2 Buy and 4 Sell Calls By Cramer

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 |  Includes: AAPL, CAG, EMC, FTR, SD, VC
by: Efsinvestment

Jim Cramer, the most influential stock picker on the street, closed September with a joyful Lightning Round program. In the week’s first Lightning Round, he mentioned the most popular and speculative stock of the last decade: Apple, Inc. (AAPL). While he believes that the stock still has a way down, I totally disagree with him on this call. Cramer made six calls in total; two bullish and four 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 possible, as well. Here is a fundamental analysis of these stocks from Cramer's October 3 Lightning Round:

Stock Name

Ticker

Cramer's Suggestion

O-Metrix Score

My Take

Apple

(AAPL)

Buy After Pullback

7.66

Top Pick

Visteon

(VC)

Avoid

11.09

Buy

Frontier Communications

(FTR)

Avoid

2.26

Avoid

EMC

(EMC)

Buy

4.34

Buy

Sandridge Energy

(SD)

Avoid

0.81

Avoid

Ralcorp

(RC)

Avoid

2.85

Avoid

Click to enlarge

(Data from finviz/morningstar and is current as of October 3 close. You can download O-Metrix calculator, here)

Cramer suggests waiting for a pullback before buying Apple. The world’s most innovative company, as of October 3, was trading at a P/E ratio of 15.5, and a forward P/E ratio of 11.9. Analysts expect the company to have a 21.00% annual EPS growth in the next five years. It pays no dividend, while the profit margin is 23.5%.

Apple has no debts since 2006, whereas cash flow is doing great. Target price is $490.04, which implies a 30.8% upside potential. O-Metrix score is 7.66, and the stock is trading 11.41% lower than its 52-week high. Apple returned 34.4% in a year. Earnings increased by 122.15% this quarter, and 66.91% this year. PEG value is 0.6, and Morningstar gives a four-star rating to the stock. While ROE is 41.99%, ROA is 27.53%. Operating margin is 30.4%. The updated iPhone 4S has just unveiled, and the recent sell-off already provides a tremendous entry point. My fair value estimate is $430 for Apple (full analysis, here).

Cramer is bearish on auto parts industry, which includes Visteon Corp. The Michigan-based industry has a significant P/E ratio of 3.0, and a forward P/E ratio of 8.0, as of the October 3 close. Five-year annual EPS growth forecast is 12.20%. Profit margin (13.6%) is way above the industry average of 5.0%, while it has no dividend policy.

O-Metrix score of Visteon is 11.09, and the stock is trading 46.90% lower than its 52-week high. Target price is $75.50, indicating an about 85.5% increase potential. Visteon returned -46.3% in the last twelve months. P/E ratio, operating margin (15.2%), profit margin, and debt-to equity ratio (0.4) are strong green flags. ROA, ROE, and ROI are 20.44%, 612.14% and 182.59%, respectively. Earnings increased by 132.25% this quarter, and 803.63% this year. Institutions hold 78.71% of the shares. Analysts give a 1.0 rating for Visteon (1=Buy, 3=Sell), and my opinion is the same. Visteon is one of the best players’ in its field.

Cramer believes that Frontier’s business is unable to provide the strength required for supporting this dividend. Frontier shows a trailing P/E ratio of 38.2, and a forward P/E ratio 22.6, as of the October 3 close. Estimated annual EPS growth for the next five years is 0.50%. Profit margin (3.0%) is more than tripled by the industry average of 9.2%, while it offers a dividend of 13.25%.

O-Metrix score is 2.26, whereas the stock is trading 40.14% lower than its 52-week high. Target price is $10.81, implying a 97.2% upside potential. Earnings decreased by 71.39% this quarter, and 39.88% this year. Insiders hold only 0.28% of the shares. Operating margin is 17.7%. ROA, ROE, and ROI are 1.32%, 6.25% and 1.78%, respectively. Frontier returned 32.0% in a year. P/E ratio, profit margin, and ROE are strong red flags. Moreover, it is in my dividend danger zone list. Stay away from this stock.

Here's the problem...I like it [EMC] very much...but you know what? Things want to go lower. Would I buy EMC here? Yes, but your first buy is not going to be your only buy.

The Massachusetts- based company, as of October 3, has a P/E ratio of 22.2, and a forward P/E ratio of 12.3. Five-year annualized EPS growth forecast is 15.0%. It pays no dividend, while the profit margin 11.5% is above the industry average of 7.8%.

Target price is $30.80, indicating an about 48.6% upside potential. O-Metrix score is 4.34, whereas the stock is currently trading 27.88% lower than its 52-week high. EMC had a 66.61% EPS growth this year, and 20.28% this quarter. The stock returned 3.1% in the last twelve months, and debt-to assets ratio is going down since 2006. Institutions hold 85.54% of the shares, and average analyst recommendation is 1.80 (1=Buy, 5=Sell). PEG value is 0.8. EMC is among the ten big global software players, so consider adding this stock to your portfolio.

Although Cramer was bullish on Sandridge recently, now he believes that it will be in trouble as long as oil prices fall. The oil company, as of October 3, shows a trailing P/E ratio of 137.0, and a forward P/E ratio of 16.6. Estimated annual EPS growth is 12.5% for the next five years, which sounds reasonable when its 10.72% EPS growth of past five years is considered. Profit margin (-2.5%) is crushed by the industry average of 14.1%, while it pays no dividend.

Earnings decreased by 987.45% this quarter, whereas the stock is trading 61.92% lower than its 52-week high. Target price is $12.36, which implies a 143.3% upside potential. SMA20, SMA50, and SMA200 are -23.74%, -34.34% and -46.49%, respectively. Sandridge returned -9.2% in the last twelve months, while it has an O-Metrix score of 0.81. Since 2007, debts increased by 172.4%. PEG value is 1.3, and cash flow is not doing so good. Debt-to equity ratio is 2.0, way above the industry average of 0.9. ROA and ROE are -0.70% and -4.67%, respectively. Operating margin is -11.8%, whereas Beta value is 1.92. It wouldn’t be wise to expect anything from this stock.

They [Ralcorp] rejected that bid (from ConAgra) at a time they should have accepted it. I don't have any room for that. They should have accepted it. I say don't buy,

Ralcorp was trading at a P/E ratio of 18.7, and a forward P/E ratio of 12.8, as of the October 3 close. Analysts expect the company to have a 9.0% annualized EPS growth in the next five years. Profit margin (4.8%) is lower than the industry average of 6.7%, while it has no dividend policy.

Ralcorp returned 27.7% in a year, whereas it is currently trading 18.14% lower than its 52-week high. O-Metrix score is 2.85, and its target price indicates a 15.6% increase potential. Ralcorp had a -26.37% EPS growth this year, and -46.99% this quarter. SMA20, SMA50, and SMA200 are -5.23%, -8.00% and -1.17%, respectively. Insiders own only 0.22% of the stock. The debt-to assets ratio is going up since 2008, and PEG value is 1.4. While ROA is 3.72%, ROE is 7.70%. Operating margin is 5.6%. I would stay away from this company.



Disclosure: I am long AAPL.