Cramer's Mad Money: 2 Buy And 4 Sell Ideas

by: Efsinvestment

The markets closed the worst quarter since the Lehman disaster. Q3 was a disaster for industrial goods, which lost 25.4%. Industrial stocks were followed by basic materials stocks and financial stocks, which lost -24.9 and -24.4 so far. It is sad to say that there were no winners this quarter. Jim Cramer is trying to guide investors by giving some tips to protect themselves from this storm as much as they can.

On September 30’s Mad Money program, he made several calls. Two of them were bullish this time, and the other four bearish. I have examined all of his stock mentions from a fundamental perspective, and added an alternative to one of them. I have applied my O-Metrix Grading System where possible, as well (see link below). Here is a fundamental analysis of these stocks from Cramer's September 30 Mad Money:

Stock Name


Cramer's Suggestion

O-Metrix Score

My Take

Costco Wholesale





Constellation Brands










Itau Unibanco







Avoid for Now



Bristol-Myers Squibb




Buy After Pullback

Click to enlarge

(Data from finviz/morningstar and is current as of October 4 close. You can download O-Metrix calculator, here.)

Costco generally got hit when it moved north, so Cramer is nervous about the stock. As of the October 4 close, it has a P/E ratio of 26.0, and a forward P/E ratio of 21.6. Five-year annualized EPS growth is 12.8%. Profit margin (1.7%) is more than double the industry average of 3.6%, while it offers a 1.18% dividend.

Costco returned 24.4% in a year, whereas it has an O-Metrix score of 2.93. Target price indicates a 1.8% increase potential, and the stock is trading only 7.48% lower than its 52-week high. Insiders own only 0.43% of the shares. Gross margin and operating margins are 12.7% and 2.8%, respectively. While ROE is 12.40%, ROA is 5.57% and PEG value is 1.7. Moreover, Costco has a two-star rating from Morningstar. Holding might be OK, but I can’t recommend buying such a stock.

Wal-Mart (WMT) is a much better buy when compared to Costco, with a P/E ratio of 11.8, and a forward P/E ratio of 10.6, as of October 4. Analysts expect the company to have an 11.8% annual EPS growth in the next five years, while it has an O-Metrix score of 6.52. Dividend yield is 2.81%, and profit margin is 25.2%. Wal-Mart returned -1.9% in the last twelve months, and its target price implies a 14.1% upside movement potential. Morningstar gives a four-star rating to Wal-Mart, and the stock is less volatile than Costco.

Cramer rather prefers going with Diageo instead of Constellation, as Diageo is better-run and offers a dividend around 4%. Here is a brief comparison between these three stocks:

Current as of October 4 close.



P/E ratio



Forward P/E ratio



Estimated EPS growth for the next 5 years



Dividend yield



Profit margin



Gross margin



Upside movement potential



Click to enlarge

Constellation is trading 21.26% lower than its 52-week high, while Diageo is trading 10.41% lower. Constellation returned 3.4% in the last twelve months, and Diageo returned 9.0%. Both of their debt-to assets ratios are going down. Morningstar gives a four-star rating for Constellation, and a three-star rating for Diageo. Both of them are profitable buys for me.

Cramer is bearish on all banks- even Brazilian banks- including Itau Unibanco Holding. The Sao Paulo, Brazil-based Itau, as of October 4, shows a remarkable trailing P/E ratio of 5.9, and a forward P/E ratio of 7.4. Estimated annual EPS growth for the next five years is 12.9%. It offers a thin dividend of 0.60%, while the profit margin is 14.7%.

Target price is $26.36, which implies a 73.0% upside potential. The stock is currently trading 41.56% lower than its 52-week high, whereas it returned -37.8% in a year. Itau has an O-Metrix score of 10.15. Assets are increasing sharply for the last four years, as well as debts. PEG value is 0.6, and Morningstar gives a four-star rating to Itau. 10 out of 14 analysts covering the stock recommend buying, and I agree with them.

Cramer believes that Deere will suffer from the fertile harvest. While this is “great news for General Mills (GIS),” he thinks that Deere might be added to portfolios after it starts yielding about 3%.

Deere was trading at a P/E ratio of 11.2, and a forward P/E ratio of 9.4, as of October 4. Five-year annual EPS growth forecast is 9.0%. With a profit margin of 8.5%, it pays a 2.66% dividend.

Target price is $91.85, indicating a 44.6% increase potential. O-Metrix score of Deere is 5.66, and it is trading 35.69% lower than its 52-week high. Institutions hold 70.55% of the stock. Deere returned -7.3% in a year, and yields seem all right. ROE is 37.39%. Earnings increased by 111.34% this year, and 17.35% this quarter. PEG value is 1.0. Average analyst recommendation is 1.4 (1=Buy, 3=Sell), while Morningstar gives a four-star rating for Deere. Although it was a risky buy for me, I believe it is safer now.

Cramer said one viewer was a buyer of Bristol-Myers Squibb. The New York-based biopharma shows a trailing P/E ratio of 16.0, and a forward P/E ratio of 15.1, as of October 4. Analysts estimate a 4.3% annualized EPS growth for the next five years, which is fair given the 4.38% EPS growth of past five years. With a profit margin of 16.3%, and a dividend of 4.19, Bristol-Myers is an attractive stock for dividend lovers.

The stock is currently trading 0.50% higher than its 52-week high, while it has an O-Metrix score of 2.72. Target price is $32.15, implying a 0.1% upside movement potential. Bristol-Myers returned 20.0% in a year, and yields are consistent. The debt-to assets ratio is going down since 2006. Beta value is 0.56, and institutions own 68.53% of the stock. SMA50 and SMA200 are 9.95% and 17.38%, respectively. Debt-to equity ratio is 0.3, way below the industry average of 0.8. Gross margin is 72.9%, and operating margin is 28.7%. While ROE is 20.74%, ROI is 15.06%. Returning serious profits is no sweat for Bristol-Myers in the long run, but a pullback should be waited for.

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