Analyzing Cramer's Latest Calls: Are These Giants Worth Their Fames?

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Includes: CMG, FTR, MCD, SBUX
by: Efsinvestment

By Cagdas Ozcan

First of all, I would like to offer my condolences to those who have lost relatives and loved ones in Hurricane Sandy. I hope the rest of the people in NY/NJ area are doing fine.

Despite being hit by the longest storm since 1888, which wrought havoc all over the northeastern United States, the New York Stock Exchange emerged relatively unscathed. U.S. stocks went green after the equity markets reopened on Wednesday. However, floor traders are still having problems with their Internet and cellular connections, making it difficult for them to keep on top of the latest updates. Furthermore, due to widespread power outages, the Exchange has been forced to operate solely off of generators. The impact of Hurricane Sandy warns us of the potential ramifications of unpreparedness.

No one really knows what lies ahead now - the NYSE could very well remain unstable for some time. Investors need to regain their trust in the institution before they will be willing to make any major trades. This is therefore a perfect time to analyze some "tough boys" - operating both in and outside the NYSE - to determine if they are really worth their reputations. In Cramer's latest Lightning Round program, one can find his opinion on four renowned stocks. I have analyzed them as well, adding my own thoughts. The O-Metrix Scoring System has also been applied.

Stock Name

Ticker

Cramer's Suggestion

O-Metrix Score

My Take

McDonald's

(NYSE:MCD)

Avoid For Now

4.18

Buy

Frontier Communications

(NYSE:FTR)

Avoid For Now

2.03

Buy

Starbucks

(NASDAQ:SBUX)

Buy

4.55

Long-Term Buy

Chipotle Mexican Grill

(NYSE:CMG)

Buy

4.11

Risky Buy

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

McDonald's Corp.

Although the stock is in an total downtrend, I think it is the right time to put some on the table. The stock is trading reasonably with a P/E ratio of 16.3 and a forward P/E of 14.6. While the stock has had pricing issues for some time, its current share price seems to be a breathtaking bargain, especially with a Relative Strength Index of 28 percent. The stock has been falling for some time as sales fell short.

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MCD data by YCharts

Despite underperformance, McDonald's is the cheapest burger chain now, offering a terrific bargain to consumers. The company is just too big and successful to ignore. Moreover, the burger chain has been busy of late repurchasing shares. Should MCD's earnings continue to rise over the long run, these repurchases will be of great benefit to investors. The company also announced a ten percent increase in its quarterly dividends. Although McDonald's has been underperforming for quite a while now, I believe that recent losses have created a great investment opportunity. I think the effects of Hurricane Sandy have had little or no impact here. The company has an O-Metrix score of 4.18. (See my full analysis on McDonald's here).

Frontier Communications

In their analysis, Cramer suggests that you not "touch Frontier," offering Verizon (NYSE:VZ) as a suitable alternative.. However, in a recent article, one of my colleagues said that investors have to give up short-term gains for the sake of long-term benefits, and that is what happened at Frontier. I agree wholeheartedly with this statement and believe that it is vital that it is understood by investors. It is clear at present that some Frontier investors are beginning to warm to this idea as the stock has fended off downward trends for a while.

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FTR data by YCharts

Although quite painful for shareholders, Frontier's decision to cut the dividend was the right choice for the sake of long-term performance. Nevertheless, current dividend payments are down 60 percent from the Q3 2010, and the company may risk cutting them further. Investors might have understood the necessity to cut the dividends, but cutting them to greater levels could have unfortunate consequences. The company's dividend cuts seem to have paid off for now, but Frontier has a responsibility to maintain its current levels. In addition, personally, I doubt that Frontier management will want to squeeze its investors much more. Frontier's debt situation is improving and it has a bright future ahead. Investment in this company would not be a risky move.

Frontier has an O-Metrix score of 2.03.

Starbucks

"Buy shares on weakness" is Cramer's recommendation. On this subject, I must agree with them, and Starbucks presents a perfect example of why this is the case.

At present, Starbucks is offering one of the best entry points since November 2008, when it bottomed down to $7.83 a share. One of my biggest concerns over this company was that its Relative Strength Index has been a constant source of anxiety. However, with the company's RSI cooled down to 35.7 percent, Starbucks is open to new peaks.

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SBUX data by YCharts

With this company, a certain amount of faith is required. Even though they may not seem to be performing well this moment, they are the world's largest coffee retailer. With Starbucks, patience is key. The company is constantly expanding, having broadened its repertoire to include not only coffee beverages, but also a huge arsenal of foods, juices, and teas. Starbucks is becoming a worldwide phenomenon, in the same vein as McDonald's or CocaCola (NYSE:KO). I am certain that, in time, this company's stocks will yield benefits.

These types of stocks usually become great long-term profit generators. Though this may happen slowly, it shows consistency. The company is opening two new outlets in India - where it previously had only one store - that may improve company value. This is the type of company well-suited for the patient, long-term player. If you fit this description, then don't waste your time. Based on its numbers, Starbucks has a C- Grade O-Metrix score of 4.55.

Chipotle Mexican Grill

Chipotle is surely a speculative bet after it skydived with the disappointing Q3 report, along with David Einhorn's thesis. The company's share fell sharply from $400 to $250 within only a couple months. Chipotle is currently trading just above $250, with stock prices at a relatively stable level. However, speculation could have any manner of impact of the company. There are too many factors at the moment to make predictions with any kind of absolute certainty.

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CMG data by YCharts

From a technical perspective, Chipotle has quite promising numbers. In particular, the company's balance sheet looks quite optimistic. Forward price-to-earnings ratio is 23.0, which is acceptable for a company with robust fundamentals and continuing growth. Revenue, assets and cash flow are also all remarkably good. Moreover, Chipotle currently shows no debt issues. However, there is enormous competition in the company's market, especially from other casual dining and quick service food chains. To face this competition, Chipotle is currently redesigning its marketing strategy to increase customer traffic. I would like to say that Chipotle makes a good buy based on its balance sheet, but speculations are eating it away. If you risk it, you ought to leave a spot for Chipotle in your long-term portfolio.

The company has an O-Metrix score of 4.11.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: EfsInvestment is a team of analysts. This article was written by Cagdas Ozcan, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.