Q4 started like a survival challenge, as every sector is galloping to regain losses from Q3. In the last week, basic materials performed the best (8.9%), followed by industrial goods (8.3%), services (6.8%), and conglomerates (6.4%). Along with his Lightning Round program, Jim Cramer is helping investors by making calls on his Mad Money, as well. On October 7’s Mad Money, I have found seven stocks that are worth a deeper look. I have examined all of these 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 Mad Money:
Stock Name | Ticker | Cramer's Suggestion | O-Metrix Score | My Take |
PepsiCo | (PEP) | Buy | 3.76 | Alternative is Better |
Mattel | (MAT) | Buy | 5.11 | Buy |
Paychex | (PAYX) | Buy | 4.30 | Buy |
Unit Corp. | (UNT) | Alternative is Better | 8.29 | Buy, but Alternative is Better |
Ensco | (ESV) | Buy | 8.62 | Buy |
Total S.A. | (TOT) | Top Pick | 6.31 | Buy |
Exxon | (XOM) | Avoid | 4.50 | Buy |
(Data obtained from Finviz/Morningstar, and is current as of October 10 close. You can download the O-Metrix calculator here.)
Pepsi: “I want in,” Cramer says, telling investors that they have a chance to buy a global company with a 3.5% dividend. Pepsi was trading at a P/E ratio of 15.7, and a forward P/E ratio of 13.1, as of October 10. Five-year annual EPS growth forecast is 7.5%. With a profit margin of 10.1%, Pepsi pays a 3.33% dividend.
Target price implies a 17.4% upside potential, while the stock is trading 12.61% lower than its 52-week high. O-Metrix score is 3.76, and Pepsi returned -5.6% in a year. Debt-to-assets ratio is sharply increasing for the last five years, whereas insiders hold only 0.08% of the shares. SMA50 and SMA200 are -0.37% and -4.58%, respectively. Operating margin is 15.2%, while ROA is 8.97%. PEG value is 1.7.
Coca-Cola is a great buy if you want to play in this sector, which has a P/E ratio of 12.5, and a forward P/E ratio of 15.4, as of the October 10 close. Estimated annual EPS growth for the next five years is 8.0%. It offers a 2.81% dividend, while the profit margin is 29.7%. O-Metrix score is 3.87, and its target price indicates a 14.8% increase potential. Coca-Cola returned 12.3% in a year. (Detailed analysis of Coca-Cola here. Full comparison between these two stocks here.)
Cramer stated that Mattel is a nice stock with a 3.4% dividend, along with its speculativity. It shows a trailing P/E ratio of 14.1, and a forward P/E ratio of 11.9, as of October 10. Analysts estimate a 10.0% annual EPS growth for the next five years. Profit margin (11.6%) more than doubles the industry average of 5.5%, while it pays a 3.31% dividend.
Earnings increased by 28.43% this year, and 62.24% this quarter. Mattel is trading 1.63% lower than its 52-week high, whereas its O-Metrix score is 5.11. The stock returned 15.1% in a year, and its target price implies a 14.5% upside movement potential. SMA50 and SMA200 are 8.29% and 9.24%, respectively. Debt-to equity ratio is 0.4, which crushes the industry average of 5.9. While ROE is 28.37%, ROI is 21.24%. 12 out of 16 analysts recommend buying, and my opinion is no different.
Cramer is bullish on Paychex, as it is doing “a lot of things right,” and investors are “getting paid to wait.” The New York-based Paychex has a P/E ratio of 18.9, and a forward P/E ratio of 16.6, as of the October 10 close. Five-year annual EPS growth forecast is 10.8%. With a profit margin of 25.0%, and a dividend of 4.47%, Paychex is an attractive stock for dividend lovers.
O-Metrix score of Paychex is 4.30, while it is trading 16.24% lower than its 52-week high. Target price implies a 6.3% increase potential, and it returned 1.3% in the last twelve months. Paychex has zero debts, and assets are increasing since 2009. Gross margin and operating margin are 69.0% and 38.3%, respectively. ROE is 35.77%. Beta value is 0.83, and it has a four-star rating from Morningstar. It would be wise counting on this stock.
Cramer prefers Ensco instead of Unit Corp, as Unit lacks a dividend. Here is a brief comparison between these two stocks:
Current as of October 10 close. | Unit Corp. | Ensco |
P/E ratio | 11.8 | 14.8 |
Forward P/E ratio | 8.7 | 7.2 |
Estimated EPS growth for the next 5 years | 17.0% | 15.7% |
Dividend yield | - | 3.28% |
Profit margin | 16.7% | 24.4% |
Gross margin | 57.6% | 51.3% |
Upside movement potential | 19.9% | 45.6% |
Unit Corp. is trading 34.43% lower than its 52-week high, while Ensco is trading 28.27% lower. O-Metrix scores of Unit and Ensco are 8.29 and 8.62, respectively. Unit Corp. returned 10.4% in the last twelve months, whereas Ensco returned -4.3%. Debts are far from being a threat for both of them. Both of these two are profitable buys for me, but Ensco is a slightly better choice.
Cramer stated that Total is a “terrific company” with a nice dividend. The oil company has a significant P/E ratio of 7.0, and a forward P/E ratio of 6.6, as of October 10. Analysts estimate an annual EPS growth of 2.0% for the next five years. It offers a 6.59% dividend, while the profit margin is 7.5%.
Target price is $61.73, implying a 27.2% upside movement potential. Total is trading 21.29% lower than its 52-week high, whereas it returned -9.3% in a year. Debts are far from being a threat, and O-Metrix score is 6.31. Beta value is 0.96. Earnings increased by 24.14% this year, while analysts give a 1.80 recommendation for it (1=Buy, 5=Sell). ROE is 18.85%. Total is among the ten big oil dividends to watch. Keep an eye on Total SA, as I expect it be an outperformer after the Euro crisis.
Cramer made a bearish call on Exxon as its dividend is relatively weak, and it has not dropped enough. Exxon shows a trailing P/E ratio of 10.1, and a forward P/E ratio of 8.7, as of the October 10 close. Analysts expect the company to have a 6.0% annualized EPS growth in the next five years. With a profit margin of 8.6%, Exxon pays a 2.46% dividend.
The company had a 56.41% EPS growth this year, and 36.01% this quarter. Sales rose by 35.68% this quarter. Target price implies an about 18.1% upside potential, whereas it is currently trading 12.30% lower than its 52-week high. Beta value is 0.50. Exxon has an O-Metrix score of 4.50, and it returned 18.6% in the last twelve months. Yields are impressive. The debt-to-assets ratio is strolling around 5% since 2006, while the stock has a five-star rating from Morningstar. Debt-to-equity ratio is 0.2, better than the industry average of 0.6. ROE is 25.65%, and ROI is 21.50%. Exxon offers a 109% margin of safety, so I think it is a good stock to pick for the long-term profits.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.