The last quarter passed with extreme losses, and Jim Cramer is trying to help investors compensate for their losses this quarter. Therefore, he made a long list of stocks again, as he had done before. In his October 4th Lightning Round, Cramer made thirteen calls. Seven of them were bullish, and the rest bearish. I have examined all of his stock mentions from a fundamental perspective, and added my opinion about them. I have applied my O-Metrix Grading System where applicable, as well. Here is a fundamental analysis of the first seven stocks from Cramer's October 4 Lightning Round:
Stock Name | Ticker | Cramer's Suggestion | O-Metrix Score | My Take |
Sprint Nextel | (S) | Avoid | N/A | Avoid |
Kinder Morgan | (KMP) | Buy | 2.10 | Hold |
Salesforce.com | (CRM) | Avoid | 0.34 | Avoid |
Chesapeake Energy | (CHK) | Buy | 4.31 | Buy |
Toll Brothers | (TOL) | Avoid | 0.79 | Avoid |
Edwards Lifesciences | (EW) | Top Pick | 2.97 | Hold |
Skyworkds Solutions | (SWKS) | Buy | 5.79 | Buy |
(Data obtained from Finviz/Morningstar, and is current as of October 4 close. You can download the O-Metrix calculator here.)
They [Sprint Nextel] spent so much money on the iPhone, it rings of desperation. I don't like the move.
Sprint has a P/E ratio of -3.0, and a forward P/E ratio of -4.7, as of October 4. Analysts estimate a 5.5% annual EPS growth for the next five years. Profit margin (-9.2%) is crushed by the industry average of 9.2%, while it pays no dividend.
Earnings decreased by 11.22% this quarter, and 37.39% this year. Insiders own only 0.04% of the shares, whereas it returned -38.7% in a year. Target price is $5.42, which implies a 89.5% upside potential. The stock is trading 55.66% lower than its 52-week high, and debt-to assets ratio is going up since 2006. While SMA50 is -19.54%, SMA200 is -36.88%. Cash flow is terrible. ROA, ROE, and ROI are -6.11%, -20.97% and -9.11%, respectively. The stock is extremely volatile, and I don’t think that the new iPhone will do any good as a short term catalyst.
Cramer is a buyer of Kinder Morgan, which offers a yield around 7%. The Texas-based oil transporter, as of the October 4 close, shows a trailing P/E ratio of 16.8, and a forward P/E ratio of 29.2. Five-year annualized EPS growth forecast is 2.8%. Profit margin (2.3%) is below the industry average of 4.1%, while it pays a 6.88% dividend.
O-Metrix score of Kinder Morgan is 2.10, whereas it is trading 12.74% lower than its 52-week high. Target price is $75.79, indicating a 13.3% increase potential. Kinder Morgan returned -3.2% in the last twelve months, and insiders own only 0.02% of it. The debt-to assets ratio is climbing up for the last five years. P/S (2.6), operating margin (19.7%), and profit margin are all red flags. ROA is 0.82%. Kinder Morgan has an awful PEG value of 10.4, while its earnings decreased by 121.75% this quarter. SMA50 and SMA200 are -3.32% and -4.98%, respectively. It is a stock to hold for the long-term, but there are better alternatives.
Spectra Energy (NYSE:SE) is a much better buy for me, with a P/E ratio of 14.2, and a forward P/E ratio of 13.4. Analysts expect the company to have a 6.0% annual EPS growth in the next five years, whereas the stock has an O-Metrix score of 3.70. It offers a 4.22% dividend, and profit margin (22.3%) crushes the industry average of 4.1%. Spectra returned 6.6% in a year.
Cramer believes that Salesforce is one of the “high flying stocks,” and doesn’t recommend it right now. It was trading at a terrible P/E ratio of 588.2, and a forward P/E ratio of 66.7, as of October 4. Estimated annual EPS growth is 22.9% for the next five years. It has no dividend policy, while the profit margin (1.5%) is crushed by the industry average of 12.0%.
Salesforce has an O-Metrix score of 0.34, whereas it returned 3.2% in the last twelve months. Target price implies a 31.5% upside movement potential, and the stock is trading 26.56% lower than its 52-week high. It had a -25.09% EPS growth this year, and -128.75% this quarter. SMA50 is -8.24%, while SMA200 is -13.16%. Insiders hold only 0.67% of the shares. Operating margin is 0.8%. ROA and ROE are 0.92% and 2.12%, respectively. PEG value is 2.9. Moreover, it has a one-star rating from Morningstar. I can’t recommend buying such a stock.
I think Chesapeake is terrific and it's inching its way to $30.
Chesapeake shows a trailing P/E ratio of 16.5, and a forward P/E ratio of 9.2, as of the October 4 close. Five-year annual EPS growth forecast is 9.7%. With a profit margin of 10.1%, Chesapeake pays a 1.39% dividend.
The stock is trading 29.53% lower than its 52-week high, while it returned 12.5% in a year. O-Metrix score is 4.31, and its target price indicates an about 56.6% upside movement potential. Earnings increased by 68.03% this quarter, and 126.27% this year. Institutions hold 75.41% of the shares, whereas sales rose by 64.91% this quarter. Chesapeake has an admirable gross margin of 85.2%. PEG value is 0.9, and Morningstar gives a four-star rating for the company. The recent sell-off created a fair entry point. Consider adding this stock to your portfolio.
Toll Brothers is “the best house in a real bad neighborhood," and Cramer suggests staying away. The Pennsylvania-based Toll, as of October 4, has a P/E ratio of 33.2, and a forward P/E ratio of 46.5. Analysts expect the company to have a 6.3% annual EPS growth in the next five years. Profit margin in 2010 was 5.2%, while it offers no dividend.
Target price is $21.43, which implies a 53.0% upside potential. The stock is currently trading 37.56% lower than its 52-week high, whereas it returned -25.4% in the last twelve months. Sales decreased by 13.19% this quarter, and O-Metrix score is 0.79. Cash flow is terrible. Gross margin and operating margin are 12.5% and -5.9%, respectively. While ROE is 2.94%, ROA is 1.44%. ROI is 1.72%. Toll has a horrible PEG value of 7.3. SMA50 is -15.18%, and SMA200 is -28.29%. Under these circumstances, I wouldn’t put any money in Toll.
Edward Lifesciences is one of Cramer’s favorite plays. It was trading at a P/E ratio of 36.2, and a forward P/E ratio of 25.4, as of the October 4 close. Estimated annualized EPS growth for the next five years is 18.3%. Profit margin (14.9%) is slightly above the industry average of 13.2%, while it has no dividend policy.
O-Metrix score is 2.97, and its target price implies an about 27.3% upside movement potential. The stock is trading 23.91% lower than its 52-week high, whereas it returned 3.2% in a year. Debt-to assets ratio is increasing since Q4 2010, and cash flow is struggling. P/E ratio, P/B (5.8), and P/S (5.3) are solid red flags. SMA20, SMA50, and SMA200 are -5.99%, -2.87% and -15.08%, respectively. Insiders own 0.85% of the stock. Operating margin is 18.0%, and Morningstar gives a two-star rating to Edwards. PEG value is 1.4. Holding is OK, but buying would not be the right move, in my opinion.
Skyworks is OK. It should be bottom here, like it does every year.
As of October 4, Skyworks shows a trailing P/E ratio of 17.3, and a forward P/E ratio of 9.1. Analysts estimate a 15.3% annual EPS growth for the next five years, which sounds conservative when its 36.04% EPS growth of past five years is considered. It offers no dividend, while the profit margin 15.7% is slightly below the industry average of 17.4%.
Target price is $31.63, indicating a 74.1% increase potential. The stock is trading 51.98% lower than its 52-week high, whereas it returned -13.3% in a year. O-Metrix score is 5.79. The debt-to assets ratio has landed, and cash flow is doing great. Debt-to equity ratio is 0.0, far better than the industry average of 0.5. PEG value is 0.6. Morningstar gives a four-star rating, and average analyst recommendation for Skyworks is 1.3 (1=Buy, 3=Sell). This is an advantageous time to buy Skyworks.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.