock picks and explained my opinions about them. I have investigated these stocks from a fundamental perspective, adding my O-Metrix Grading System where necessary. Here is a fundamental analysis of these stocks from Cramer's Mad Money (Data from Finviz/Morningstar, and is current as of August 24.)
Stock Name | Ticker | Cramer's Suggestion | O-Metrix Score | My Take |
Deere& Co | Buy | 4.81 | Risky Buy | |
Potash | Buy | 5.64 | Risky Buy | |
Honeywell | Buy | 6.00 | Long-Term Buy | |
Emerson Electric | Buy | 4.33 | Hold |
Cramer recommends buying tractor maker Deere, the “best of breed.” He also recommends Potash:
These companies make a killing when farmers around the world are spending. That doesn't mean you should pay up for them at any price, but it does give you a terrific reason to buy them into weakness that has nothing to do with this fabulous ag story.
As of the Aug 24 close, Deere (DE) shows a trailing P/E ratio of 12.9, and a forward P/E ratio of 10.3. Analysts estimate an annual EPS growth of 9.0% for the next five years, which sounds reasonable, given the 8.68% EPS growth of last five years. Profit margin (8.6%) is higher than the industry average of 6.5%, while the company offered a 2.18% dividend.
Earnings increased by 17.40% this quarter, and 111.34% this year. Its O-Metrix score is 4.81. The stock is currently trading 24.37% lower than its 52-week high, whereas it returned 19.4% in a year. Target price is $91.10, which implies a 21.3% upside potential. ROE is 38.13%. Debt-to assets ratio is nearly stable for the last five quarters. Debt-to equity ratio is 2.2, and P/B is 4.3, both of which are strong red flags. If you take the risk, this stock can be truly profitable for you.
Potash (POT), on the other hand, was trading at a P/E ratio of 20.1, and a forward P/E ratio of 12.7 (as of Aug 24). Estimated annualized EPS growth for the next five years is 18.0%. Profit margin (31.0%) crushes the industry average of 18.9%, while it paid a dividend yield of 0.53% last year.
The company had an EPS growth of 82.36% this quarter, and 79.63% this year. Target price is $67.46, indicating an about 21.8% upside movement potential. O-Metrix score is 5.64, whereas it is trading 13.24% lower than its 52-week high. Potash returned 14.1% in the last twelve months, and debt-to assets ratio is going down for the last three quarters. ROA, ROE, and ROI are 16.76%, 34.03% and 21.30%, respectively. Gross margin is 45.2%, whereas operating margin is 43.7%. Debt-to equity ratio is 0.5, better than the industry average of 0.8. 16 out of 26 analysts recommend buying. Although Potash is weaker in terms of P/E- forward P/E ratios and dividend yield, I believe that it is less risky than Deere. However, staying cautious is the best.
Honeywell (HON) returned 15.4% in a year, and Cramer is bullish on this stock. The New Jersey-based industrial goods company, as of the Aug 24 close, has a P/E ratio of 14.1, and a forward P/E ratio of 10.0. Analysts expect the company to have an 11.5% annual EPS growth in the next five years. Honeywell offered a 2.97% dividend last year, while the profit margin was 7.0%.
Earnings increased by 26.41% this year, and 41.10% this quarter. The stock is currently trading 27.10% lower than its 52-week high, while it has an O-Metrix score of 6.00. Target price implies a 43.3% upside movement potential, and yields are consistent. Debt-to assets ratio is going down for the last three years, whereas institutions own 80.88% of the stock. Debt-to equity ratio is 0.6, far better than the industry average of 2.1. Insiders have been mostly exercising options for a while. I believe the stock is undervalued, and can enter portfolios as a long-term buy.
Emerson Electric (EMR) is “another play on power management”, Cramer says. The company shows a trailing P/E ratio of 15.8, and a forward P/E ratio of 11.9, as of Aug 24. Analysts estimate a 9.0% annualized EPS growth for the next five years, which is reasonable when its 8.92% EPS growth of past 5 years is considered. Although profit margin is average (10.5%), dividend yield is relatively satisfactory (3.01%).
Emerson has an O-Metrix score of 4.33, whereas it returned -0.01% in the last five years. Debt-to assets ratio is hovering around 25%s for the last five quarters. Institutions own 72.91% of the stock, while it is currently trading 25.39% lower than its 52-week high. Target price is $57.68, indicating an about 25.9% upside movement potential. Yields seem all right. ROE is 25.0%, and debt-to equity ratio is 0.4, both of which are far better than their industry averages. Moreover, the company has a four-star rating from Morningstar. Insiders have been mostly buying stocks since May 16. I would not ignore this stock.
Find more information on O-Metrix Grading System here.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
