Jim Cramer's Mad Money Lightning Round Picks July 27

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Includes: AA, ESRX, FCX, MCD, NWSA, WEN, WLT
by: Efsinvestment

Jim Cramer is one of the most popular stock pickers in the market. In his “Lightning Round”program, he states his estimations about the stocks that viewers ask about. July 27’s Lightning Round, like one of the recent programs, was more likely “Excellent Stock Picks by Cramer” as he made only one bearish call, and recommended a great alternative to it. Here is a fundamental analysis of these stocks from Cramer’s Lightning Round mentions on July 27:

Walter Energy (WLT): Walter Energy returned 77.4% in the last twelve months, and Cramer remains bullish on it. As of the July 27 close, the company was trading at a P/E ratio of 15.45, and a forward P/E ratio of 7.53. It had an impressive EPS growth of 49.84% in the last five years. With a dividend yield of 0.40%, Walter Energy has a profit margin of 25.3%, well above the industry average of 11.5%. Target price is $155.36, which implies a 25.7% upside potential. Insider transactions for the last six months have increased by 22.24%, while the stock is currently trading 13.95% lower than its 52-week high. Walter Energy had a whopping EPS growth of 175.14% this year, and 93.64% this quarter. SMA20 is 4.43%, and SMA50 is 5.37%. Debts are almost buried into the ground within the last four years. Operating margin is 38.15%, while gross margin is 52.8%. ROA and ROE are 27.81% and 86.25%, respectively. Most of the indicators show that this stock is an advantageous buy. The company has ben doing well, and future expectations are also high. The current price is an opportune entry point.

News Corporation (NWSA): Cramer thinks that News Corp. is a “great company”, and he thinks that it “should be bought.” The company recently started surveying the shareholders, regarding their views on the Murdoch’s control of management. The New-York based News Corp. shows a trailing P/E ratio of 14.41, and a forward P/E ratio of 11.94, as of July 27. Analysts expect the company to have a 14.11% annual EPS growth in the next 5 years. Profit margin is 9.42%, while the company has a 0.94% dividend yield. Those who caught the dip in March 2009, made serious profits. $1000 invested then is nearly $3013 now. Debt-to assets ratio is stable for the last five quarters. Earnings increased by 173.73% this year, while insider transactions for the last six months have increased by 22.96%. Target price is $20.69, indicating a 29.3% increase potential. NWSA is trading 12.81% lower than its 52-week high. I guess the two-year-old momentum will continue for a long while, and News Corp. can enter portfolios as a long buy.

Freeport-Mcmoran Copper& Gold (FCX): I truly admire Freeport-McMoran. It showed a fantastic recovery since its deadly downfall in Dec, 2008. One thousand dollars invested in that time is about $6482 now. As of July 27, the company has an impressive P/E ratio of 9.29, and a forward P/E ratio of 8.82. Estimated annual EPS growth for the next five years is 1.15%, which is quite conservative when its 14.35% EPS growth of past 5 years is considered. Profit margin in 2010 was 24.0%, whereas it offered a 1.84% dividend yield. Debts are melting for the last five quarters. SMA50 is 7.04%, and SMA200 is 4.43%. It is trading 10.0% lower than its 52-week high, while target price implies a 21.4% upside movement potential. Gross margin is 51.7%, whereas operating margin is 49%. Earnings increased by 103.87% this quarter, and 55.90% this year. The stock is highly volatile, bouncing between $50-$60 range since January. However, Freeport-Mcmoran is a profitable stock with a solid momentum over two years old.

Alcoa, Inc. (AA): Cramer thinks that the stock is “too darn cheap” and makes a bullish call on Alcoa. As of the July 27 close, the company was trading at a P/E ratio of 17.2, and a forward P/E ratio of 9.8. Analysts estimate a 70.43% annual EPS growth for the next five years, which sounds truly utopic given the -29.14% EPS growth of last 5 years. Alcoa has a 6.09% profit margin with no dividend policy. The company had an EPS growth of 121.72% this quarter, and 124.28% this year. Target price is $19.74, which indicates a 31.2% upside movement potential. The stock is trading 18.44% lower than its 52-week high, and it returned 36.4% in a year. P/S is 0.68. SMA50 is -4.51%, and SMA200 is -3.85%. The stock is likely to go around $18. This is an advantageous entry point.

Express Scripts, Inc. (ESRX): Express returned 188% in the last five years, and Cramer recommends sticking with it. It shows a P/E ratio of 22.15, and a forward P/E ratio of 13.94. Analysts expect the company to have an annual EPS growth of 18.85% in the next five years. Net profit margin is 2.88%, below the industry average of 3.9%. Earnings increased by 42.57% this year. Insider transactions for the last six months have increased by 24.19%, and ROE is 32.78%. Institiutions own 91.82% of the stock. It is trading 10.17% lower than its 52-week high, whereas target price indicates a 18.9% upside movement potential. Debt-to assets ratio is going down for the last four years. Analysts give a 2.00 recommendation for the company (1=Buy, 5=Sell).

The Wendy’s Co. (WEN): Cramer recommends buying McDonald’s Corp. (MCD) instead and selling Wendy’s. Here is a brief comparison between these two companies:

Current as of July 27close.

Wendy’s

McDonald’s

P/E ratio

-909.1

18.4

Forward P/E ratio

24.4

15.41

Estimated annualized EPS growth for the next 5 years

17.13%

10.04%

Dividend yield

1.52%

2.80%

Profit margin

-0.07%

20.56%

Gross margin

23.28%

39.74%

O-Metrix Score

NONE

3.82 out of 10

As you see, Wendy’s is no match for McDonald’s. Wendy’s returned 24.1% in a year, while McDonald’s returned 26.2%. Wendy’s’ ROA, ROE, ROI, and profit margin rates are terrible. McDonald’s, on the other hand, has excellent indicators that make the stock a screaming buy. I think McDonald’s is slightly over-priced for now, but it is a must have for the ultimate retirement portfolio (full analysis here). Like Cramer says, I say “buy McDonald's and sell Wendy's."

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