Last week has ended with some optimism, even though this week started out as a relatively tougher one. Cramer reserved his optimistic mood as well, making four bullish and two bearish calls on December 12’s Lightning Round. I have examined his boldest 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 the first six stocks from Cramer's December 12 Lightning Round:
Stock Name | Ticker | Cramer's Suggestion | O-Metrix Score | My Take |
Netflix | Avoid | 1.72 | Hold | |
Suncor Energy | Buy | 3.64 | Long-Term Buy | |
Global Geophysical Services | Avoid | N/A | Avoid | |
Core Laboratories | Buy | 2.95 | Buy | |
Verizon | Buy | 3.78 | Buy After Pullback | |
United Health | Buy, but alternative is better | 6.51 | Buy | |
Wellpoint | Buy | 6.84 | Buy |
(Data obtained from Finviz/Morningstar, and is current as of December 13. You can download the O-Metrix calculator here.)
Netflix (NFLX)
Cramer sees no reason to own Netflix, and recommends “scaling out of it.” The company has a P/E ratio of 17.1, and a forward P/E ratio of 131.6. Analysts expect Netflix to boost its earnings by 25.6% in the next five years. Profit margin is 8.1%, and it offers no dividend.
Based on these numbers, Netflix has a poor O-Metrix score of 1.72. P/B (10.2) and P/S (1.4) values are way higher than their industry averages. Insiders hold only 0.21% of the shares, and insider transactions have decreased by 40.76% within the last six months. Despite the strong revenue, assets and cash flow, Netflix is doing terribly for some time. It has a horrifying PEG value of 5.7. Since July 2011, the stock has come from $298 to $75, losing about 75% of its value. Splitting its DVD and streaming business was surely a bad idea. The management team is ruining the company, and investors should not ruin their portfolios as a result. On the other hand, there are take-over rumors, which might or might not be well-founded. Therefore, I rate it as a hold.
Suncor (SU)
Cramer made the following comments on this name.
I like SU...they've got a great long-term situation. The stock is headed down short-term because oil is headed down, but I like it.
The oil company is trading at a P/E ratio of 14.7, and a lower forward P/E ratio of 8.7. Estimated annual EPS growth for the next five years is 7.0%. It pays a 1.53% dividend, while the profit margin (9.2%) is higher than the industry average of 7.6%.
Dividends are gorgeous, as well as cash flow and assets. Debt-to equity ratio (0.3) is also appetizing, below the industry average of 0.6. PEG value is 0.6, and it has a five-star rating from Morningstar. Suncor has been one of the most respectable Canadian oil companies, which has been a pioneer in this industry. The company aims for an about 10% growth a year through 2020. At a price of $28, Suncor seems to be a nice bet for long-term. Based on these numbers, Suncor has an O-Metrix score of 3.64.
Global Geophysical (GGS) vs. Core Labs (CLB)
Cramer prefers going with Core Labs instead of Global Geophysical. Here is a brief comparison of these two stocks, current as of Dec. 13:
Global Geophysical | Core Labs | |
P/E ratio | 105.3 | 32.6 |
Forward P/E ratio | 7.3 | 24.4 |
Estimated EPS growth for the next 5 years | - | 16.0% |
Dividend yield | - | 0.87% |
Profit margin | 0.7% | 19.7% |
Gross margin | 22.8% | 34.3% |
Upside movement potential | 123.4% | -1.7% |
As you can see, Global Geophysical is not even worth talking about. Core Labs has shown a marvelous recovery since December 2008, until when its dividends have increased by 500%. Revenue and cash flow are consistent for the last four years. Its Relative Strength Index (55.53%) is another buy sign. Core will keep rewarding you as long as oil prices stay above $90-95.
Verizon (VZ)
Cramer made the following comments on Verizon:
The dividend is safe and could even go up. I still like Verizon.
The telco shows a trailing P/E ratio of 15.4, and a lower forward P/E ratio of 15.0. Five-year annualized EPS growth forecast is 6.3%. It boasts a juicy dividend of 5.22%, while the profit margin is 6.5%.
With a Beta value of 0.58, Verizon is one of the least volatile stocks in its industry. Dividends are just fine, along with cash flow and revenue. Debt-to equity ratio (1.2) is also good, more than doubling the industry average of 2.6. Verizon has been doing quite well, and dividends are sustainable. Verizon is a profitable play, but Telefonica (TEF) offers a better value, as I have mentioned. If you insist on this name, you should wait for a pullback. Verizon has a D Grade O-Metrix score of 3.78.
United Health (UNH) vs. Wellpoint (WLP)
Although the Mad Money host likes United Health, he would go with Wellpoint instead. Here is a brief comparison of these two stocks, current as of Dec. 13:
United Health | Wellpoint | |
P/E ratio | 10.7 | 8.6 |
Forward P/E ratio | 10.1 | 8.4 |
Estimated EPS growth for the next 5 years | 12.2% | 10.1% |
Dividend yield | 1.35% | 1.53% |
Profit margin | 4.9% | 4.8% |
Upside movement potential | 20.6% | 32.0% |
Based on these numbers, the O-Metrix scores of United Health and Wellpoint are 6.51 and 6.84, respectively. Both of the companies have strong growth, revenue, and cash flow. As long-term investments, both of these two has trustworthy growth and solid field performance. Moreover, they pay appetizing dividends. Both of them are buys for me.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
