Jim Cramer is one of the most renowned and respectable stock pickers in the world. I regularly follow his show and investigate his stock picks further. In the week’s first Lightning Round program, he made eight calls. Three of them were bearish this time, and the other five bullish.
However, he emphasized that most of his bullish calls come with significant risks. I have examined all of his stock mentions from a fundamental perspective applying my O-Metrix Grading System where possible. Here is a fundamental analysis of these stocks from Cramer's September. 19 Lightning Round:
Stock Name | Ticker | Cramer's Suggestion | O-Metrix Score | My Take |
First Solar | Avoid | 7.48 | Long-Term Buy | |
Salesforce.com | Buy | 0.30 | Avoid | |
MetroPCS Communications | Avoid | 8.71 | Hold | |
New York Community | Avoid | 7.00 | Risky Buy | |
Deere | Long-Term Buy | 4.75 | Risky Buy | |
O’Reilly Automotive | Buy | 4.23 | Hold | |
Autozone | Buy | 4.21 | Hold | |
Prudential Financial | Risky Buy | 9.54 | Risky Buy |
While First Solar hit its 52-week low, Cramer is bearish on this stock. It has a P/E ratio of 14.3, and a forward P/E ratio of 8.4, as of September 19. Five-year annualized EPS growth forecast is 17.0%. It pays no dividend, while the profit margin (20.3%) crushes the industry average of 8.5%.
First Solar returned -42.5% in a year, whereas it is trading 52.17% lower than its 52-week high. Target price is $138.11, indicating a 64.5% increase potential. O-Metrix score is 7.48. The debt-to assets ratio is slightly going down for the last five years, and PEG value is 0.5. Operating margin (22.8%), profit margin, and debt-to equity ratio (0.1) are trustworthy green flags. ROE and ROI are 15.24% and 14.18%, respectively. I believe current price is an opportune entry point, as this stock is likely to storm the market in the medium-term.
Cramer likes the tech sector right here, and he recommends considering Salesforce. The company was trading at a P/E ratio of 666.7, and a forward P/E ratio of 74.6, as of September 19. Analysts estimate a 22.9% annual EPS growth for the next five years. Profit margin (1.5%) is crushed by the industry average of 12.1%, while it has no dividend policy.
Salesforce had a -128.75% EPS growth this quarter, and -25.09% this year. Insiders hold only 0.67% of the shares, whereas O-Metrix score is 0.30. Target price is $154.69, which implies a 13.6% upside potential. Salesforce returned 10.5% in a year, while it is trading 15.01% lower than its 52-week high. Debts are increasing for the last three years. P/S (9.6), P/B (13.0), ROE (2.1%), profit margin and operating margin (0.8%) are pathetic red flags.
ROA and ROI are 0.92% and 1.96%, respectively. Insiders have been exercising options and selling stocks for a while. PEG value is 3.3. Moreover, Salesforce has a one-star rating from Morningstar. This stock can be your nightmare if added to portfolio, so stay away. If you are stil holding Salesforce, take a look at what happened to Netflix (NASDAQ:NFLX).
MetroPCS Communications missed the quarter. I don't want to own it. I have enough problems with companies that make their numbers.
The stock was trading at a P/E ratio of 15.6, and a forward P/E ratio of 9.3, as of the September 19 close. Estimated annual EPS growth for the next five years is 21.7%, which is truly utopic when its -14.00% EPS growth of past five years is considered. It has no dividend policy, while the profit margin (5.2%) is nearly doubled by the industry average of 10.0%.
O-Metrix score is 8.71, which should be much lower as EPS growth estimation is overdone. Insiders own only 0.46% of the stock, and insider transactions have decreased by 94.58% within the last six months. Debts are climbing for the last three quarters. Target price indicates a 45% increase potential, whereas it is currently trading 46.78% lower than its 52-week high.
SMA50 and SMA200 are -20.60% and -31.08%, respectively. MetroPCS returned 1.1% in a year. P/E ratio, profit margin, and ROE (9.0%) are moderate red flags. ROA is 2.79%. Insiders have been selling large amounts of stocks for a while. It is impossible for the stock to meet its long-term EPS growth estimation. Hold if you accept the risk, but I would not recommend buying.
Cramer is bearish on banks, including New York Community. The bank has a P/E ratio of 10.5, and a forward P/E ratio of 10.7, as of September 19. Five-year annualized EPS growth forecast is 7.0%. With a profit margin of 34.7%, and a dividend of 7.86%, New York Community is a gorgeous pick for dividend lovers.
The stock is trading 30.97% lower than its 52-week high, while it has an O-Metrix score of 7.00. Target price is $16.69, implying a 31.1% upside potential. Debts are far from being a threat. P/B (1.0), profit margin, and debt-to equity ratio (1.5) are strong green flags. Institutions own 61.54% of the shares.
On the other hand, it returned -22.9% in the last twelve months. The company is paying the same dividend since Apr 2004, whereas insiders own only 1.03% of the shares. PEG value is 1.5. ROA and ROE are 1.28% and 9.60%, respectively. P/S (3.6) and ROE (9.6%) are strong red flags. Insiders have been mostly selling stocks for a while. Nevertheless, I think the stock is cheap and could offer good returns for the long-term holders.
Cramer recommends holding Deere till next year, as it is “very inexpensive on next year's ag. [Agricultural] numbers." The Illinois-based Deere, as of Sep tember 19, shows a trailing P/E ratio of 12.7, and a forward P/E ratio of 10.7. Analysts expect the company to have a 9.0% annualized EPS growth in the next five years, which is fair given the 8.68% EPS growth of past 5 years. It offered a 2.12% dividend last year, while the profit margin was 8.5%.
The stock is currently trading 22.26% lower than its 52-week high, whereas it returned 4.8% in a year. Target price is $91.17, which implies a 18.1% upside potential. O-Metrix score is 4.75. Earnings increased by 17.35% this quarter, and 111.34% this year. Institutions hold 70.52% of the shares. Yields are awesome, and ROE is 37.93%.
On the other hand, debt-to assets ratio is hovering around dangerous rates. P/B (4.2) and debt-to equity ratio (2.1) are strong red flags. Operating margin is 12.8%, and insiders own only 0.04% of the stock. This stock should be dealt with caution.
O’Reilly is at a 52 week high and going higher...also Autozone. Man, this group is so hot.
Here is a brief comparison between these two stocks:
Current as of Sep.19 close. | O’Reilly | Autozone |
P/E ratio | 22.3 | 18.3 |
Forward P/E ratio | 17.4 | 14.9 |
Estimated EPS growth for the next 5 years | 16.8% | 14.0% |
Dividend yield | - | - |
Profit margin | 8.2% | 10.4% |
Gross margin | 48.6% | 50.8% |
Upside movement potential | -7.7% | -6.1% |
O’Reilly is currently trading 0.39% lower than its 52-week high, while Autozone is trading 0.61% lower. O-Metrix scores of O’Reilly and Autozone are 4.23 and 4.21, respectively. O’Reilly returned 36.1% in a year, whereas Autozone returned 50.7%. Both of their insiders are selling stocks for a while. While these stocks can still go higher, I would not buy stocks that are hovering around 52-week highs. Holding is OK, though.
It's [Prudential] a financial, so it looks horrible...this is the only one in the insurance group I would ever own.
The New Jersey-based Prudential was trading at a P/E ratio of 8.5, and a forward P/E ratio of 6.4, as of the Sep 19 close. Analysts estimate an 11.9% annual EPS growth for the next five years. With a profit margin of 7.1%, Prudential offers a 2.32% dividend.
Prudential is trading 26.60% lower than its 52-week high, while it has an O-Metrix score of 9.54. Target price is $72.25, implying a 45.7% upside movement potential. Assets are increasing sharply, and debts are far from becoming a threat. P/B is 0.7, and P/S is 0.6, both of which are below their industry averages. Prudential returned -12.1% in the last twelve months.
On the other hand, insiders own only 0.10% of the stock. Earnings decreased by 25.80% this year, and 0.83% this quarter. SMA50 and SMA200 are -6.41% and -16.61%, respectively. Debt-to equity ratio is 0.7, far above the industry average of 0.3. Operating margin is 9.3%. While ROA is 0.52%, ROI is 4.94%. I agree with Mr. Cramer on Prudential. This is a risky investment, but it can be extremely rewarding in the long-term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.