3 Jim Cramer Picks Worth Reconsidering

Includes: ARMH, NVDA, SD
by: Efsinvestment

Jim Cramer is one of the most popular stock pickers of all time. His Mad Money program on CNBC is always filled with fun. Cramer is trying to guide amateur investors by making calls on their favorite stocks. Recently, he took three stocks on his radar, recommending home-gamers put their money on them. However, my indicators told another story this time. I have investigated all of these stocks from a fundamental perspective, adding my opinion about them. I have applied my O-Metrix Grading System where possible. Here is a fundamental analysis of these stocks from Cramer's Mad Money:

Stock Name


Cramer's Suggestion

O-Metrix Score

My Take

Sandridge Energy





ARM Holdings





Nvidia Corp.





Click to enlarge

Cramer had an interview with the SandRidge CEO Tom Ward on Sep 13. It has a P/E ratio of 175.4 and a forward P/E ratio of 19.4, as of Sep 16. Analysts estimate a 12.5% annual EPS growth for the next five years, which is reasonable, considering its 10.72% EPS growth of past five years. It has no dividend policy, while the profit margin (-2.5%) is crushed by the industry average of 10.4%.

O-Metrix score of SandRidge is 0.64, whereas it returned 50.8% in a year. Debts are increasing sharply since 2007. Earnings decreased by 987.45% this quarter, and the stock is trading 43.55% lower than its 52-week high. Target price is $12.80, which implies a 67.5% upside potential. SMA50 and SMA200 are -14.31% and -19.33%, respectively. Operating margin is -11.8%. While ROE is -4.67%, ROI is -0.87%. ROA is -0.70%. Cash flow is struggling, and PEG value is 1.5. Debt-to equity ratio is 2.0, crushed by the industry average of 0.9. Under these circumstances, it’s clearly impossible to agree with Cramer on this call.

ARM practically owns the mobile handset market now, especially the iPhone, and that looks like it's not going to change anytime soon, given the company’s lead in mobility and, most importantly, energy efficiency. This is one of those cases where the market opportunity is so much bigger than the stock’s current market capitalization, you have to hold your nose and pay up.

ARM Holdings was trading at a P/E ratio of 95.2, as of the Sep 16 close. Analysts expect the company to have an annualized EPS growth of 14.25% in the next five years, which sounds fair, given the 16.72% EPS growth of past 5 years. Profit margin (20.4%) is slightly better than the industry average of 18.9%, while it offers a razor thin dividend of 0.41%.

Target price is $24.95, indicating an about 11.6% downside potential. The stock is currently trading 12.11% lower than its 52-week high, whereas it returned 52.1% in a year. Yields are inconsistent. P/S is 19.4, and P/B is 8.8, both of which are way above their industry averages. Analysts give a 2.90 recommendation for ARM Holdings (1=Buy, 5=Sell). P/E ratio, P/B, P/S, and ROE (10.0%) are hopeless red flags. Moreover, it has a two-star rating from Morningstar. I would stay away from this stock for now.

Nvidia, which already has a 70% market share in non-Apple based tablet chips, is also on Cramer’s radar. He believes that its patents alone “could be worth the whole company.” Therefore, Cramer recently made an interview with the CEO Jen-Hsun Huang.

The California-based Nvidia shows a trailing P/E ratio of 17.5, and a forward P/E ratio of 13.8, as of the Friday close. Five-year annualized EPS growth forecast is 14.0%. Profit margin (14.7%) is slightly lower than the industry average of 18.9%, while it offers no dividend yield.

Nvidia is trading 40.92% lower than its 52-week high, whereas its O-Metrix score is 4.47. Target price implies a 18.3% upside movement potential, while it returned 46.3% in the last twelve months. Earnings increased by 447.60% this year, and 200.32% this quarter. Insider transactions have increased by 20.65% within the last six months, and institutions own 76.52% of the stock. Nvidia has almost zero debts for the last five years. While SMA20 is 14.97%, SMA50 is 12.39%. Debt-to equity is 0.0, far better than the industry average of 0.5. ROE and ROI are 16.85% and 16.73%, respectively. PEG value is 1.0. 10 out of 34 analysts covering the company recommend buying, whereas 21 suggests holding.

On the other hand, insiders own only 0.30% of the stock. P/E ratio, profit margin and ROE are moderate red flags. Nvidia is struggling to fend off its decline trend since Feb 2011. However, it was unsuccessful to avoid an approximately 40.0% downfall since then. Insiders have been selling stocks and exercising options for a while. Morningstar gives a three-star rating for Nvidia. This stock may be worth holding, but not buying.

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