5 Buy and Sell Ideas From Jim Cramer

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Includes: AA, AAPL, ALB, CROX, DLB, ESRX, FNFG, MDT, MHS, RHI
by: Efsinvestment

Investors are looking for safe stocks to invest their money, as markets are in a downward trend. Jim Cramer, the “Mad Money host”, made ten calls in Aug 17’s Lightning Round. His calls were divided into two this time: Five of them bullish, and the other five are bearish.

I have examined these stocks from a fundamental perspective, adding my O-Metrix Grading System where possible. Here is fundamental analysis of these stocks from Cramer's Lightning Round:

Stock Name

Ticker

Cramer's Suggestion

O-Metrix Score

My Take

Crocs

CROX

Buy at $24

5.10

Buy on Dip

Alcoa

AA

Buy

1.79

Avoid

Covidien

COV

Buy

5.29

Buy

First Niagara Financial

FNFG

Avoid

5.54

Long-term Buy

Alcatel-Lucent

ALU

Sell

2.71

Hold

Dolby Labs

DLB

Sell

6.09

Long-term Buy

Apple

AAPL

Buy

6.76

Top Pick

MedcoHealth

MHS

Alternative is better

5.67

Neutral

Express Scripts

ESRX

Buy

5.65

Neutral

Robert Half International

RHI

Avoid

4.14

Avoid

Data obtained from Finviz/Morningstar and is current as of Aug.17

While Cramer admires Crocs’ performance, he recommends buying when it falls to $24 a share. The company was trading at a P/E ratio of 22.8, and a forward P/E ratio of 16.4, as of Aug 17. Analysts expect the company to have a 20.0% annual EPS growth in the next five years, which is reasonable given the 24.73% EPS growth of past 5 years.

With a profit margin of 11.6%, Crocs has no dividend policy. Earnings increased by 67.33% this quarter, and 254.40% this year. O-Metrix score of the company is 5.10, while it is trading 15.77% lower than its 52-week high. Crocs returned 103% in a year, and target price indicates a 34.6% upside movement potential. Debt-to assets ratio is nearly 0%, whereas gross margin is 53.7%. I would wait for a pullback.

Alcoa is “back,” says Cramer, “and it will be bigger than ever." Alcoa has a trailing P/E ratio of 14.1, and a forward P/E ratio of 8.1, as of the Aug 17 close. Estimated annualized EPS growth for the next five years is 3.0%. With a profit margin of 4.0%, Alcoa paid a 0.98% dividend last year. Earnings increased by 121.72% this quarter, and 124.28% this year.

Target price implies a 61% upside potential, while it is trading 33.36% lower than its 52-week high. Alcoa has an O-Metrix score of 1.79, whereas it returned 12.1% in a year. Operating margin is 5.9%, and debt-to equity ratio is 0.6, both of which are worse than its industry averages. Although Alcoa is capable of beating the market, I do not think it will perform well for a considerable time.

Covidien is the only medical instruments company Cramer wants to hold. As of Aug 17, it shows a trailing P/E ratio of 13.9, and a forward P/E ratio of 11.76. Analysts estimate a 12.0% annual EPS growth for the next five years. It paid a 1.59% dividend last year, while the profit margin was 16.7%. Covidien had an EPS growth of 52.35% this quarter, and 66.25% this year.

It is trading 12.19% lower than its 52-week high, whereas target price indicates a 20.9% increase potential. Covidien’s O-Metrix score is 5.29, and debts are decreasing for the last four quarters. Debt-to equity is 0.4, below the industry average of 0.6. Moreover, it has a five-star rating from Morningstar. This stock is a compelling long-term profit-maker.

Cramer is bearish on banks for now, including First Niagara Financial. The company has a P/E ratio of 16.3, and a forward P/E ratio of 8.8, as of the Aug 17 close. Five-year annualized EPS growth forecast is 8.0%. With a profit margin of 15.8%, and a dividend yield of 5.91%, First Niagara is a charming stock for dividend lovers. O-Metrix score of the company is 5.54, whereas earnings increased by 53.02% this year.

The stock is trading 26.48% lower than its 52-week high, while target price implies a 37.2% increase potential. It returned -15.4% in the last twelve months. Debt-to equity ratio is 1.5, better than the industry average of 2.1 Insiders have been buying stocks for a while. Although it was a rough year for First Niagara Financial, I believe it will beat the market in the long-term.

Alcatel-Lucent shows a trailing P/E ratio of 14.6, and a forward P/E ratio of 8.6, as of Aug 17. Estimated annual EPS growth for the next five years is 6.3%. With a thin profit margin of 2.4%, Alcatel-Lucent pays no dividend. Its O-Metrix score is 2.71, and it returned 34% in the last twelve months. Debt-to assets ratio is increasing since 2007, whereas the target price indicates a 42.2% upside potential.

Earnings increased by 81.22% this year, and the stock is trading 24.60% lower than its 52-week high. Debt-to equity ratio is 1.2, better than the industry average of 1.6. Moreover, it recently had multiple-topped. Alcatel-Lucent will not show a significant performance in the next five years, and it has a poor O-Metrix score. Moreover, it has a thin profit margin with no dividend policy. Hold if you own it, but it is not worth buying for now. Cramer comments:

That (Alcatel-Lucent) has been one of the worst stocks ever, and I've been telling people to sell since $80, and I reiterate it here, sell, sell, sell.

Dolby, as of Aug 17, was trading at a P/E ratio of 12.94, and a forward P/E ratio of 12.5. Analysts expect the company to have a 15.5% annualized EPS growth in the next five years. Profit margin is 31.36%, while it pays no dividend. Target price implies a 23.8% upside movement potential, and O-Metrix score of the company is 6.09.

Dolby returned -42.1% in a year, while it is currently trading 51.73% lower than its 52-week high. SMA50 and SMA200 are -17.63% and -35.86% respectively. Insiders have been selling stocks for a while. Dolby is in a downward trend since Jan 2011. I guess this will continue for a while. However, it is a good pick for the long-term. Cramer Says:

Take the money and run

This (Dolby Labs) is not a bull market stock.

Apple returned 50.3% in a year, and Cramer remains bullish on it. The tech giant has a P/E ratio of 15.1, and a forward P/E ratio of 11.8, as of Aug 17. Analysts estimate an 18.2% annualized EPS growth for the next five years. Profit margin in 2010 was 23.5%, and it offers no dividend yield. Earnings increased by 122.15% this quarter, and 66.91% this year.

Apple’s O-Metrix score is 6.76, while target price implies a 29.5% increase potential. The stock is trading 5.95% lower than its 52-week high, whereas it has zero debts for the last five years. ROA and ROE are 27.53% and 41.99%, respectively. 42 out of 51 analysts covering the company recommend buying. My fair value estimate for Apple is $430 per share. Apple is still a buy at this price.

Cramer recommends Express Scripts instead of MedcoHealth. Here is a brief comparison between these two companies:

Current as of Aug.17 close.

MedcoHealth

Express Scripts

P/E ratio

15.79

19.39

Forward P/E ratio

11.5

12.26

Estimated EPS growth for the next 5 years

15.5%

17.9%

Dividend yield

-

-

Profit margin

2.12%

2.88%

Gross margin

6.62%

6.82%

Upside movement potential

30.4%

37.3%

O-Metrix scores of MedcoHealth and Express are 5.67 and 5.65, respectively. Medco is trading 19.58% lower than its 52-week high, while Express is trading 21.66% lower. Medco returned 14.6% in the last twelve months, whereas Express returned 2.9%. Both have debt-to assets ratios around 25%s, and both have a four-star rating from Morningstar.

I would pick more profitable stocks instead, as these two companies do not have any dividend policies. You may read my article on 8 high-dividend healthcare stocks, here.

Robert Half International, a California-based company, as of the Aug 17 close was trading at a P/E ratio of 30.73, and a forward P/E ratio of 14.96. Analysts expect the company to have a 16.5% EPS growth in the next five years, which is overdone given the -20.16% EPS growth of past five years. With a profit margin of 3.11%, shareholders enjoyed a 2.46% dividend last year.

RHI has an O-Metrix score of 4.14, and target price implies a 62.3% upside potential. The stock returned -9% in the last twelve months, and it is trading 32.99% lower than its 52-week high. P/B is 4.0 and P/S is 0.9, both of which are above industry averages. SMA50 and SMA200 are -12.14% and -21.41%, respectively. P/E ratio does not fit my criteria, and long-term EPS growth estimation sounds utopic to me. Cramer said:

We do not want that right now... people think we are going into a recession. This (Robert Half International) is not the stock to own.

Find more information on O-Metrix Grading System here.

Disclosure: I am long AAPL.