NBC’s Jim Cramer analyzed the following five stocks on the Monday, December 19th episode of Mad Money. The following is my analysis of his recommendations on a valuation basis. I conclude that Cramer was right on AT&T, MEMC Electronic Materials, Toronto Dominion, YUM Brands and Quad Graphics.
AT&T (NYSE:T) - Trading around $28.
Upon the heels of AT&T’s announcement to end its bid for T-Mobile (OTCQX:DTEGY), questions arose as to Cramer’s feelings on the stock he often recommends. Cramer thinks AT&T will be fine, despite that the failed bid cost the wireless carrier $4 billion for break-up considerations. Ailing wireless provider Sprint (NYSE:S), who has been vocal against the deal from the start, said the decision was “right for consumers, competition and innovation in the wireless industry.” AT&T cited the Justice Department’s blocking of the deal as reason to stop pursuit. While the $4B charge will definitely hurt shareholders in the short-term, AT&T has plenty of cash on hand to cover it. A&T trades at 14.7 times earnings and yields a little over 6%. Strong fundamentals paired with dividend protection makes AT&T a hard stock to ignore. I agree with Cramer because the stock is only trading down .38% on the news, so it’s clear that the long-term prospects for AT&T far outweigh this setback.
MEMC Electronic Materials (WFR) - Trading around $3.
MEMC Electronic has been a downtrodden stock for so long and shows no signs of recovery anytime soon. Cramer gave the wafer manufacturer a sale recommendation because the stock has lost its umbrella of safety. Cramer said the umbrella was destroyed by the sharp drop in fossil fuels like natural gas and petroleum. With MEMC manufacturing solar wafers, its performance is tied directly to that of the solar sector- which is in the dumps, to put it lightly. MEMC is trading a few cents off its 52-week low of $3.65 and the stock is down 65.81% YTD. The company isn’t the sole reason for its hammered stock, but MEMC isn’t diversified and is at the mercy of the solar market. Standard & Poor’s put a junk-grade credit status on MEMC Electronic after citing risks posed by its exposure to a saturated solar energy sector. I agree with Cramer because the company is a poor performer in a poor market. With a $39M loss and a 2.58% operating margin, there simply isn’t a reason to own shares of MEMC Electronic.
Toronto Dominion (NYSE:TD) - Trading around $70.
Cramer said if a gun were put to his head, he would recommend owning shares of this Canadian bank. This has nothing to do with Toronto Dominion’s performance or outlook, but more to do with Cramer’s reluctance to recommend financials. Cramer likes Canadian banks because they’re more regulated and won’t do what American banks have done. Toronto Dominion trades at a relatively low multiple of 11.3 times earnings and a stable 3.8% dividend yield. Trading 19 points off its 52-week high, Toronto Dominion has room to run. The Canadian bank delivered a stellar quarter of C$1.77 EPS (a C$0.22 beat) and a 12.9% revenue increase of C$5.76B. Toronto Dominion‘s Q4 revenue was a C$250M beat on estimates. In the interest of having a diversified portfolio with financials as a part of it, I agree with Cramer on Toronto Dominion. The stock is trading down close to 6% YTD, which may present a buying opportunity after the bank delivered a solid quarter earlier in the month.
YUM Brands (NYSE:YUM) - Trading around $57.
Cramer gave this restaurant operator a buy recommendation for its strong international growth prospects. YUM Brands, a collective of KFC, Taco Bell and Pizza Hut, is the world’s largest restaurant operator. With over 30,000 stores, it is even bigger than McDonald’s (NYSE:MCD). YUM Brands trades at 22.6 times earnings and has a 2% dividend yield. KFC is particularly popular in China because its standards for chicken and its preparation are substantially higher than other Chinese restaurants in the region. McDonald’s will be the toughest competition for YUM Brands in China. Both are favorites of Cramer’s and both are worth owning. McDonald’s trades at 19 times earnings and yields 2.8%. YUM Brands has 14.4% quarterly revenue growth rate, while McDonald’s has a year-over-year QRG of 13.7%. I agree with Cramer on YUM Brands because the stock is cheap when considering its international prospects alone. The company’s recognition of stagnant North American growth along with its response to it- by passing the management of units on to franchisees- shows that management has shifted focus to international growth and investors should do the same.
Quad Graphics (NYSE:QUAD) - Trading around $13.
This commercial printing service provider received a sell recommendation from Cramer. Cramer said that aside from despising the business and catalogs, one of its primary products, the high 6% dividend yield is not safe. Investors seem to agree with his sentiment, as Quad Graphics is trading down 65% YTD. Trading a point and a half off its 52-week low, continued bad news could force this stock below those levels. Quad Graphics is currently not turning a profit and is failing to experience any growth, quarter after quarter. Quad Graphics is trading at 25 times earnings. GMI listed Quad Graphics with a number of other U.S. companies that could find themselves going bankrupt. Consolidated Graphics (NYSE:CGX) appears to faring better than Quad Graphics, although the impact of the digital medium has had its impact on this sector as well. Consolidated has a 2.8% quarterly revenue growth rate and trades at 15 times earnings. Cramer was right on Quad Graphics because the sector will be further dampened by the cost-effectiveness of digital distribution and the business model is ultimately a failing one.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.