By Stephen Walker
CNBC’s Jim Cramer recommended the following 5 stocks on Friday, November 28th episode of "Mad Money." The following is my analysis of his recommendations on a valuation basis. I conclude that Cramer was right on GLD, AUQ, DPZ, and FUN, but wrong on MWE.
SPDR Gold Trust ETF (NYSEARCA:GLD) - Trading around $168.
Gold is arguably the best way to hedge a portfolio from what is widely expected to be a year of extremely slow global growth. Analysts at Morgan Stanley said it’s a good time to be long on commodities like the precious metal. Cramer once again recommended having gold represent up to 20% of investors’ portfolios. Physically purchasing gold and safely storing gold comes with its fair share of challenges, so Cramer continually recommends the ETF, which does an excellent job of tracking the price of gold. Gold’s decline back into the $1,700’s (per troy ounce) from record highs presented a buying opportunity for many. However, some analysts feel the price is set for a correction and prefer to buy if and when It falls into the $1,600’s. Either way, Cramer said to buy shares of the ETF into weakness when good news regarding the market is circulating in order to get the best possible price. With increasing market volatility, insuring the portfolio against risk is always a good idea. Cramer was right about the SPDR Gold Trust ETF.
AuRico Gold (NYSE:AUQ) - Trading around $9.
Despite having a good 3rd quarter, this small-cap gold producer received a sell recommendation from Cramer. AuRico Gold generated $0.36 earnings per share, a $0.16 beat and reported revenue of $112 million, a 102% Y/Y increase. Gold is becoming increasingly difficult to find and mining companies are subject to both business missteps and external factors like inclement weather and the risk of not finding gold. For these reasons, Cramer prefers owning gold through the SPDR Gold Trust ETF. However, Goldcorp (NYSE:GG) , the lowest-cost producer, and Barrick Gold Corporation (NYSE:ABX), the largest gold producer on Earth, are the only miners Cramer recommends buying if the ETF is not what investors are looking for. With quarterly revenue growth of 101% and a 66% gross margin , AuRico Gold is definitely the best of the smaller gold producers. The low share price is also tempting for investors, but in the long-run, miners and producers with more assets and mines to explore will ultimately fare better. Cramer was right about AuRico Gold.
Dominos Pizza (NYSE:DPZ) - Trading around $31.
The once embattled pizza company previously known for producing “cardboard-like” pizzas has recently undergone a complete overhaul of its product offering as well as its image (via a rather brazen and honest marketing campaign). Customers and investors alike couldn’t be happier. Dominos shares rose sharply after presenting its 3rd quarter results. The pizza chain generated $0.36 EPS, a $0.02 beat, and reported revenue of $376.3 million (a 8.3% increase year-over-year). Dominos credited strong international sales for the 33% increase in net income for the quarter. Some investors are concerned they’ve missed the wave, but Cramer is insisting that Dominos still has plenty of room to run. Dominos still has many international markets to enter and others to maximize. Dominos is up 99% YTD. A steady growth and momentum stock trading at 21 times earnings is worth considering. Cramer was right about Dominos.
Cedar Fair (NYSE:FUN) - Trading around $22.
Cramer gave this Midwest-based theme park operator a buy recommendation based on promises to increase an already strong dividend by year’s end. The company confirmed the $1 per unit payout by the end of the year. Executives stated intentions to double that payout to $2 per unit. The stock is currently yielding 12.3%. Cramer said this adjustment is a feasible one since the company refinanced its debt and cleaned up its balance sheet. Since most of Cedar Fair’s customers came from within a 150 mile radius, its parks will benefit from the decline in oil prices. Cedar Fair is performing much better than Six Flags, which has no quarterly revenue growth and announced plans to refinance some of its debt and to negotiate new loans. Cedar Fair has 5% quarterly revenue growth, a 48.91% gross margin, but trades at a high multiple of 137.72. With a safe dividend that high, however, it is worth owning in this market. Cramer was right about Cedar Fair.
MarkWest Energy (NYSE:MWE) - Trading around $53.
Cramer gave this master-limited partnership a buy recommendation based on its distribution growth forecast and a strong 5.5% dividend. One great aspect of master-limited partnerships like MarkWest Energy is its low exposure to drastic savings in the price of oil. MarkWest’s accelerated distribution growth forecast was also appealing to analysts at Wells Fargo, who upgraded the MLP to Outperform from Market Perform. MarkWest is up 23.5% YTD and trades at 60 times earnings. Cramer feels MarkWest is a better buy than its competitor DCP Midstream Partners (NYSE:DPM). DCP Midstream’s 15.78% gross margin pales in comparison to MarkWest’s 54.51% margin. MarkWest has 37.10% quarterly revenue growth compared to DCP Midstream’s 29.2%. Worth noting, however, is DCP Midstream’s 6.9% profit margin compared to MarkWest’s 5.7% and DCP Midstream reported net income of $85.3 million while MarkWest reported $79 million. With DCP Midstream only trading at 23 times earnings and yielding 6%, Cramer was wrong on MarkWest Energy.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.