Jim Cramer is one of my favorite stock pickers on the street and I enjoy watching him regularly. As dark clouds on the global economy are bothering investors, Cramer is trying to help them shape their portfolios in accordance with the current situation. He looked at his “Mad Mail” recently and made calls on five stocks. Three of them were bullish this time, and the other two were bearish. I have examined all of his stock mentions from a fundamental perspective. I have applied my O-Metrix Grading System where possible. Here is a fundamental analysis of these stocks from Cramer's Sep. 16 Mad Mail:
Stock Name | Ticker | Cramer's Suggestion | O-Metrix Score | My Take |
Calumet Specialty Products | (CLMT) | Avoid | 8.78 | Hold |
PepsiCo Inc. | (PEP) | Buy | 3.71 | Buy After Pullback |
The Coca-Cola Co. | (KO) | Buy, but alternative is better | 3.57 | Buy After Pullback |
Banco Santander | (STD) | Sell | 8.73 | Long-Term Buy |
Corning Inc. | (GLW) | Buy | 9.57 | Risky Buy |
Cramer thinks that Calumet has unsustainable dividend, poor growth, and unsteady cash flow. As of Sep 16, Calumet has a P/E ratio of 24.1, and a forward P/E ratio of 10.1. Finviz analysts estimate a 18.94% annual EPS growth for the next five years. Profit margin (1.1%) is way below the industry average of 4.1%, whereas Calumet offers a 11.10% dividend.
Earnings decreased by 647.77% this quarter, and 75.25% this year. SMA20, SMA50, and SMA200 are -6.92%, -13.03%, and -14.46%, respectively. O-Metrix score is 8.78, which, I think, should be much lower as long-term EPS growth estimation sounds unrealistic. Moreover, dividends seem unsustainable. Target price is $20.50, which implies a 14.9% upside potential. Insiders own only 1.82% of the shares, while institutions own 9.11% of them. The stock is trading 23.95% lower than its 52-week high, while it returned -6.1% in a year. The debt-to assets ratio is unstable, and cash flow is struggling. Operating margin (3.3%) and profit margin are strong red flags. Gross margin is 8.5%, whereas ROA is 2.42%. It is hard to see how Calumet can reach its 5-year EPS growth estimation with these indicators. I would not recommend buying it, but holding is okay. It could be a good buy if earnings confirm high-growth expectations.
Although Cramer currently has Coca-Cola in his charitable trust, he is thinking about swapping it with Pepsi, as Pepsi offers a 3.3% dividend now. Here is a brief comparison between these two stocks:
Current as of Sep.16 close. | Pepsi | Coca-Cola |
P/E ratio | 16.1 | 13.2 |
Forward P/E ratio | 13.0 | 16.6 |
Estimated EPS growth for the next 5 years | 7.5% | 8.0% |
Dividend yield | 3.32% | 2.64% |
Profit margin | 10.1% | 29.7% |
Gross margin | 53.9% | 61.7% |
Upside movement potential | 22.1% | 9.2% |
O-Metrix scores of Pepsi and Coca-Cola are 3.71 and 3.57, respectively. Pepsi is trading 12.36% lower than its 52-week high, whereas Coca-Cola is trading only 0.08% lower. Pepsi returned -7.3% in a year, while Coca-Cola returned 22.8%. Operating margin (15.2%), profit margin, and ROE (29.0%) are moderate red flags for Pepsi. On the other hand, profit margin and debt-to equity ratio (0.3) are strong, and ROE (41.3%) are moderate green flags for Coca Cola. Average analyst recommendation is 2.20 for Pepsi, and 1.80 for Coca-Cola (1=Buy, 5=Sell). Coca-Cola is relatively less volatile. Moreover, it is a dividend pick for the next five years. I guess both are profitable buys, but a pullback should be waited for.
Although Cramer wants to recommend buying Banco Santander, he reiterates his call on selling all European banks. The Madrid-based bank shows a trailing P/E ratio of 6.15, and a forward P/E ratio of 5.3, as of the Friday close. Five-year annualized EPS growth forecast is 2.5%. Profit margin (10.3%) is slightly lower than the industry average of 13.1%, while it pays a nifty dividend of 7.50%.
Banco Santander returned -36.7% in a year, while it pays inconsistent dividends. Debts and assets are unstable, as well as cash flow. Earnings decreased by 9.28% this year, and 6.80% this quarter. Institutions hold only 2.10% of the stock. SMA50 and SMA200 are -12.39% and -23.28%, respectively. ROA is 0.59%.
On the other hand, analysts’ mean target price indicates a 87.5% upside movement potential. The stock is trading 35.71% lower than its 52-week high, while it has an O-Metrix score of 8.73. Debt-to equity ratio (0.3) and ROE (9.7%) are strong green flags. P/S is 0.7, below the industry average of 1.0. Analysts give a 1.50 rating for Banco Santander (1=Buy, 5=Sell). This stock should be considered as a long-term play, because even if it cuts its dividend, it is totally capable of booming with these respectable single-digit P/E ratios, and O-Metrix score. Current price is a great entry point.
Cramer thinks that this is a good time to buy Corning since the CFO is buying stocks. Cramer also has confidence in him. The New York-based Corning was trading at a P/E ratio of 6.6, and a forward P/E ratio of 6.9, as of Sep 16. Analysts expect the company to have an 11.5% annual EPS growth in the next five years, which sounds conservative when its 42.48% EPS growth of past five years is considered. Profit margin (45.7%) more than triples the industry average of 15.1%, while it pays a 1.43% dividend.
Institutions hold 80.51% of the shares, whereas Corning had an EPS growth of 75.64% this year. Target price is $19.71, implying an about 41.3% upside movement potential. O-Metrix score is 9.57, while it is currently trading 40.02% lower than its 52-week high. Debts are far from being a threat. Profit margin and debt-to equity ratio (0.1) are solid green flags, whereas P/E ratio, P/B (1.0), and operating margin (25.4%) are moderate green flags. PEG value is 0.6. Moreover, it has a four-star rating from Morningstar.
On the other hand, Corning returned -22.3% in the last twelve months. It is paying the same dividend since Aug 2007, and cash flow is unsteady. Earnings decreased by 17.83% this quarter, while insiders own only 0.17% of the shares. SMA50 and SMA200 are -8.39% and -26.06%, respectively. P/S is 3.0, far above the industry average of 1.4. From a technical perspective Corning looks like it reached its bottom with limited downside left. UBS has a target price of $20, implying almost 30% upside potential.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.