7 Cramer Calls Worth A Deeper Look

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Includes: CMI, CQP, CX, GSM, LINEQ, NUE, WMT
by: Efsinvestment

The markets started the last quarter in a good mood. The year-to-date performance of the stocks just reached green territory and equities have made a great comeback. You can get the most out of this situation if you play on the right stocks. Jim Cramer is here to help you make some serious profits this quarter. While it is a good idea taking advice from him, investors should always do their own research.

On October 11’s Mad Money, Cramer made seven calls that are worth a deeper look. I have examined 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 these seven stocks from Cramer's October 11 Mad Money show:

Stock Name

Ticker

Cramer's Suggestion

O-Metrix Score

My Take

Wal-Mart

(WMT)

Buy

6.13

Buy

Linn Energy

(LINE)

Buy

N/A

Avoid

Cheniere Energy

(CQP)

Avoid

N/A

Avoid

Nucor Corp.

(NUE)

Buy Some For Now

2.75

Hold

Cummins

(CMI)

Sell at $100

3.03

Hold

Cemex

(CX)

Avoid

N/A

Avoid

Globe Specialty Metals

(GSM)

Buy

4.78

Buy

Click to enlarge

(Data obtained from Finviz/Morningstar, and is current as of October 11 close.)

Cramer calls Wal-Mart a “stealth performer”, and he sees no reason to “worry about the store closing in China.” It has a P/E ratio of 12.55, and a forward P/E ratio of 11.34, as of the October 14 close. Analysts estimate an 11.8% annualized EPS growth for the next five years. Profit margins (3.9%) are slightly better than the industry average of 3.6%, while it offers a 2.63% dividend.

Target price is $59.45, which implies around 5% upside potential. The stock is trading 2.2% lower than its 52-week high, whereas it returned 5% in a year. Beta value is 0.31, and debts are far from being a threat. ROE is 25.18%. PEG value is 0.9, and analysts give a 1.6 rating for Wal-Mart (1=Buy, 3=Sell). I believe Wal-Mart is a must for the ultimate retirement portfolio. Read a full analysis of Wal-Mart here.

Cramer has confidence in Linn Energy, but Cheniere “looks dicey” with a 12% dividend. Here is a brief comparison between these two stocks:

Current as of October 11 close.

Linn Energy

Cheniere

P/E ratio

-12.8

-108.7

Forward P/E ratio

15.9

465.3

Estimated EPS growth for the next 5 years

5.0%

-

Dividend yield

7.61%

12.18%

Profit margin

-71.2%

-7.3%

Gross margin

66.2%

-

Upside movement potential

20.2%

-4.6%

Click to enlarge

Linn is currently trading 9.22% lower than its 52-week high, while Cheniere is trading 38.54% lower. Linn returned 12.0% in the last twelve months, whereas Cheniere returned -29.8%. Both of their debt-to assets ratios have been increasing since 2008. Both companies offer substantial dividends, but they seem too risky. I would buy neither.

Cramer suggests homegamers buying some Nucor at this level, and buy more when it falls to $32. Nucor shows a trailing P/E ratio of 24.24, and a forward P/E ratio of 10.55, as of October 14. Estimated annual EPS growth for the next five years is 5.0%. Profit margins (2.6%) are lower than the industry average of 5.1%, and shareholders enjoyed a 4.18% dividend last year.

Target price indicates a 27.2% increase potential, while the stock is currently trading 25.41% lower than its 52-week high. O-Metrix score is 2.75, and Nucor returned -10.4% in a year. Yields are completely unstable, while the debt-to assets ratio has been climbing since 2006. Cash flow is terrible. Insiders hold only 0.50% of the shares, whereas PEG value is 2.0. ROA, ROE, and ROI are 3.44%, 6.41% and 4.27%, respectively. Gross margin is 8.0%, operating margin is 4.6%. Holding might be OK, but do not buy.

Cramer recommends selling Cummins at $100 and buying again under $90. The Indiana-based Cummins was trading at a P/E ratio of 12.79, and a forward P/E ratio of 9.65 as of October 14. Five-year annualized EPS growth forecast is 5.0%. It pays a 1.67% dividend, while the profit margins (9.3%) are slightly above the industry average of 8.8%.

Cummins returned 4.9% in the last twelve months, whereas its O-Metrix score is 3.03. The stock is trading 19.89% lower than its 52-week high, and its target price implies an approximate 25.7% upside movement potential. Insiders own only 0.44% of the stock, and SMA200 is 4.85%. Cummins has a terrible Beta value of 2.00. P/B is 3.6, way above the industry average of 2.0. Gross margins and operating margins are 24.8% and 14.1%, respectively. PEG value is 1.9. Insiders have been selling stocks for some time. Hold if you own it, but buying would not be wise, in my opinion.

Cramer is bearish on Cemex, as it doesn’t have a good balance sheet. It has a P/E ratio of -3.3, and a forward P/E ratio of -10.1, as of the October 14 close. Analysts expect the company to boost its earnings by 56.3% in the next five years, which is truly funny given the -36.17% EPS growth of past five years. With horrible profit margins of -9.6%, it has no dividend policy.

Cemex is currently trading 65% lower than its 52-week high, while it lost 52% in a year. Target price is $5.45, indicating an about 78.1% increase potential. Earnings decreased by 388.74% this year. SMA20, SMA50, and SMA200 are -14.98%, -33.60% and -60.61%, respectively. Since Q3 2010, its debt-to assets ratio has increased from 0% to 40%. Cash flow is weak, while Beta value is 2.17. Gross margins are 28.4%, and operating margin is 6.2%. ROA, ROE, and ROI are -2.73%, -7.27% and -3.46%, respectively. I would stay away from this stock.

Global Specialty has been “unfairly sold off,” Cramer says, “it has been beating numbers.” The New York-based company shows a trailing P/E ratio of 24.62, and a forward P/E ratio of 10.23, as of October 14. Estimated annualized EPS growth for the next five years is 15.0%. Profit margins (8.2%) are crushed by the industry average of 34.1% while Global offers a 1.21% dividend.

Global Specialty has an O-Metrix score of 4.78, whereas it is currently trading 34.87% lower than its 52-week high. Target price implies a 47.0% upside potential, and it returned 8.1% in a year. Earnings increased by 132.38% this quarter, and 51.11% this year. Institutions hold 84.56% of the shares, whereas insider transactions have increased by 391.64% within the last six months. The debt-to assets ratio has been going down since 2008. Debt-to equity ratio is 0.1, way below the industry average of 1.8. PEG value is 0.7. Five out of seven analysts recommend buying, and I agree with them.

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