Digging Deep into Five Picks by Jim Cramer
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First aired in 2005, Mad Money is one of the most popular finance shows on air. Jim Cramer, the host and former hedge fund manager, presents all manner of investing advice. I think the Lightning Round is the most fun part of the show; during this part and until the buzzer goes off, Cramer accepts viewers' challenges and suggests his opinions on the stocks they ask about. Here, I review the stocks discussed in the Nov. 7 Lightning Round session.
According to Cramer, Boardwalk Pipeline Partners (NYSE: BWP) is a good buy. Well, I think so too.
The company was formed in 2005. It develops natural gas pipelines and storage facilities, and owns and operates approximately 14,300 miles of interconnected natural gas pipelines. Boardwalk has huge aggregate working gas capacity and is in the process of expanding it. For 2011, Boardwalk carried over 10% of the U.S. average daily consumption of natural gas.
2012 was not a very solid year for the stock. Year-to-date stock returns are negative while there have been some cases of extreme volatility. Nevertheless, since the company's formation, the stock has performed strongly by returning over 30%. For the third quarter of 2012, the company reported a 25% increase in net income compared to last year. Also, free cash flow figures indicate that Boardwalk has enough cash to support the current dividend yield of 8.40%.
J.C. Penney and Sears engage in the retail business. While the sector has benefited a great deal from payroll tax cuts, those two retailers have weak fundamentals.
J.C. Penney has a long history that dates back to 1902. Currently, the company is in the middle of a transformation process that is proving to be difficult. There are liquidity issues that overshadow its performance. Throughout 2012, J.C. Penney shares have followed a downward trail by losing about 40%. Also, EPS growth was very disappointing this year. Even if the company achieves a turnaround, this will certainly take time.
When it comes to Sears, the situation does not get any better. During 2012, the stock performed extremely well. However, I do not expect this upward trend to continue for long. Analysts' estimations suggest an over 70% drop in the stock's price. The company's earnings were negatively impacted by tight conditions in the home appliance market, which is why over the past five years there has been no positive growth on sales. Third quarter 2012 financial results will be released on Nov. 15. Unless the company reports even a slight improvement in margins, things are going to get ugly.
Cramer says it is time to sell Vivus (NASDAQ: VVUS), but I would suggest a closer look to its growth potentials.
Vivus is a biopharmaceutical company incorporated in 1991. It reported the third quarter results on Nov. 6, 2012; revenues were lower than expected, and as a result, the stock plunged over 20%. Increased inventories compared to last year caused profits to decline. Nevertheless, Vivus's fundamentals reveal a strong cash position. This means that, for now, the company can survive its losses. EPS for 2013 is estimated to grow by 121.30%, indicating a positive outlook for the company. Overall, Vivus aims to increase market penetration for its products. The next two quarters will determine whether or not this is possible.
A relatively safer call from the pharmaceutical industry is Abbot Labs (NYSE: ABT). which Cramer also mentioned it during his show on Nov. 8. Abbott is about to break itself up into a pharmaceutical company and a medical services business. Cramer expects this process to result in soaring returns for Abbott and enormous value for shareholders. During 2012, the stock has returned more than 20%. At the moment, its valuation metrics might indicate a meaningful value opportunity. Abbott is trading with a PEG ratio under the norm of one and a P/E ratio of 15.7. I strongly suggest that Abbott is worth watching for upside trends.
According to Cramer, it is time to sell Frontier Communications (NASDAQ: FTR). I would rather indicate a hold rating.
Over the past couple of years, Frontier, a leading telecommunication provider, has followed an aggressive growth strategy. Frontier has applied dividend cuts in order to ensure financial visibility. Despite the cuts, the company still offers a yield of 8.9%, which is much higher than the industry's median yield. The stock is priced at just over $4 and is trading for a 15% discount to sales. Based on analysts' average mean target price, Frontier has at least 20% upside potential.
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ecofinstat has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.