Cramer is a great investor and entertainer, but he certainly has a knack for picking speculative growth stocks that often blow up in the end, like Netflix (NASDAQ:NFLX), Opentable (NASDAQ:OPEN), Sequans (NYSE:SQNS), and others. Watching his show can be a good research tool for short sellers -- many times Cramer's show can help create stock bubbles which the astute short seller can bet against profitably. Here are 5 stocks Cramer rates a buy -- we would only consider shorting Alexion for now, but would avoid most of these names at present.
Alexion Pharmaceuticals (ALXN): -- Cramer warns that buying a stock purely based on takeover speculation is unwise, but he thinks that all of the M&A activity in the Biopharma space is positive for the stock. He likes ALXN and believes that it has the catalysts needed for a big upside move. In his stock playoffs segment, he chose ALXN over Ross Stores. With a PEG ratio of 1.54 the stock could be considered reasonable, but at a price to earnings multiple of 87X trailing and 42X forward estimates Alexion is clearly not without risk. Even though the company is a player in compliment activation drugs for ailments like Arthritis, we think the stock is a little too expensive to be worth buying at current prices.
Ross Stores (ROST): Ross was the stock that lost to ALXN in his stock playoffs segment (don't know if this was the American or National League) because Cramer felt that Ross was less likely to be acquired. We think Ross Stores are still a good place to be, given the profitability and popularity of its brand. Ross has a strong competitive advantage in clothing right now and we see that strengthening. We like ROST, but after such a strong rally we have to check the fundamentals -- the forward PE of 15X is cheap considering the company delivers 15% YOY earnings growth and a 45% return on equity. Ross looks to be a decent growth at reasonable price (or G.A.R.P). stock, even after a strong performance in 2011. With an EV/EBITDA of 8.8X, ROST is reasonable enough provided its growth continues.
Cabot Oil and Gas (NYSE:COG): Cramer says that COG should be $50 higher than it is currently. Given that Cabot stock is at $84 and is trading for 60X trailing and 33X forward earnings, we are not bullish on the stock due to the lofty valuation multiple. High multiple Cramer stocks work until they don't, and given the fact that Cramer has been a little off his game in some of these speculative growth plays, we would stay away from COG right now on first glance. After reviewing the cash flow statement, COG is not as expensive as it appears on earnings as the stock has a market cap of 8.5 billion and operating cash flows of around $600MM. All in all, COG is going to take more research time than a cheap Conoco (NYSE:COP) and doesn't pay a meaningful dividend. A wise trade may be to short COG and go long COP.
Intuitive Surgical (NASDAQ:ISRG): Robotic sugery seemed like a long shot when it first came into prominence and was heavily touted by Cramer, but after years and years of success it looks like ISRG has a strong niche in its industry and market. Even though ISRG didn't win its division against COG in Cramer's stock playoffs on Mad Money, investors in ISRG are only paying 1X their 40% net income growth rate at 42X trailing earnings -- making it too expensive for us and a possible short in a down market. ISRG actually looks OK on earnings compared to the company's historical multiples on earnings and cash flows, but we still would avoid the stock because of the rich valuation on ISRG earnings. If the growth continues here, there is no question long term investors in ISRG will make money. For us, the risk in growth stocks outweighs the reward, but Intuitive is a great company at a much more reasonable valuation than many high growth stocks like Amazon (NASDAQ:AMZN) or Salesforce (NYSE:CRM).
Kraft (KFT): Cramer says that 99% of U.S. Households have Kraft product inside. He suggested that the company break up into 2 businesses and spin off the snack foods business. "It's called a breakup because it's broken." According to Jim,"when a company is worth more as a sum of its parts, its time to break it apart!" -- I can't really find any logic to the argument, personally.
Kraft has been able to grow despite the down economy -- 2011 operating earnings grew at 11.8%. if the company breaks itself up Cramer thinks the stock could trade much, much higher. KFT Made Cramer's Dow Diamonds list for 2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.