Jim Cramer: 2 Buy and 2 Avoid Ideas

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Includes: BIDU, KSS, NKE, TGT
by: Efsinvestment

Jim Cramer, the Mad Money host, on Wednesday’s program answered some Mad Mail regarding four stocks, two bullish, and two bearish. I have investigated these stocks from a fundamental perspective, adding my O-Metrix Grading System to offer a deeper research. Here, is a fundamental analysis of these stocks from Cramer's Mad Mail (Data obtained from Finviz/Morningstar and is current as of Aug.11):

Stock Name

Ticker

Cramer's Suggestion

O-Metrix Score

My Take

Baidu, Inc.

(NASDAQ:BIDU)

Buy

4.09

Buy

Nike Inc.

(NYSE:NKE)

Long-Term Buy

3.75

Long-Term Buy

Kohl's Corp.

(NYSE:KSS)

Avoid

7.86

Long-Term Buy

Target Corp.

(NYSE:TGT)

Avoid

6.80

Long-Term Buy

Baidu, Inc.: Baidu is the only Chinese stock Jim has confidence in, as the Chinese market is not credible. As of Aug 11, Baidu was trading at a P/E ratio of 67.6, and a forward P/E ratio of 34.2. Analysts estimate a 41.7% annual EPS growth for the next five years, which sounds truly conservative given the 132.51% EPS growth of the past 5 years. With an impressive profit margin of 46.5%, the Chinese stock pays no dividend yield. While operating margin is 52.2%, gross margin is 73.9%. ROA and ROE are 46.51% and 44.34%, respectively. Baidu had a 136.41% EPS growth this year, and 94.71% this quarter. SMA200 is 18.22%, and SMA50 is 6.50%. Target price indicates a 24.4% increase potential, while it is trading 10.73% lower than its 52-week high. Baidu returned 79.2% in a year, and debts are nearly zero percent. Institutions hold 73.06% of the stock, whereas O-Metrix score is 4.09. Although P/E- forward P/E ratios do not fit my criteria, this stock is an opportune buy. Read a full analysis of Baidu here.

Nike, Inc.: Nike is an advantageous long-term investment, according to Cramer. Moreover, it recently announced strong quarterly results. Nike shows a trailing P/E ratio of 19.0, and a forward P/E ratio of 14.81, as of the Aug 11 close. Analysts expect the company to have an 11.2% annualized EPS growth in the next five years, which is reasonable when its 10.73% EPS growth of the past 5 years is considered. Profit margin in 2010 was 10.2%, while Nike offered a 1.49% dividend last year. O-Metrix score of the company is 3.75. It returned 16.4% in a year, and debt-to-assets ratio is nearly stable for the last five quarters. Target price implies a 19.5% upside movement potential, whereas the stock is trading 11.65% lower than its 52-week high. Yields are consistent. 14 out of 21 analysts covering the company recommends buying, and 3 suggests outperform. Nike has a joyful momentum since Feb, 2009. I guess this momentum will not fade away for a considerable time.

Cramer recommends staying away from companies like Kohl’s Corp. and Target Corp. Here is a brief comparison between these two companies:

Current as of August 11 Close

Kohl’s Corp.

Target Corp.

P/E ratio

12.7

11.5

Forward P/E ratio

8.8

10.6

Estimated EPS growth for the next 5 years

14.8%

12.5%

Dividend yield

2.11%

2.54%

Profit margin

6.09%

4.34%

Gross margin

38.24%

30.88%

Upside movement potential

35.7%

24.4%

O-Metrix scores of Kohl’s and Target are 7.86 and 6.80, respectively. Kohl’s is trading 17.31% lower than its 52-week high, while Target is trading 21.74% lower. Kohl’s returned 2.1% in the last twelve months, whereas Target returned -8.8%. Both of their debt-to-asset ratios are going down for the last two years, and both of the companies have a four-star rating from Morningstar. Although these two are in a downward trend, I believe this is the time to buy.

You can find more information on O-Metrix Grading System here.

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