Jim Cramer's Latest Buy List

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Includes: EW, HD, LOW, MCD, SKS
by: Efsinvestment

Jim Cramer, host of the popular Mad Money show, is recommending some stocks amidst this uncertain environment. Recently, he said:

"The market can be pretty darned stupid sometimes. And that’s a good thing, too, because when the market’s dumb, it gives us some terrific opportunities."

Therefore, he gave names of four stocks and explained his opinions about them. I have examined these stocks from a fundamental perspective, adding my O-Metrix Grading System where necessary. Here is a fundamental analysis of these stocks from Cramer's Mad Money (Data obtained from Finviz/Morningstar and current as of Aug.17):

Stock Name

Ticker

Cramer's Suggestion

O-Metrix Score

My Take

Saks Inc.

SKS

Buy

2.21

Buy alternative

Edwards Lifesciences Corp.

EW

Buy

2.86

Hold

Lowe's Companies, Inc.

LOW

Buy, but alternative is better

6.95

Buy

Home Depot, Inc.

HD

Buy

5.64

Buy, but alternative is better

Saks returned 1.6% in the last twelve months, and Cramer is bullish on it. He recently interviewed Saks’ CEO Steve Sadove.

The New York-based Saks was trading at a P/E ratio of 23.4, and a forward P/E ratio of 17.3, as of the Aug 17 close. Analysts expect the company to have a 9.0% annual EPS growth in the next five years, which sounds overdone given the -13.39% EPS growth of the past five years. With a profit margin of 2.0%, Saks offers no dividend yield. Earnings increased by 42.13% this quarter, and 174.30% this year. Institutions own 73.65% of the company, while it has an O-Metrix score of 2.21. Target price is $12.00, which indicates an about 50.1% upside potential. Debts and assets are unstable. ROE is 5.1%, and operating margin is 3.7%, both of which are way below industry averages. SMA50 and SMA200 are -23.70% and -29.27%, respectively. The stock is trading 38.40% lower than its 52-week high. P/S is 0.5, above the industry average of 0.4. Insiders have been both exercising options and selling stocks for a while. Moreover, it is highly volatile.

I would not risk my money on Saks, and pick McDonald’s (MCD) instead. McDonald’s is an immensely profitable company with an operating margin of 31%, which is significantly higher than the industry average of 18%. Net profit margin of 20.6% is almost twice the industry average. The company offers a nifty yield of 2.85% and has an O-Metrix score of 3.5, which is much higher than Saks inc. (full analysis here and here).

“To navigate our way through this volatile and at times treacherous market, the trick is to find stocks that offer good risk-reward,” Cramer says.

He calls Edwards Lifesciences the “definition of good risk-reward”. He says that this stock might be a buy as it got hammered in the last month.

The healthcare company shows a trailing P/E ratio of 35.2, and a forward P/E ratio of 24.8, as of Aug 17. Analysts estimate a 17.2% annualized EPS growth for the next five years, which sounds reasonable when its 23.51% EPS growth of past five years is considered. Profit margin in 2010 was 14.9%, while the company has no dividend policy. Edwards has an O-Metrix score of 2.86, whereas the stock is currently trading 27.94% lower than its 52-week high. Target price is $89.80, implying a 35.7% upside movement potential. Edwards returned 14.8% in a year, and debts are increasing sharply for the last three quarters. P/S is 5.3 and P/B is 5.7, both of which are way above their industry averages. While SMA20 is -6.05%, SMA50 is -17.66%. Institutions own 88.95% of the stock, and earnings decreased by 6.20% this year. Insiders have been selling stocks and exercising options for a while. Moreover, the company has a two-star rating from Morningstar. P/E and forward P/E ratios are way too high for me, and it has a poor O-Metrix score. Hold if you own it, but I do not think that buying is a brilliant idea for now.

Cramer says that Home Depot is "simply better than Lowe's at what they do," saying:

"There’s practically no metric where Home Depot isn’t crushing Lowe’s. This, by the way, is why I always tell you to stick with best of breed stocks and ignore their also-ran competitors."

Here is a brief comparison of these two companies:

Current as of Aug.17 close.

Lowe's

Home Depot

P/E ratio

13.9

16.0

Forward P/E ratio

10.86

12.70

Estimated EPS growth for the next 5 years

14.42%

13.2%

Dividend yield

2.79%

2.99%

Profit margin

4.08%

5.04%

Gross margin

35.20%

34.34%

Upside movement potential

31.8%

23.9%

O-Metrix scores of Lowe’s and Home Depot are 6.95 and 5.64, respectively. Lowe’s is currently trading 27.84% lower than its 52-week high, while Home Depot is trading 17.85% lower. Lowe’s returned -5.9% in the last twelve months, whereas Home Depot returned 11.4%. Lowe’s has its debt-to assets ratio at 20%, while that of Home Depot is hovering around 25%. Lowe’s has a five-star rating from Morningstar, while Home Depot has a four-star rating. My analysis tells the opposite of Cramer. Almost all metrics show that Lowe’s is a better buy than Home Depot. However, both are profitable companies to go long.



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

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