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While the markets were all green today, the monthly performance of the markets are still in the red zone. In the last 30 days, basic materials took the biggest hit (-10.8%), followed by conglomerates (-7.0%), financials (-6.0%) and industrial stocks (-5.2%). This is a chaotic environment for everyone, especially for the simple investors. The market offers good opportunities, but it is hard to figure out which stock is a buy, which one is a sell. It is vital to take some advices from the gurus, which may lead turning third quarter pain into a fourth quarter gain.

Jim Cramer made a long list in October 5th’s Lightning Round, explaining his opinion about fourteen stocks. Eight of them were bullish this time, and four were 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 5 Lightning Round:

Stock Name

Ticker

Cramer's Suggestion

O-Metrix Score

My Take

EarthLink

ELNK

Avoid

3.65

Avoid

ReachLocal

RLOC

No Calls

N/A

Avoid

Transocean

RIG

Avoid

N/A

Hold

Ensco

ESV

Buy

9.04

Buy

Seagate

STX

Buy

13.51

Long-Term Buy

Armour Residential

ARR

No Calls

N/A

Bank of America

BAC

Hold

N/A

Risky Buy

Fusion-io

FIO

Buy

0.76

Avoid

NRG Energy

NRG

Avoid

1.82

Avoid

Consolidated Edison

ED

Buy

2.79

Hold

Exelon

EXC

Buy

2.87

Buy

Southern

SO

Buy

3.04

Buy

American Electric

AEP

Buy

3.89

Buy

FirstEnergy

FE

Buy

2.50

Hold

Data obtained from Finviz/Morningstar, and is current as of October 5 close. You can download the O-Metrix calculator here.

Cramer recommends picking other stocks with growth or dividend, as EarthLink is “stuck in the mud.” It shows a trailing P/E ratio of 14.1, and a forward P/E ratio of 15.2, as of October 5. Analysts expect the company to have a 7.5% annual EPS growth in the next five years. Although profit margin (5.4%) is relatively thin, dividend (3.20%) is satisfactory.

O-Metrix score is 3.65, whereas the stock is trading 30.92% lower than its 52-week high. Target price implies a 95.8% upside potential, and it returned -27.6% in a year. Yields are inconsistent. The debt-to assets ratio has nearly doubled within the last five quarters. Earnings decreased by 76.99% this quarter, and 71.98% this year. SMA50 and SMA200 are -13.41% and -19.70%, respectively. While ROA is 3.28%, ROE is 6.53%. PEG value is 2.0. Just avoid this stock.

Cramer will do some research before making a call on ReachLocal. It has a P/E ratio of -27.4, and a forward P/E ratio of 89.3, as of the October 5 close. Estimated annual EPS growth for the next five years is 30.0%. It has no dividend policy, while the profit margin (-3.3%) is crushed by the industry average of 6.7%.

Earnings decreased by 931.51% this year, and its target price indicates a 135.6% increase potential. While SMA200 is -46.19%, SMA50 is -28.00%. Operating margin is -3.4%, whereas it returned -28.7% in the last twelve months. ROA and ROE are -7.0% and -12.62%, respectively. PEG value is 3.1. The stock is extremely volatile, and I would stay away from it.

Cramer rather prefers Ensco instead of Transocean. Here is a brief comparison of these stocks:

Current as of October 5th close.

Transocean

Ensco

P/E ratio

-108.7

14.1

Forward P/E ratio

7.7

6.94

Estimated EPS growth for the next 5 years

16.5%

15.6%

Dividend yield

6.93%

3.43%

Profit margin

0.4%

24.4%

Gross margin

39.6%

51.3%

Upside movement potential

65.8%

53.7%

Transocean is trading 45.49% lower than its 52-week high, while Ensco is trading 31.43% lower. Transocean returned -28.0% in a year, and Ensco returned -10.1%. Transocean’s debt-to assets ratio is hovering around 30%, whereas that of Ensco is strolling around 5%. I would rate Ensco as a buy, and Transocean as hold.

Cramer blessed Seagate as the season is tech’s time, and the stock got hammered. It was trading at a remarkable P/E ratio of 9.3, and a forward P/E ratio of 4.6, as of October 5. Five-year annual EPS growth forecast is 11.7%. Although profit margin (4.7%) is thin, it offers an outstanding dividend of 7.09%.

Target price implies a 79.6% upside movement potential, while the stock is trading 43.29% lower than its 52-week high. O-Metrix score is 13.51, and Seagate returned -11.6% in a year. Institutions hold 82.90% of the stock, whereas it has a four-star rating from Morningstar. P/E ratio, P/B (1.7), P/S (0.4), ROE, and debt-to equity ratio (1.0) are all green flags. ROE is 19.70%, and PEG value is 0.4. The stock is suffering from the Euro zone crisis severely, as Ireland is in the bankruptcy list after Greece. However, this stock will be one of the best out-performers after this issue is solved.

While Cramer likes Armour’s yield, he has insufficient knowledge about the REIT. He will reply at a later date. With a current share price of $6.84, Armour is offering a 12¢ yield a month dividend, which equates to $1.44 per year, or 20.28% dividend yield. The 52-week range is between $6.10 and $8.54. Institutional transactions have increased by 458.58% within the last three months, and analysts give a 1.80 rating for Armour (1=Buy, 5=Sell). Armour is one of the highest leveraged mREITS, but 20% yield is unprecendent. Recent insider buys signal insider confidence in the stock.

too low to sell...If you still own it [Bank of America], just ride it out...it is probably the worst thing I've done in the last 5 years.

Bank of America shows a trailing P/E ratio of -3.8, and a forward P/E ratio of 4.8, as of October 5. Analysts expect the company to have a 9.1% annual EPS growth in the next five years. With a horrible profit margin of -18.6%, it pays a thin dividend of 0.69%.

The stock is currently trading 60.05% lower than its 52-week high, while it returned -54.4% in the last twelve months. Bank of America has cut its dividend from 32¢ to 1¢ in the Lehman disaster, and the bank couldn’t pull itself together since then. Target price is $10.98, indicating an about 80.0% upside movement potential. Insiders own only 0.02% of the shares. Earnings decreased by 430.83% this quarter, and 28.55% this year. SMA50 and SMA200 are -16.97% -46.31%, respectively. ROA is -0.72%, and ROE is -7.89%.

Although the stock is terrible, Buffett’s investment indicates a better Bank of America in the mid-term. It has a PEG value of 0.6, and a four-star rating from Morningstar. The stock has a good downgrading process for its debts. Bank of America should be considered as a risky buy.

Cramer states that he likes Fusion-io, and that he is “going to go with it.” The Utah-based company has a sky-high P/E ratio of 333.3, and a forward P/E ratio of 58.5, as of the October 5 close. Five-year annualized EPS growth forecast is 30.0%. It pays no dividend, while the profit margin (2.3%) is way below the industry average of 7.8%.

Target price is $24.28, which implies a 17.1% upside potential. The stock is trading 43.96% lower than its 52-week high, whereas its O-Metrix score is 0.76. Operating margin is 4.9%. ROA and ROE are 2.42% and 4.37%, respectively. PEG value is 2.0. While SMA200 is -17.87%, SMA50 is -10.29%. Insiders own 0.56% of the stock. P/B (6.0), P/S (8.2), operating margin, profit margin, and ROE are alarming red flags. Under these circumstances, it’s clearly impossible to recommend buying Fusion-io.

Cramer is disappointed in NRG Energy, and would rather prefer Consolidated Edison, Exelon, Southern, American Electric, and FirstEnergy instead. Here is a brief comparison between these six stocks:

Current as of October 5close.

NRG Energy

Consolidated Edison

Exelon

Southern

American Electric

First Energy

P/E ratio

9.0

15.0

10.2

17.1

12.4

25.1

Forward P/E ratio

18.4

14.9

13.7

15.3

11.9

13.1

Estimated EPS growth for the next 5 years

5.0%

4.0%

1.7%

5.3%

4.5%

4.5%

Dividend yield

-

4.35%

5.16%

4.57%

4.97%

5.07%

Profit margin

6.4%

8.0%

13.7%

11.3%

9.7%

4.1%

Gross margin

31.2%

59.4%

61.1%

59.6%

64.6%

54.8%

Upside movement potential

31.0%

-4.3%

12.5%

-1.2%

6.6%

8.2%

Double Dividend O-Metrix Score

1.82

4.25

5.03

4.46

5.94

3.83

NRG, Consolidated Edison, Exelon and FirstEnergy have the poorest O-Metrix scores. However, for utility stocks a double-dividend O-Metrix score might be a better ranking method. I am big fan of utility stocks. They are slow, but steady upside movers. Based on double-dividend O-Metrix scores, Southern Company, American Electric, and Exelon seem like the safest utility stocks. Southern is trading 2.67% lower than its 52-week high, while American Electric is trading 3.34% lower.

O-Metrix scores of Southern and American Electric are 4.46 and 5.94, respectively. Southern returned 11.1% in the last twelve months, whereas American Electric returned 3.7%. I would rate Southern Company, American Electric, and Exelon as buy, ConEd and First Energy as hold. NRG does fit into an income-oriented portfolio since it does not pay any dividends yet.

Source: 12 Trading Ideas By Cramer