Taking A Deeper Look into Four Picks from Cramer
Dr. Osman is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Mad Money is among the most popular finance shows in the U.S. Jim Cramer, the host, defines Mad Money as the money one can gain from stock trading. Cramer provides all kinds of advice to stock traders in a unique, entertaining style. During the Lightning Round, what I think is the most fun part of the show, Cramer accepts viewers' challenges. He spends a few seconds before making a call, but it is worthwhile spending some more time to invest. Here, I review the stocks mentioned in the Nov.8 Lightning Round session.
When a viewer asked about PPL Corporation (NYSE: PPL), Cramer simply responded: “I like it”. Well, it is not a great pick, but it is not a bad one either. The stock has relatively good fundamentals and decent valuations. Morningstar gave it four stars.
PPL Corporation serves as an integrated energy firm. It operates 200,000 miles of electric lines and has more than 10 million clients. PPL was included in the list with America's 500 largest corporations for 2012 at the 201th position. Over the past six months, the stock has followed an upward trail of just 4%, but I think it has some more upside potential. Analysts' average mean target price suggests at least an 8% increase in the stock price.
Throughout 2012, earnings remained solid. Recently, the firm revised its earnings forecast range to $2.30-$2.40. Its previous forecast range stood between $2.15 and $2.40. PPL is performing a transformation process that is expected to provide meaningful cash flows. Overall, I think it is worth watching for upside trends.
Next on the list is Generac Holdings (NYSE: GNRC). Generac Holdings designs and manufactures generators for the commercial, industrial and residential market. It operates through a wide network of wholesalers, retailers and dealers. According to Cramer this stock has hit its high, and he's probably right. The latest closing price was 35.54% above the SMA 50 and 62.55% above the SMA 200. Also, its valuation metrics are not that encouraging. Generac is trading with a low P/E ratio, which might indicate a rather cheap stock.
However, it is trading 2.15 times sales and 5.5 times book value. Both of these are much higher than the industry's same metrics. Over the past three months, Generac performed impressively and returned more than 60 percent. I believe it does not have much room for further growth. Overall, I suggest that this stock could be a good buy, but not at the moment.
When a viewer mentioned Changyou.com (NASDAQ: CYOU), Cramer immediately rejected it. An individual Chinese stock might not be the best idea.
The company engages in the online gaming business. It is a tough call, mainly due to the intensifying competition within the Chinese online gaming market. Also, the unpredictability of gamers' preferences brings up some concerns about whether or not the company can continue to post high returns.
Nevertheless, Changyou has an impressive sales record and strong margins. Also, the company has enriched its product portfolio in an effort to diversify its income stream. At the moment, its valuations are more than desirable. Changyou is trading with a P/E ratio of 5.5, but you will never know the true P/E ratio of a Chinese internet stock. Their financial calculations might be substantially different than U.S. standards. The stock is trading 12% below its 52-week range of $27.74. Based on analysts' estimations, Changyou has about 30% upside potential. Taking into account that internet penetration in China is still growing, I believe Changyou could be a compelling investment.
The last stock mentioned in the Nov. 8 Lightning Round was Skyworks Solutions (NASDAQ: SWKS). Skyworks Solutions manufactures mixed signal and analog semiconductors. Also, it provides custom and standard linear products for a wide range of applications. It was formed in 2002 and resulted from the merger between Conexant Systems Inc and Alpha Industries Inc.Cramer made a bearish call on this one, and I totally agree.
Skyworks quarterly results show financial discipline. Its current ratio is above 4, and its long-term debt is perfectly manageable. Despite its strong financial position, its valuations are not attractive at all. Now might not be the right time for this stock. Skyworks is in the middle of a downward trail, and there is no indication of an immediate recovery; in fact, over the last three months it's stock price dropped about 30%. EPS for the next year is estimated to decline by more than 11%. In addition, its profit and operating margin stand below the industry's average same variables. Thus, the firm needs to improve its profitability prospects in order to gain momentum.
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.