Jim Cramer did some homework, and got in front of camera answering his “Mad Mail.” In the latest Mad Mail program, he made ten calls. 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 these stocks from Cramer's October 7 Mad Mail:
Stock Name | Ticker | Cramer's Suggestion | O-Metrix Score | My Take |
ReachLocal | (RLOC) | Buy Later | N/A | Avoid |
Armour Residential | (ARR) | Avoid | N/A | Hold |
Annaly Capital | (NLY) | Buy | N/A | Buy |
Telecom New Zealand | (NZT) | Avoid | 5. 24 | Avoid |
Ultra Petroleum | (UPL) | Buy | 7.00 | Buy |
The Mosaic Co. | (MOS) | Avoid | 4.53 | Buy, but alternative is better |
Deere& Co. | (DE) | Buy | 5.18 | Buy |
Dominion Resources | (D) | Buy | 2.40 | Buy on Dip |
Silver Wheaton | (SLW) | Avoid | 3.85 | Avoid |
Randgold | (GOLD) | Buy | N/A | Avoid |
(Data obtained from Finviz/Morningstar, and is current as of October 14 close. You can download the O-Metrix calculator here.)
Although Cramer likes ReachLocal (RLOC), he believes that it is “too early to jump in.” It shows a trailing P/E ratio of -27.1, and a forward P/E ratio of 97.1, as of October 14. Analysts expect the company to have an annual EPS growth of 30.0% in the next five years. It has no dividend policy, while the profit margin is -3.3%.
Target price implies a 139.0% upside potential, whereas it is trading 65.62% lower than its 52-week high. Earnings decreased by 931.51% this year, and ReachLocal returned -40.3% in a year. Insiders hold 2.70% of the shares, while insider transactions have decreased by 15.07% within the last six months. Operating margin is -3.4%. ROA and ROE are -7.00% and -12.62%, respectively. PEG value is 3.2. SMA50 is -24.45%, whereas SMA200 is -47.38%. I wouldn’t waste my money on this stock.
Cramer rather prefers Annaly (NLY) instead of Armour Residential (ARR) Here is a brief comparison between these two stocks:
Current as of October 14 close. | Armour Residential | Annaly Capital |
Market capital | $517.2 million | $15.3 billion |
P/E ratio | 20.2 | 6.1 |
Current price | $6.81 | $16.12 |
52-week range | $6.10-$8.54 | $14.05-$18.79 |
Dividend Yield | 19.38% | 14.89% |
Armour reported total revenue of $3.32 million in Q2 2011. Annaly Capital, on the other hand, reported total revenue of $957.07 million in Q2 of this year. Armour is paying quarterly dividends since July 2011, whereas Annaly is paying since 1997. Armour is trading 7.70% lower than its 52-week high, and Annaly is trading 10.13% lower. Armour has a price-to-book value of 1.0, while that of Annaly is 1.1. Both companies pay substantial dividends. While operation twist might squeeze their profits by reducing the interest spread, it will take several quarters to see the full effect. Meanwhile, there might be even positive adjustments in the mREITs balance sheets. I would rate Annaly as a buy, and Armour Residential as a hold. (Detailed analysis of Operation Twist, here)
“I don’t feel comfortable getting behind it [Telecom Corp. of New Zealand] (NZT),” Cramer commented. It has a P/E ratio of 28.6, and a forward P/E ratio of 10.2, as of the Friday close. Five-year annual EPS growth forecast is 10.3%. It offers an outstanding dividend of 10.21%, while the profit margin (3.2%) is way below the industry average of 9.2%.
Earnings decreased by 100.00% this quarter, and 57.58% this year. Target price indicates an about 23.9% increase potential, whereas it returned 30.4% in a year. O-Metrix score is 5.24, and the stock is currently trading 9.78% lower than its 52-week high. Since August 2010, NZT has cut its dividend from 22¢ to 1¢. Assets are unstable, and sales decreased by 5.10% this quarter. Operating margin is 9.1%. ROA, ROE, and ROI are 2.47%, 6.77% and 3.53%, respectively. Moreover, it has a two-star rating from Morningstar. The stock is a loser, and dividend doesn’t seem sustainable.
Cramer commented the following on Ultra Petroleum (UPL):
That’s [Ultra Petroleum] been one of the best performers over the 10-year period…I urge you to be patient.
The Texas-based company, as of October 14, was trading at a P/E ratio of 12.3, and a forward P/E ratio of 11.4. Estimated annualized EPS growth for the next five years is 16.6%. Profit margin (36.7%) crushes the industry average of 14.1%, while it offers no dividend policy.
O-Metrix score is 7.00, whereas the stock is currently trading 41.97% lower than its 52-week high. Target price is $49.50, implying an about 66.6% upside movement potential. Ultra Petroleum returned -29.4% in a year. Beta value is 0.87, and institutions hold 89.45% of the shares. Earnings increased by 68.25% this quarter, and 201.05% this year. Gross margin and operating margin are 79.0% and 43.9%, respectively. ROE is 33.26%. PEG value is 0.7, and Morningstar gives a five-star rating to Ultra Petroleum. Consider adding this stock to your portfolio.
Cramer rather prefers going with Deere (DE) instead of Mosaic (MOS). Here is a brief comparison between these two stocks:
Current as of October 14 close. | Mosaic | Deere |
P/E ratio | 9.3 | 11.8 |
Forward P/E ratio | 9.1 | 10.0 |
Estimated EPS growth for the next 5 years | 8.0% | 9.0% |
Dividend yield | 0.35% | 2.30% |
Profit margin | 25.3% | 8.5% |
Gross margin | 32.0% | 30.6% |
Upside movement potential | 35.1% | 26.8% |
Mosaic is currently trading 35.92% lower than its 52-week high, while Deere is trading 27.67% lower. O-Metrix scores of Mosaic and Deere are 4.53 and 5.18, respectively. Mosaic returned -14.4% in the last twelve months, whereas Deere returned -6.2%. Both companies are fine, but Deere looks like a slightly better buy to me.
Cramer believes that Dominion (D) is one of the few stocks that are run best in the country, and makes a bullish call on it. The Virginia-based utility, as of Friday’s close, shows a trailing P/E ratio of 17.3, and a forward P/E ratio of 15.6. Five-year annualized EPS growth forecast is 4.0%. Profit margin (11.2%) is above the industry average of 8.3%, while it offers a 3.90% dividend.
Earnings increased by 136.41% this year, and O-Metrix score is 2.40. Target price is $47.56, implying a 5.9% downside movement potential. Dominion is trading only 1.85% lower than its 52-week high, while it returned 12.3% in a year. Yields are impressive. Gross margin and operating margin are 56.7% and 23.5%, respectively. Beta value is 0.51. A pullback will create the proper environment for entry.
Cramer recommends buying Randgold (GOLD) instead of Silver Wheaton (SLW), if you want to play in precious metals. Here is a brief comparison between these two stocks:
Current as of October 14 close. | Silver Wheaton | Randgold |
P/E ratio | 23.1 | 45.7 |
Forward P/E ratio | 12.9 | 14.2 |
Estimated EPS growth for the next 5 years | 13.5% | - |
Dividend yield | 0.38% | 0.17% |
Profit margin | 83.1% | 26.2% |
Gross margin | 76.8% | 32.2% |
Upside movement potential | 57.2% | 17.9% |
Silver Wheaton is currently trading 32.34% lower than its 52-week high, while Randgold is trading 10.19% lower. Silver Wheaton returned 15.2% in the last twelve months, and Randgold returned 0.8%. Debts are far from being a threat for both of them. As a stock, Silver Wheaton seems to be a better buy. However, these two stocks are highly dependable on silver/ gold prices. I am bearish on all precious metals, and Goldcorp (GG) is the only stock that I can suggest holding. (Full analysis of Goldcorp, here.)
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
