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In Thursday's edition of Lighting Round on his Mad Money program, Jim Cramer was bullish on 6 stocks. His bullish picks were McDonald's (NYSE:MCD), Wells Fargo (NYSE:WFC), BGC Partners (NASDAQ:BGCP), Cummins (NYSE:CMI), Magna International (NYSE:MGA) and Celgene (NASDAQ:CELG) while he was bearish on Office Depot (NYSE:ODP), Giant Interactive Group (NYSE:GA), Alpha Natural Resources (NYSE:ANR) and Weight Watchers (NYSE:WTW).

As always, I will be only be examining his bullish calls to determine if it makes sense to open a position in his recommendation at current levels. Some basic information about his bullish picks is presented in the table that follows:

Company Basics

CY

CMI

MGA

CELG

Market Cap (Billion)

2.4

23.03

10.88

32.58

Stock Performance 5 Yr

62%

259%

28%

45%

Stock Performance 1 Yr

-26%

17%

-8%

37%

Dividend Yield

2.8%

1.3%

2.4%

0.0%

Celgene and Cummins are the well-recognized names on the list and have been strong performers over the last 5 years. CY and MGA have both declined over the last year, however, they have also offered positive returns over the last 5 years and outperformed the broader markets by a wide margin. CELG is the only non-dividend payer on the list while CY and MGA offer respectable dividend yields exceeding 2%.

To get a better understanding of these companies, I evaluated the historical growth rates of revenue, income and book value, and the projected growth rates. These are summarized in the table shown below:

Growth Rates

CY

CMI

MGA

CELG

Revenue

10 Year

3%

12%

9%

43%

5 Year

-9%

10%

4%

40%

1 Year

13%

36%

19%

34%

Income

10 Year

-

37%

6%

-

5 Year

34%

21%

14%

80%

1 Year

121%

78%

5%

50%

EPS

10 Year

-

34%

4%

-

5 Year

29%

22%

12%

74%

1 Year

125%

81%

0%

52%

Book Value

10 Year

-9%

18%

2%

30%

5 Year

-18%

15%

2%

20%

1 Year

-42%

20%

1%

-7%

Growth Projections

Next Year

42%

14%

15%

17%

Next 5 Year

9%

17%

8%

25%

CELG has historically been a very strong performer and has grown its revenues and earnings at an impressive rate over the 10 year, 5 year and 1 year period. The biggest negative that I see is the decline in book value over the last year. CMI and MGA have also historically performed well. Going forward, CELG and CMI are expected to lead the way with growth rates exceeding 15%.

The next step in the fundamental analysis was the evaluation of margins and operational effectiveness of the 4 companies. The table that follows presents the evaluation results.

Averages

CY

CMI

MGA

CELG

Gross Margins

10 Year

45%

21%

13%

88%

5 Year

46%

22%

12%

91%

Last Year

55%

25%

12%

91%

TTM

55%

25%

12%

91%

Operating Margins

10 Year

-10%

8%

4%

1%

5 Year

-12%

10%

2%

11%

Last Year

15%

15%

4%

30%

TTM

15%

15%

0%

30%

ROIC

10 Year

-1%

16%

7%

0%

5 Year

2%

20%

6%

2%

Last Year

30%

32%

14%

17%

TTM

30%

32%

12%

17%

CY and CMI have both improved their gross margins over the years. In fact, MGA and CELG have also reported solid gross margins over the analyzed time period. CY and CMI have also generated excellent return on invested capital last year.

Having developed a good idea about the fundamentals of the 4 companies, the next step was to perform relative valuation. The multiples used in the analysis were based on historical analysis of individual company and industry multiples.

The table below presents the valuation analysis results.

Valuation

CY

CMI

MGA

CELG

Current Yr Proj EPS

$1.22

$11.77

$5.29

$5.66

EPS Growth Rate

9%

17%

8%

25%

Future EPS (5 Yr)

$1.58

$18.64

$6.63

$10.99

Expected P/E

14

12.6

11

16

Price 5 Yrs Out

$22.12

$234.85

$72.96

$175.77

Unlevered Beta

2.11

1.1

1.1

1.27

Debt

0.043

0.686

0.233

1.802

Debt to Cap

2%

3%

2%

6%

Current Tax Rate

35%

35%

35%

35%

Levered Beta

2.13

1.12

1.12

1.32

Risk Free Rate

2%

2%

2%

2%

Risk Premium

6.00%

8.00%

8.00%

8.00%

Size Premium

1.54%

-0.36%

0.62%

-0.36%

Cost of Equity

16.3%

10.6%

11.5%

12.2%

Fair Value

$10.37

$141.85

$42.25

$99.01

Current Price

$15.50

$119.98

$46.63

$74.24

% Overvalued

33%

-18%

9%

-33%

As shown in the table above, CMI and CELG are significantly undervalued and appear attractive at current levels. CY is grossly overvalued and is a short candidate in my opinion. MGA is modestly overvalued and I would avoid it at these levels.

Disclaimer: Kindly use this article for information purposes only. Please consult your investment advisor before making any investment decision.

Source: My Take On Cramer's Bullish Picks