It has been more than two months since I wrote my latest Lightning Round article - time goes by fast indeed. At the time of my last Lightning Round article, both the U.S. and European stocks saw the biggest weekly gain of the year. Now, it is the opposite in a wider time range.
I didn't expect things would get this bad for Europe, as Greece is getting ready to exit the eurozone and return to the drachma. While the Union is trying to keep Greece within the perimeter, I see little chance for such a success. Moreover, Spanish is on the horizon now, which led to a decline in U.S. stocks on Friday.
These days are among the foggiest days for the global economy, requiring extreme cautiousness when making a move. You need to handpick your stocks mercilessly and carefully, and think thrice before putting your money on them. That's how you're going to profit from the storm.
If there's a pro really helping investors and giving advice to get the most out of the harvest, it's surely none other than Jim Cramer. I periodically watch his TV shows and as far as I see, he is great at what he's doing. If you invest in accordance with his advice, you usually collect good profits.
Therefore, I have picked four 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 May 24 Lightning Round:
Avoid for now
Sell at $30
Avoid for now
Data from Finviz/Morningstar. You can download the O-Metrix calculator here.
Although once a great stock, Corning has been going straight down for more than a year. The stock is in a dangerous position among its peers with a Beta value of 1.41, although it is trading eight times both earnings and forward earnings. In the last twelve months, Corning was down by 35%. With an RSI (Relative Strength Index) of 34.75%, the stock is trading only 12.4% above its 52-week low.
Corning is subject to economical uncertainty in all segments, and heavy competition in the television segment. While LCD televisions are trendy, both Samsung (GM:SSNLF) and Sony (SNE) are dominating the industry. Revenue, assets and cash flow are not doing very good for the last few quarters. Price-to sales ratio is 2.6, doubling the industry average of 1.3. Corning needs to pull itself together. Otherwise, it is a "no buy". Based on these numbers, the stock has an O-Metrix score of 3.47.
Here is a terrific name with so much upside momentum, and still not overbought. The company keeps climbing up by contrast with the global markets, returning more than 52% in a year to its shareholders. It is extremely hard to find a fair-valued company with so much return in such a time. The estimated annual EPS growth for the next five years is 19.2%, and with a Beta value of 0.78, Visa is one of the least volatile in its industry. Its O-Metrix score of 4.43 is a about the average.
Visa has been a magnificent outperformer since the Lehman recession, returning approximately 171% since January 2009. Analysts' mean target price of $133.58 implies an 11.1% upside potential in the near term. Although it pays a symbolic dividend of 0.73%, cash flow and revenue are perfectly healthy. Debt-to equity ratio is 0.0, crushing the industry average of 7.7. Revenue keeps rising for the last five quarters. With an insanely low payout ratio of 12%, I strongly recommend buying this name. Trading at $120, Visa still has plenty of room to grow.
Cramer made the following remarks on Citigroup:
There may be a long-term upside. Yes, I believe the world economy will come back. It doesn't have great dividend protection. We don't know what they do. After (the scandal involving) JPMorgan (JPM), I'm not going to recommend any international bank play.
As one of the oldest companies, Citigroup is doing terribly for some time. Losing over 30% in two months, Citigroup is the second most volatile stock in its industry with a Beta value of 2.59. Revenue growth is still negative. Debt-to equity ratio is 1.7, above the industry average of 1.4. Although Citigroup has a strong foothold throughout Asia, it is still a company wounded by the JPMorgan news.
Citigroup is no longer the winning company it used to be. A very big value trap lies ahead, if I may say so. There will be upside movements for sure, but financials will face one of the hardest tests ever as long as Europe doesn't settle down. If you own it, hold until it gets somewhere around $30-$31. The stock has a B Grade O-Metrix score of 7.03.
Despite having an arguably strong balance sheet, Electronic Arts has been going down since November 2011. Since that time, the video game maker has lost nearly half of its value. Besides, with a terrible P/E ratio of 64.6, and earnings per share of $0.21, investors shouldn't expect much in the near term. Given these indicators, the estimated annual EPS growth for the next five years (17%) sounds quite optimistic to me.
With such good revenue, assets, cash flow and low debt, Electronic Arts should not be here. Earnings-per share is expected to hit sub-zero levels in the next quarter. Moreover, Electronic Arts is trading only slightly above its 52-week low. Although the stock is messed up, game releases have usually given it a push throughout its history. I expect the biggest push in its FIFA 2013 release, which is expected to take place within a few months. Then we can see the stock pushing its way up to a new 52-week high. Holding should do best for now. Electronic Arts has a poor O-Metrix score of 2.24.