Revisiting 7 Bold Stock Calls By Jim Cramer

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 |  Includes: AAPL, BBRY, BX, CAT, KKR, LSI, URI
by: Efsinvestment

As far as it seems, 2012 doesn't really contain the depressed atmosphere of 2011. The markets are even doing better as Europe is in much better shape, as is the U.S. unemployment rate. Bears have started losing power as 2012 had the best start for global stocks since 1994. In such an environment, I believe it is time to head for the appetizing profit generators. Cramer seems to agree with me on this point, making mostly bullish calls on his program Lightning Round. I have picked seven of his boldest stock picks and analyzed them with my personal views, along with using fundamental indicators. Here is a fundamental analysis of these seven stocks from Cramer's February 1 Lightning Round:

Stock Name

Ticker

Cramer's Suggestion

O-Metrix Score

My Take

United Rentals

(NYSE:URI)

Buy

3.20

Avoid for Now

Caterpillar

(NYSE:CAT)

Buy

9.68

Buy

Research In Motion

(RIMM)

Sell at $18-$19

2.34

Risky Buy

Apple

(NASDAQ:AAPL)

Buy

8.18

Buy After Pullback

LSI Corp.

(NASDAQ:LSI)

Buy

2.40

Risky Buy

The Blackstone Group

(NYSE:BX)

Avoid

6.77

Buy, but alternative is better

KKR Financial

(KFN)

Buy

18.61

Top Pick

Click to enlarge

(Data obtained from Finviz/Morningstar. You can download the O-Metrix calculator here.)

United Rentals vs. Caterpillar

While Cramer likes United Rentals and recommends buying it on a pull back, he also favors Caterpillar. From a fundamental perspective, both of these companies are likely to do great in the future. United Rentals is trading at a P/E ratio of 27.9, and a forward P/E ratio of 9.6. The five-year annualized EPS growth forecast is 12.0%. It has no dividend policy, while the profit margin is 3.9%.

Caterpillar, on the other hand, shows a trailing P/E ratio of 16.9 and a forward P/E ratio of 9.9. Estimated annual EPS growth for the next five years is 24.3%. It offers a 1.66% dividend, while the profit margin is 7.8%, above the industry average of 7.0%.

Both of these companies will have a 40% discount to their 5-year averages as their forward P/E ratios are nearly 9. United Rentals has fought its way up since September 2011, but it needs a rest now. The stock has nearly broken through its 52-week high, and the Relative Strength Index has come to 80%, which is extreme overbought territory. All of its Simple Moving Averages are extremely high (15.95%, 29.41% and 58.90%, respectively). I expect no more upside from this name, but I am bullish on it in the long run.

Caterpillar is currently overbought as well, with a Relative Strength Index of 72.95%. However, Caterpillar is a much better choice due to its field performance, size and safe dividends. The stock is already selling at an acceptable price-to earnings ratio. On December 18, when it was trading at $87, I recommended buying the company, stating that it was poised for a bounce. Since then, the stock returned around 27%. As I have said before, Caterpillar will stay a winner as long as it operates in emerging markets. Therefore, Caterpillar is a much more rational choice. O-Metrix scores of United Rentals and Caterpillar are 3.20 and 9.68, respectively.

Research in Motion vs. Apple

The Mad Money host suggests selling Research in Motion at $18-$19, adding that Apple is "so much better." Research in Motion is selling at a P/E ratio of 3.9, and a forward P/E ratio of 5.7. Estimated annual EPS growth for the next five years is 2.25%, which is totally conservative given the 58.34% EPS growth of past five years. Profit margin (11.2%) is higher than the industry average of 9.3%, and it pays no dividend.

Apple shows a trailing P/E ratio of 13.0 and a forward P/E ratio of 9.6. Analysts expect the company to have an 18.5% annualized EPS growth in the next five years, which is also conservative when its 64.95% EPS growth of the past five years is considered. It offers no dividend, and the profit margin is 25.8%, crushing the industry average of 12.7%.

As you see, both of these stocks have quite strong numbers. However, Research in Motion had one of the most disastrous downfalls in the 2011 crisis. The stock lost 75% of its value in 2011, and it is still trading 76.3% below its 52-week high. Since December 20, the stock seems to have entered a recovery mode, but it's still too fragile in my opinion. I rate RIMM as a risky buy.

On the other hand, Apple returned 25.5% in the same year. The stock broke through its 52-week high, and there's still enormous upside potential, if you ask me. First, Apple will hit near-$500s with the iPad 3 launch around March. Second, iPhone 5 will give an extra boost in the third quarter. Needless to say, the expected mega-screen iMac is another story. Wait for Apple to fall below overbought territory, then buy. Read my updated analysis of Apple here. O-Metrix scores of Research in Motion and Apple are 2.34 and 8.18, respectively.

LSI Corp.

"Good quarter," Cramer commented on this name, making a bullish call on it. LSI is trading at a P/E ratio of 54.1, and a forward P/E ratio of 11.2. Analysts estimate a 15.7% annual EPS growth in the next five years. It has no dividend policy, and the profit margin is 11.9%, lower than the industry average of 16.8%.

LSI is a symbol of the 1990s tech bubble, and the company is still suffering. However, the last quarter was promising. Now that LSI had bought Sandforce, I believe things will be much better for LSI in the future. I expect the company to reserve its momentum in 2012, but you don't want to buy it at this level. Wait for a pullback if you take the risk. Holding is OK, though. Based on these numbers, LSI has a D Grade O-Metrix score of 2.40.

The Blackstone Group vs. KKR Financial

Cramer made the following remarks on Blackstone:

No, I want you to go to KKR Financial Holdings which had a much better quarter.

Blackstone is trading at a P/E ratio of 15.2, and a forward P/E ratio of 9.9. Analysts estimate a 14.6% annualized EPS growth for the next five years. With a profit margin of 14.4%, it sports a 2.40% dividend.

KKR, on the other hand, is trading at a P/E ratio of 4.9 and a forward P/E ratio of 4.8. Both Morningstar and Finviz analysts avoid making an estimate on its 5-year annual EPS growth, but 10% is well justified for me. With a profit margin of 67.5%, and a dividend of 8.06%, KKR Financial is a glamorous pick for dividend lovers.

While there's no argument that KKR Financial is much better, I don't think it's fair to be so harsh on Blackstone. The stock has quite a strong balance sheet, plus it is paying considerable dividends. Assets and cash flow are going up for some time. Moreover, the stock is climbing up since August 2011. KKR is much better, but Blackstone is a buy as well. O-Metrix scores of KKR Financial and Blackstone are 6.77 and 18.61, respectively.

Disclosure: I am long AAPL.