Seeking Alpha
Profile| Send Message|
( followers)  

Most of the economists expect another global recession next year. The eurozone crisis seems much worse than any time in the last two years, and you better take precautions. Due to the extreme downside potential in markets, I am trying to be as conservative as possible in my calls. As far as I see, this is the time to leave small-cap stocks with high risks, and to stick with large and safe dividend payers.

Cramer also favors such companies with high yields. In the December 13 Lightning round, he made 5 calls that are worth a second look. I have investigated Jim Cramer’s December 13 Lightning Round calls, and added my opinion about them. I have examined all of his stock mentions from a fundamental perspective, and applied my O-Metrix Grading System where possible. Here is a fundamental analysis of the first six stocks from Cramer's December 13 Lightning Round:

Stock Name

Ticker

Cramer's Suggestion

O-Metrix Score

My Take

Computer Sciences Corp.

(CSC)

Avoid

N/A

Avoid

Cummins

(CMI)

Long-Term Buy

9.81

Long-Term Buy

AT&T

(T)

Buy

4.62

Buy

Sunoco, Inc.

(SUN)

Sell

N/A

Sell

Donaldson Company

(DCI)

Buy After Pullback

3.27

Buy After Pullback

(Data obtained from Finviz/Morningstar, and current as of December 15. You can download the O-Metrix calculator here.)

Computer Sciences Corp.

The Mad Money host is bearish on this name, as the “fundamentals are failing.” It shows a trailing P/E ratio of -1.7, and a forward P/E ratio of 6.6. Estimated annual EPS growth for the next five years is 9.0%. It sports a 3.21% dividend, and the profit margin is -14.1%, crushed by the industry average of 8.1%.

Computer Sciences has been doing pretty bad since February of this year, losing more than half of its value. Assets and cash flow are falling. A Relative Strength Index of 43.79 shows that the company is suffering from sell-offs. ROE is -39.16%. Revenue might look tidy, but it clearly isn’t enough to save the company. There are too many poor numbers, so stay away.

Cummins

Cramer thinks that Cummins is a good long-term hold, although the stock is not immune to eurozone issues:

[Cummins] Will go down if Europe goes into a severe recession. Cummins is a good long-term hold, but for those who are patient. The truck cycle is very powerful...but could be some tough sliding here.

The stock is trading at a low trailing P/E ratio of 10.5, and a lower forward P/E ratio of 9.1. Five-year annualized EPS growth forecast is 17.6%. It offers a 1.79% dividend, while the profit margin is 9.6%.

Cummins has been paying out consistent dividends through its entire history. The latest dividend boost was 53.8%, which was first paid in August 2011. Assets, revenue, and cash flow look appetizing. Cummins is doing admirably since the Lehman recession, jumping up by 350% since then. Debt-to equity ratio (0.1) is also good, well below the industry average of 0.7. Cummins reported a 61% increase in net income, and a 36% increase in revenue in the last quarter. Cummins has nice long-term contracts, so count on this name when playing long. Cummins has an A Grade O-Metrix score of 9.81.

AT&T

The Mad Money host is bullish on AT&T, even if the “T-Mobile goes away.” The Texas-based company shows a trailing P/E ratio of 14.7, and a forward P/E ratio of 11.7. Analysts estimate a 6.3% annual EPS growth for the next five years. Shareholders enjoyed a 5.92% dividend last year, and the profit margin is 9.3%, higher than the industry average of 8.6%.

With a Beta value of 0.60, AT&T is among the least volatile stocks in its industry. O-Metrix score is 4.62. Dividends are respectable, as well as revenue and cash flow. Debt-to equity ratio (0.6) is also appetizing, which crushes the industry average of 2.6. The company is a great dividend play with such massive income and revenue, even if the T-Mobile merger fails. Invest your money on this name, and it will surely offer a much better deal than government bonds. However, Telefonica (TEF) is a better play for me.

Sunoco

Cramer suggests selling Sunoco as refinery margins are “going to go down.” It has a P/E ratio of -4.2, and a forward P/E ratio of 21.6. Analysts expect the company to boost its earnings by 13.24% in the next five years, which sounds unfair given the -21.32% EPS growth of the past five years. With a profit margin of -2.7%, it pays a 1.58% dividend.

Sunoco has cut its dividend from $0.30 to $0.15 a share on February 2010. Revenue, assets and cash flow are decreasing. Since July 2007, Sunoco has lost about 55% of its value. The company has been trying to heal itself hard, but its RSI (52.17%) has entered into overbought territory. Price-to book value (3.1) and insider ownership (0.13%) are another two poor numbers. There are much better stocks in this industry, so I would pick them instead.

Donaldson Company

The Mad Money host made the following remarks on this stock:

Those are in the sweet spot. On a pullback, that one is a buy, buy, buy.

The Minnesota-based company is trading at a P/E ratio of 22.2, and a forward P/E ratio of 18.4. Five-year annual EPS growth forecast is 12.4%. It pays a thin dividend of 0.88%, and the profit margin is 10.2%, above the industry average of 8.8%.

The stock is doing admirable since March 2009. Dividends seem safe, despite the unstable cash flow. Both revenue and assets seem tidy. Donaldson is a trustworthy company operating in a growing market, and it has relatively good numbers. O-Metrix score is 3.27, while ROE is 27.91%. Debt-to equity ratio (0.2) is also convincing, way lower than the industry average of 0.7. Since January 2010, earnings-per-share (ttm) has increased from 1.47 to 3.09. Donaldson has been a steady outperformer, and it would be wise buying this stock after a pullback.

Source: 5 Trading Ideas From Jim Cramer