Cramer's Picks: 7 Buy, 4 Sell Ideas

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Includes: AXL, BAC, CMI, DVN, EOG, GLD, GME, GOLD, HON, MIC, SPR, USB
by: Efsinvestment

After a long period of uncertainty, markets have entered into a relatively better environment with this quarter. Like Neal Soss of Credit Suisse says:

The American economy finally has accomplished the recovery and has now entered the expansion, but the growth is clearly too slow to solve the most significant problems the economy faces: jobs and getting the public budgets under control.

While the markets are still far away from fending off the major problems, this environment can return large profits with a wisely-formed portfolio. As far as I see, Jim Cramer is doing quite well at making stock calls. In October 27’s Lightning Round program, he made eleven calls that are worth a deeper look. Seven of them were bullish this time, and the rest bearish. I have examined all of his stock mentions from a fundamental perspective, and added an alternative to one of 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 27 Lightning Round:

Stock Name

Ticker

Cramer's Suggestion

O-Metrix Score

My Take

Randgold

(GOLD)

Buy

N/A

Avoid

GameStop

(GME)

Sell at $30

5.81

Long-Term Buy

Spirit AeroSystems

(SPR)

Alternative is Better

6.91

Buy

Honeywell

(HON)

Buy

6.20

Buy

Devon

(DVN)

Buy

4.02

Hold

EOG Resources

(EOG)

Buy

4.69

Hold

Macquarie Infrastructure

(MIC)

Sell

1.40

Sell

American Axle

(AXL)

Alternative is Better

16.17

Buy

Cummins

(CMI)

Buy

8.37

Buy

Bank of America

(BAC)

Buy, but alternative is better

N/A

Buy, but alternative is better

U.S. Bancorp

(USB)

Buy

3.92

Buy

Click to enlarge

(Data obtained from Finviz/Morningstar, and is current as of October 27 close. You can download the O-Metrix calculator here.)

Cramer is bullish on Randgold as it is the best gold stock out there, but he still prefers SPDR Gold Trust (GLD) . Randgold was trading at a P/E ratio of 49.0, and a forward P/E ratio of 15.0, as of October 27. It pays a razor thin dividend of 0.16%, while the profit margin (26.2%) is slightly lower than the industry average of 28.1%.

Target price is $121.15, which implies a 9.4% upside potential. The stock is trading 3.72% lower than its 52-week high, whereas it returned 18.9% in a year. P/B is 5.2, and P/S is 12.8, both of which are well above their industry averages. Gross margin and operating margin are 32.2% and 21.0%, respectively. While ROE is 11.23%, ROA is 9.91%.

Cramer believes that there’s “still a good story” in GameStop, and he recommends selling it at $30. It shows an admirable trailing P/E ratio of 9.5, and a forward P/E ratio of 8.2, as of October 27. Estimated annualized EPS growth for the next five years is 10.3%. Profit margin (4.2%) is slightly higher than the industry average of 3.8%, and it has no dividend policy.

GameStop returned 33.0% in the last twelve months, while its O-Metrix score is 5.81. Target price is $29.78, implying an about 14.9% upside movement potential. Earnings increased by 17.91% this year, and the stock is currently trading 9.60% lower than its 52-week high. Debts have nearly landed within the last five years. Apart from ROE (14.4%), there is no red flag in GameStop’s key statistics. Debt-to equity ratio is 0.1, well below the industry average of 1.0. PEG value is 0.8. GameStop couldn’t really heal itself after its dip in November 2008, but I guess it will reward shareholders in the long run.

Cramer suggests Honeywell instead of Spirit AeroSystems, if you “want a play on the 787.” Here is a brief comparison between these two stocks:

Current as of October 27 close.

Spirit AeroSystems

Honeywell

P/E ratio

14.5

16.4

Forward P/E ratio

7.9

12.2

Estimated EPS growth for the next 5 years

15.5%

15.3%

Dividend yield

-

2.46%

Profit margin

3.8%

7.5%

Gross margin

11.3%

24.4%

Upside movement potential

43.2%

8.5%

Click to enlarge

Spirit is currently trading 33.45% lower than its 52-week high, whereas Honeywell is trading 12.05% lower. Spirit returned -17.3% in the last twelve months, while Honeywell returned 14.6%. O-Metrix scores of Spirit and Honeywell are 6.91 and 6.20, respectively. Spirit’s debt-to assets ratio is going up since 2008, whereas that of Honeywell is going down. Honeywell is a better play, in my opinion.

"I like Devon very much. I'll throw in EOG Resources." Here is a brief comparison between these two stocks:

Current as of October 27 close.

Devon

EOG Resources

P/E ratio

18.9

57.8

Forward P/E ratio

9.3

20.0

Estimated EPS growth for the next 5 years

10.3%

35.8%

Dividend yield

1.04%

0.70%

Profit margin

59.0%

5.3%

Gross margin

67.7%

83.0%

Upside movement potential

41.7%

19.1%

Click to enlarge

Devon returned 1.4% in the last twelve months, while EOG returned -3.3%. O-Metrix scores of Devon and EOG are 4.02 and 4.69, respectively. Devon is currently trading 28.72% lower than its 52-week high, whereas EOG is trading 23.16% lower. Morningstar gives a four-star rating to Devon, and a five-star rating to EOG. I rate both of these stocks as hold.

Cramer thinks that Macquarie has “had its run,” and it’s time to cash it out if you own it. The New York-based Macquarie shows a trailing P/E ratio of 54.9, and a forward P/E ratio of 20.6, as of October 27. Five-year annual EPS growth forecast is 7.5%. Profit margin (2.4%) is well below the industry average of 5.7%, while shareholders enjoyed a 3.07% dividend last year.

Macquarie is currently trading 8.27% lower than its 52-week high, whereas its target price indicates an 11.4% increase potential. O-Metrix score is 1.40, and the stock returned 45.4% in a year. Earnings decreased by 487.78% this quarter, while the company has a terrible Beta value of 2.68. Insiders hold only 0.52% of the shares, and insider transactions have decreased by 7.70% within the last six months. Yields are inconsistent. The debt-to assets ratio is at alarming rates, while cash flow is not doing so good. Gross margin and operating margin are 40.8% and 7.5%, respectively. ROA is 0.99%, and ROE is 3.19%. ROI is 1.19%. PEG value is 2.7, whereas long-term debt-to equity ratio is 1.53. It wouldn’t be wise to count on such a stock.

The Mad Money host would rather go with Cummins instead of American Axle & Manufacturing. Here is a brief comparison between these two stocks:

Current as of October 27 close.

American Axle& Manufacturing

Cummins

P/E ratio

4.6

13.1

Forward P/E ratio

4.8

9.8

Estimated EPS growth for the next 5 years

15.2%

17.6%

Dividend yield

-

1.60%

Profit margin

6.3%

9.3%

Gross margin

18.2%

25.1%

Upside movement potential

24.4%

19.4%

Click to enlarge

American Axle is trading 39.01% lower than its 52-week high, while Cummins is trading 15.70% lower. O-Metrix scores of American Axle and Cummins are 16.17 and 8.37, respectively. Analysts give a 2.60 recommendation for American Axle, and a 2.00 recommendation for Cummins (1=Buy, 5=Sell). American Axle returned -2.8% in the last twelve months, whereas Cummins returned 13.8%. Both of them are profitable buys for me.

Although Bank of America may be “done going down,” he recommends homegamers going with U.S. Bancorp, which is “much cheaper, much better.” Here is a brief comparison between these two stocks:

Current as of October 27 close.

Bank of America

U.S. Bancorp

P/E ratio

-4.6

12.2

Forward P/E ratio

6.8

10.0

Estimated EPS growth for the next 5 years

9.1%

6.8%

Dividend yield

0.57%

1.91%

Profit margin

-18.6%

21.8%

Gross margin

-

-

Upside movement potential

41.9%

13.0%

Click to enlarge

Bank of America returned 62.7% in the last twelve months, whereas U.S. Bancorp returned 7.5%. Bank of America is currently trading 52.73% lower than its 52-week high, and U.S. Bancorp is trading 8.02% lower. Average analyst recommendation is 1.7 for Bank of America, and 1.5 for U.S. Bancorp (1=Buy, 3=Sell). Both of them has a four-star rating from Morningstar. Bank of America has a Beta value of 2.22, while that of U.S. Bancorp is 1.00. U.S. Bank of America could be an outperformer in the fourth quarter. However, Bancorp is a much safer buy.

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