Jim Cramer entered the fourth quarter like a storm, making tons of stock calls to guide investors. He made eleven calls on Thursday. In the week’s last Lightning Round program on Friday, he made nine calls. Six of his calls were bullish this time, and the rest bearish. I have examined all of his stock mentions from a fundamental perspective, and added my opinion about them. I have applied my O-Metrix Grading System where applicable, as well. Here is a fundamental analysis of the first seven stocks from Cramer's October 7 Lightning Round:
Stock Name | Ticker | Cramer's Suggestion | O-Metrix Score | My Take |
Alpha Natural | (ANR) | Buy | 3.77 | Avoid |
Westar Energy | (WR) | Buy | 3.78 | Buy After Pullback |
Public Service Enterprise | (PEG) | Buy | 4.23 | Buy After Pullback |
Tesla | (TSLA) | Avoid | N/A | Sell |
Polypore | (PPO) | Buy | 3.24 | Avoid |
Energy Transfer Partners | (ETP) | Buy, but alternative is better | 3.94 | Buy |
Kinder Morgan Partners | (KMP) | Buy | 2.01 | Hold |
Citigroup | (C) | Avoid | 7.33 | Risky Buy |
PerkinElmer | (PKI) | Avoid | 2.39 | Avoid |
Data obtained from Finviz/Morningstar, and is current as of October 7 close. You can download the O-Metrix calculator here.
Cramer stated that Alpha Natural is “too low,” and he’s “a buyer.” Alpha Natural has a P/E ratio of 67.6, and a forward P/E ratio of 7.3, as of October 7. Analysts expect the company to have an annual EPS growth of 28.26% in the next five years, which sounds irrational when its -16.10% EPS growth of past five years is considered. Profit margin (0.8%) is crushed by the industry average of 10.7%, while it pays no dividend.
Target price implies a 136.8% upside potential, whereas it has an O-Metrix score of 3.77. The stock is trading 72.98% lower than its 52-week high, and it returned -59.2% in a year. Earnings decreased by 212.90% this quarter, whereas insiders hold 0.53% of the shares. The debt-to-assets ratio is increasing for the last five quarters, while cash flow is not doing well. Gross margin and operating margin are 21.0% and 2.3%, respectively. ROA is 0.31%, and ROE is 0.66%. Beta value is 1.67. The expectation are too high. Therefore, it is a very risky stock to invest in.
Westar is “fantastic,” Cramer says, “I think the yield is safe.” Westar shows a trailing P/E ratio of 15.3, and a forward P/E ratio of 13.4, as of the October 7 close. Five-year annualized EPS growth forecast is 6.0%. Profit margin is 9.2%, and it offers a charming dividend of 4.85%.
O-Metrix score is 3.78, while its target price indicates a 4.1% increase potential. Westar returned 7.0% in a year, and it is trading only 3.26% lower than its 52-week high. Yields seem all right, whereas Beta value is 0.62. Cash flow is doing great. Gross margin and operating margin are 71.6% and 21.8%, respectively. Earnings increased by 41.19% this year, while institutions hold 67.86% of the shares. SMA200 is 3.17%, and SMA50 is 3.65%. Moreover, it has a four-star rating from Morningstar. A pullback should be waited for before buying.
Cramer gets behind Public Service, as it is a “terrific investment.” The New Jersey-based company was trading at a P/E ratio of 10.1, and a forward P/E ratio of 12.9, as of October 7. Estimated annualized EPS growth for the next five years is 5.5%. With a profit margin of 14.5%, and a dividend of 4.24%, Public Service is an attractive stock for dividend lovers.
The stock is trading 8.91% lower than its 52-week high, while it returned -3.6% in the last twelve months. O-Metrix score is 4.23, and its target price implies a 10.4% upside movement potential. Beta value is 0.51, whereas earnings increased by 44.24% this quarter. ROE is 17.66%. Yields seem all right, while institutions own 63.37% of the stock. Gross margin is 56.6%, and operating margin is 26.0%. 8 out of 16 analysts recommend buying, and my opinion is the same. However, a pullback should be waited for the time being.
"The Chevy Volt is selling very poorly. I say don't buy, it [Tesla] is still too risky." It shows a trailing P/E ratio of -13.2, and a forward P/E ratio of -15.6, as of October 7. Analysts expect Tesla to boost its annual earnings by 20.0% in the next five years. It has no dividend policy. Target price implies a 34.1% upside potential, while the stock is currently trading 25.89% lower than its 52-week high. Tesla returned 32.1% in a year. The debt-to assets ratio is extremely unstable, and cash flow is struggling. P/B is 8.1, and P/S is 14.7, both of which are alarming red flags. Gross margin is 32.7%, while operating margin is -111.9%. ROA and ROI are -48.89% and – 176.60%, respectively. Insiders hold only 0.24% of the shares. Tesla’s long-term EPS growth estimate is beyond its reach. Sell this stock if you own it.
Cramer recommends homegamers buying Polypore, as it is “down too much.” Polypore has a P/E ratio of 30.1, and a forward P/E ratio of 19.2, as of Friday’s close. Five-year annualized EPS growth forecast is 16.0%. It pays no dividend, while the profit margin (12.1%) more than doubles the industry average of 5.7%.
Target price is $78.00, indicating a 40.4% increase potential. The stock is trading 25.16% lower than its 52-week high, whereas O-Metrix score is 3.24. Polypore returned 65.9% in the last twelve months. Insiders hold only 0.24% of the shares, while insider transactions have decreased by 99.27% in the last six months. SMA20, SMA50, and SMA200 are -7.29%, -7.66% and -4.34%, respectively. The debt-to assets ratio is hovering around 50%, whereas insiders have been mostly selling stocks for a while. Cash flow is unstable. P/E ratio, P/B (5.7), and P/S (3.7) are strong red flags. The company has a horrible Beta value of 2.24. Moreover, it has a one-star rating from Morningstar. Stay away from Polypore.
While Cramer likes Energy Transfer, he would rather go with Kinder Morgan. Here is a brief comparison between these two stocks:
Current as of October 7 close. | Energy Transfer | Kinder Morgan |
P/E ratio | 11.0 | 17.0 |
Forward P/E ratio | 17.5 | 29.6 |
Estimated EPS growth for the next 5 years | 2.5% | 2.8% |
Dividend yield | 8.73% | 6.58% |
Profit margin | 5.3% | 2.3% |
Gross margin | 28.2% | 57.0% |
Upside movement potential | 26.5% | 8.3% |
Energy Transfer returned -16.3% in a year, while Kinder Morgan returned -0.6%. O-Metrix scores of Energy Transfer and Kinder Morgan are 3.94 and 2.01, respectively. Energy Transfer is trading 24.94% lower than its 52-week high, whereas Kinder Morgan is trading 8.70% lower. I would buy Energy Transfer, and hold Kinder Morgan.
Cramer is bearish on all financials including Citigroup, until the Euro problem resolves. The New York-based bank, as of the Friday close, was trading at a P/E ratio of 7.4, and a forward P/E ratio of 5.5. Analysts expect the company to have a 9.3% annualized EPS growth in the next five years. It offers a razor thin dividend of 0.16%, while the profit margin (12.3%) is slightly higher than the industry average of 11.4%.
O-Metrix score is 7.33, whereas the stock is trading 52.15% lower than its 52-week high. Citigroup returned -41.3% in the last twelve months, and its target price implies a 91.7% upside potential. Earnings increased by 146.61% this year, and 18.95% this quarter. Institutions own 64.96% of the shares. Debts are decreasing since Q2 2010. PEG value is 0.6, and Morningstar gives a five-star rating to the stock. Buy Citigroup only if you believe in recovery.
"They have killed this stock [PerkinElmer]. They get grants from the government and I want to see them on the show, before I say pull the trigger." The healthcare company has a P/E ratio of 16.9, and a forward P/E ratio of 9.4, as of October 7. Five-year annualized EPS growth forecast is 7.1%. With a profit margin of 19.5%, PerkinElmer pays a 1.56% dividend.
Target price indicates a 40.5% upside movement potential, while it is trading 37.48% lower than its 52-week high. O-Metrix score is 2.39, and PerkinElmer returned -21.7% in a year. The stock is paying the same dividend since January 1994. Cash flow is unstable, whereas earnings decreased by 38.44% this quarter. Insiders hold 0.83% of the shares. SMA20, SMA50, and SMA200 are -9.60%, -15.70% and -28.81%, respectively. Operating margin is 9.2%, while PEG value is 1.5. Don’t expect anything from this stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.