Seeking Alpha
Deep value, long/short equity, event-driven, research analyst
Profile| Send Message|
( followers)  

Jim Cramer issued 41 buy and sell stock opinions before the Thanksgiving break, on Nov. 21 and Nov. 22, 2011:

Ticker

Cramer Call

Air Date

Market Cap
($M)

P/E

P/B

P/S

Div Yield

EPS Growth Past 5 Years

EPS Growth Next 5 Years

Insider Trans-
actions

AGNC

Buy

11.22

5097.29

4.13

1.03

5.95

20.2%

28.3%

2.0%

2.3%

HD

Buy

11.22

57049.66

15.65

3.21

0.82

3.2%

-5.2%

13.4%

-6.4%

CMG

Buy

11.22

9413.48

46.85

9.42

4.37

0.0%

31.6%

23.0%

-1.9%

VFC

Buy

11.22

13931.85

20.43

3.12

1.61

2.3%

4.2%

13.9%

-35.2%

UA

Buy

11.22

3862.22

44.99

6.51

2.82

0.0%

29.8%

21.1%

-7.4%

DKS

Buy

11.22

4489.8

19.43

2.88

0.88

1.3%

17.2%

16.2%

-56.5%

FL

Buy

11.22

3230.52

13.71

1.53

0.6

3.1%

-8.4%

11.6%

6.0%

HIBB

Buy

11.22

1117.2

N/A

5.59

1.56

0.0%

10.3%

17.0%

-50.4%

QCOM

Buy

11.22

87175.62

N/A

3.24

5.83

1.7%

13.4%

14.5%

-83.2%

BIDU

Buy

11.22

41826.51

46.3

20.22

21.29

0.0%

132.5%

49.7%

0.0%

NLY

Buy

11.22

15463.07

8.3

0.97

4.53

15.1%

24.1%

0.8%

7.4%

SLRC

Buy

11.22

800.81

14.61

1.03

5.95

11.0%

0.0%

6.0%

47.5%

PG

Buy

11.22

167830.5

15.48

2.57

1.99

3.4%

10.0%

8.7%

-2.7%

MCD

Buy

11.22

94238.56

18.06

7.07

3.57

3.0%

17.8%

10.5%

-4.7%

LINE

Buy

11.22

6218.42

19.12

1.68

4.07

7.8%

2.0%

9.3%

2.6%

COP

Buy

11.22

87816.72

8.47

1.33

0.36

4.0%

-4.6%

2.7%

40.1%

MWV

Buy

11.22

4647.54

13.75

1.36

0.79

3.7%

19.7%

10.0%

0.0%

NKE

Buy

11.22

41860.13

19.54

4.23

1.92

1.6%

10.7%

11.6%

1.9%

SINA

Sell

11.22

4159.95

0

4

9.05

0.0%

3.1%

24.6%

0.0%

JBLU

Sell

11.22

1034.12

13.38

0.61

0.24

0.0%

-10.8%

9.5%

3.4%

WEN

Sell

11.22

1895.11

487

0.95

0.71

1.6%

-16.5%

17.7%

1.3%

GS

Sell

11.22

43692.51

13.93

0.62

1.12

1.6%

-19.4%

9.5%

11.3%

GMCR

Sell

11.22

7679.08

38.2

4.01

2.9

0.0%

75.4%

37.2%

-2.5%

KLAC

Buy

11.21

7013.05

8.62

2.39

2.13

3.3%

20.1%

9.5%

21.4%

NVLS

Buy

11.21

2102.25

N/A

2.17

1.45

0.0%

28.5%

11.5%

-80.6%

HAR

Buy

11.21

2574.07

16.84

1.82

0.65

0.8%

-12.7%

31.0%

39.9%

VZ

Buy

11.21

100079

14.2

2.56

0.92

5.7%

-16.1%

10.7%

0.0%

ABT

Buy

11.21

81083.49

17.95

3.3

2.11

3.7%

6.6%

9.3%

-4.1%

BMY

Buy

11.21

51107.02

15.55

3.09

2.45

4.4%

4.4%

1.3%

92.1%

FUN

Buy

11.21

1237.63

149.07

6.26

1.22

12.5%

5.4%

6.0%

2.8%

WM

Buy

11.21

13952.6

14.79

2.35

1.06

4.5%

-1.1%

9.7%

4.3%

EW

Buy

11.21

7130

31.41

5.27

4.35

0.0%

23.5%

27.3%

-46.2%

CELG

Buy

11.21

26742.34

25.21

4.79

5.78

0.0%

60.3%

25.0%

7.5%

SNY

Buy

11.21

85075.58

13.27

1.21

1.83

5.7%

20.0%

2.0%

0.0%

AMGN

Sell

11.21

47902.91

13.59

2.04

3.1

0.0%

10.4%

7.3%

-11.8%

STI

Sell

11.21

8876.61

16.21

0.44

1.42

1.2%

-26.2%

7.6%

6.6%

KKD

Sell

11.21

429.32

N/A

N/A

N/A

0.0%

-50.5%

34.0%

-4.4%

DNKN

Sell

11.21

2960

352

4.04

4.86

0.0%

0.0%

15.0%

0.0%

WAG

Sell

11.21

28875.25

11.04

1.95

0.4

2.8%

11.3%

10.7%

40.0%

TU

Sell

11.21

15505.57

14.18

1.97

1.58

4.8%

12.3%

8.0%

0.0%

NVS

Sell

11.21

118257.8

12.12

1.89

2.01

4.6%

11.2%

5.2%

0.0%

In 2008, my MBA classmates and I investigated Jim Cramer’s recommendations and found the following:

  • Buying Cramer’s picks after he recommended them underperformed the broader stock market. There seems to be a “bump” relative to the market for his picks that has happened faster than you could conceivably trade.
  • Cramer’s mid cap and large cap picks did not outperform the market, and “shorting the bump” would be an interesting strategy for high-frequency traders.
  • Cramer’s small and micro cap picks do a little better than small cap indexes after he discusses them.
  • Cramer might be trying to do the impossible by making daily stock picks. He provides entertainment, relays business news, interviews executives, and displays an impressive, encyclopedic knowledge of publicly-traded companies. He is like Stone Phillips, Oprah, and Bloomberg News combined. However, these talents did not translate into alpha for his mid and large cap picks.

Exploiting any persistence of these effects is fairly simple. Contrarians should review large and mid cap stocks recommended by Cramer and consider whether there is merit to taking the opposite positions. From this week’s large and mid cap picks, CMG, UA, and WAG are challenged.

What could an investor expect from these three picks? We can model total returns over a three year holding period for each of these stocks. I use a 3-year holding period, since above-average growth estimates are not reliable further out.

Giving Cramer the benefit of the doubt for buy recommendations, the stock is assumed to be sold at a generous growth stock price to earnings multiple of 17 and the maximum of historical and analyst estimate values for earnings growth are assumed.

On the contrary, we will use more conservative values to give Cramer the benefit of the doubt for his sell recommendations. For his sell calls, a bargain value stock price to earnings multiple of 10 and the minimum of historical and analyst estimates values for earnings growth are assumed. These assumptions are used to project an annualized total return over the next three years and a terminal price to earnings ratios, that is, price paid today divided by earnings at the end of the holding period for each stock:

3 Years Growth

Ticker

Cramer

g (past)

g (future)

Terminal P/E

Annualized Return

CMG

Buy

31.6%

23.0%

20.6

-6.1%

UA

Buy

29.8%

21.1%

20.6

-6.2%

WAG

Sell

11.3%

10.7%

8.14

8.1%

Even with assumptions that would favor Cramer’s sell recommendations for Walgreen Co. (WAG), this sell recommendation cannot be supported given current valuations. Even terrible scenarios look good for this stock: Holding these stocks through three years with the lesser of historical growth or analyst growth estimates and then selling at a bargain 10 price-to-earnings multiple would reap 8.1% annualized returns.

What’s even more impressive about Walgreen Co. is that it over the past decade it has produced consistently positive annual earnings, consistent annual earnings growth, and consistently positive free cash flow to equity. Contrarians ought to consider researching WAG as a buy pick, not selling it.

In addition, Cramer’s buy recommendations for Chipotle Mexican Grill (CMG), and Under Armour (UA) are not supported even by a rosy scenario. Buyers of these stocks who enjoy the greater of historical growth and analyst growth estimates and are able to sell at a growth stock P/E ratio would still suffer negative total returns.

Both stocks have had impressive and steady earnings growth over the past few years, but the price is just too high for these stocks, even if such growth is to be sustained. Intrepid contrarians should research CMG and UA as a sell picks, rather than trusting Cramer’s buy recommendation on each stock.

Bear in mind that challenging the consensus requires a strong will. In addition to countering Cramer, contrarians have to shut out the allure of stories and other distractions in order to focus on valuation.

Disclaimer: This article was written to provide investor information and education, and should not be construed as a guarantee or investment advice. I have no idea what your individual risk, time-horizon, and tax circumstances are: please seek the personal advice of a financial planner. This article uses third-party data and may contain approximations and errors. Please check estimates and data for yourself before investing.

Source: Countering Cramer's Pre-Thanksgiving Picks