A Deeper Look into Cramer's Nov. 14th Lightning Round
Dr. Osman is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Do-it-yourself investors can make some “mad money” just by watching Jim Cramer's Mad Money show. Jim Cramer, former hedge fund manager and best-selling author, presents investing opportunities in a unique style. During the “Lightning Round,” Cramer accepts viewers challenges and comments on several stocks. While it only takes him a few seconds to make a call, we should spend some time doing our homework. Here, I review four stocks discussed on the Nov. 14 Lightning Round.
SandRidge Energy (NYSE: SD): Founded in 1984, SandRidge is an oil and natural gas company with its main focus on exploration and production. It operates through three business segments: exploration and production, midstream gas services, and drilling and oil field services. The company owns approximately 225,000 acres of leasehold, primarily in the Permian Basin Platform of the Texas Permian Basin. Also, SandRidge holds 1.75 million acres of leasehold in the Mississippian, with more than 8,000 potential horizontal drilling locations.
Technically the stock is beaten down. Throughout 2012, the stock performed poorly, losing more than 30%. The latest closing price was 19% below the SMA 200 and more than 17% below the SMA 50. However, analysts' average mean target price of $8.30 suggests at least a potential 48% upside. Fundamentally, SandRidge has some positives. Over the past five years, the firm's sales followed an accelerating trail of almost 30%. In addition, gross margin figures of above the industry's median indicate a solid profit-generating capacity.
On the other hand, SandRidge has accumulated a large pile of debt primary due to a series of acquisitions. Recently, TPG-Axon sent a letter to SandRidge's Board of Directors outlining poor strategic planning and reckless spending. TPG-Axon Capital is a global investment firm which owns about 4.7 percent of SandRidge's outstanding shares. Overall, I consider SandRidge to be a rather risky investment.
Magnum Hunter Resources (NYSE: MHR): Magnum Hunter Resources acquires, develops, and produces natural gas, natural gas liquids, and crude oil. Magnum operates in the Williston Basin/Bakken Shale in North Dakota and Saskatchewan, Canada, the Eagle Ford Shale in south Texas, and the Marcellus/Utica Shale in West Virginia and Ohio.
The company reported earnings on Nov. 14 and disappointed its shareholders by posting a net loss of $42.3 million. Magnum missed analysts' expectations on earnings per share, as well as estimations on revenue. However, Magnum increased its oil and gas production capacity, enhancing its growth prospects. At the same time, it improved its operating efficiencies.
Operating margins increased significantly. This increase was primary attributed to the 30% decline in lease operating expenses per Boe. Also, for 2013 EPS is expected to grow by more than 120%, indicating a rewarding outlook for shareholders. In general, investors sentiment remains positive. Analysts' mean target price of around $6.90 suggests an over 75% appreciation. Out of nineteen analysts tracked by The Wall Street Journal, thirteen recommend a “buy” rating. I strongly believe that Magnum is worth adding it to your watchlist.
Arena Pharmaceuticals (NASDAQ: ARNA): Arena discovers, develops, and commercializes novel drugs for obesity and cardiovascular diseases. Arena Pharmaceuticals was the first company in over a decade to get an obesity drug approved by the FDA.
For the first nine months of 2012, Arena's revenues showed a 140% increase over the same period in 2011. This improvement was primary attributed to a milestone payment from Eisai, Inc. Arena has given exclusive distribution rights to Eisai for most of North and South America. At the moment, Arena's valuation metrics suggest it is a rather unattractive investment. Arena is trading 70 times sales and 16 times book value.
The company is facing some serious competition from Vivus (NASDAQ: VVUS). Vivus' anti-obesity drug, Qsymia, has been commercially available for about two months. However, the drug received low market acceptance mainly because of its limited insurance coverage and large co-payments for prescriptions. Moreover, Qsymia was rejected by European regulators who mentioned potential safety concerns related to the long-term use of the drug.
In general, the profit opportunities within the market are immense, as about 500 million individuals worldwide are classified as obese. Arena is poised to benefit from the obesity market. The firm's anti-obesity pill, Belviq, could be a potential blockbuster primary due to its excellent safety profile. The drug is scheduled to be launched in the first quarter of 2013, and I expect the stock to appreciate once the drug hits the market.
AK Steel Holding (NYSE: AKS): AK Steel produces flat-rolled carbon, as well as stainless and electrical steel products. The firm's products are used in the construction and electrical power generation, automotive, infrastructure and manufacturing markets. AK Steel operates seven steel plants and two tube manufacturing plants in Indiana, Kentucky, Ohio, and Pennsylvania.
For the third quarter of 2012, AK Steel's performance was weak causing investors sentiment to deteriorate. The company's shipping volumes and average selling prices were negatively impacted by the challenging economic conditions within the industry. Recently, AK Steel revised its earnings forecast downwards primary because of a 5% reduction in average selling prices. It expects to post a net loss between $0.67 and $0.72 per share for the fourth quarter of 2012. The company also announced an offering of 25 million common shares in an effort to cover credit expenses.
Thus, things are not looking so good for AK Steel. The stock's year-to-date chart is the definition of a falling knife. Throughout 2012, the stock lost over 50% of its value. The latest closing price was 30% below the SMA50 and 40% below the SMA200. I believe that AK Steel will remain under pressure for the remainder of 2012.
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. Is this post wrong? Click here. Think you can do better? Join us and write your own!