Four Picks from Cramer's Nov. 15 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.
CNBC's Mad Money show takes viewers into the mind of one of Wall Street's most respected money managers, Jim Cramer. Cramer has one goal: to help stock traders make “mad money.” During the “Lightning Round” Cramer reviews several stocks picked by the viewers, and suggests a rating for each. It takes him just a few seconds to comment on a stock, but I believe it is worth taking some time examining his rates. After all, as he says, we should never invest without doing our homework. Here, I review four stocks discussed on Nov. 15 Lightning Round.
Cramer expects the natural gas industry to perform strongly in 2013. Out of all of the industry's major players, Cramer chose Southwestern Energy Company (NYSE: SWN). I would suggest a “hold” rating on this one.
The company's principal operations include the exploration, development and production of crude oil and natural gas within North America. Southwestern Energy also engages in midstream services, such as marketing and transportation of natural gas.
Fundamentally, Southwestern has some positives. Over the last five years, the firm's sales followed an accelerating pace of more than 44 percent. For the third quarter of 2012, Southwestern decreased its operating expenses. Gross margin stands above the industry's median, reflecting solid management efficiency. Also, Southwestern increased its production capacity by 12 percent compared to last year.
However, the slump in natural gas prices hurt the company's earnings. In addition, its valuation metrics are quite discouraging. The stock is trading with a price-to-sales ratio and a price-to-book value ratio; much higher than the industry's same variables. Moreover, the company posts substantially disappointing return on equity. Thus, now might not be the right time to place a bet on this stock.
Cramer was bullish on CenturyLink (NYSE: CTL). However, he did mention that he prefers Verizon (NYSE: VZ) and AT&T (NYSE: T). All of these companies operate within the telecommunications services industry, and all of the them could be considered for a dividend-oriented investment portfolio.
Throughout 2012, CenturyLink's stock performance was flat overall. Year-to-date stock returns stand at just 1.5 percent. Verizon and AT&T performed stronger than CenturyLink. On the other hand, CenturyLink's last cash distribution of $0.725 indicated a dividend yield of 7.62 percent. Verizon yields about 4.8 percent, while AT&T offers a dividend yield of 5.32 percent.
CenturyLink is a leading provider of local and long distance voice, Internet access, and broadband services. There is an important risk to consider when investing in a phone company such as CenturyLink. Its principal business does not have much growth potentials. However, after the acquisition of Embarq, Qwest, and Savvis, the firm diversified its revenue stream. For the third quarter of 2012, CenturyLink beat analysts' estimations on EPS. Moreover, free cash flow revealed a significant improvement on a year-to-date basis. However, compared to the other two, CenturyLink has the highest debt-to-equity ratio suggesting that it is a comparably risky investment.
AT&T offers IP-based communications services, along with digital TV services. For the third quarter of 2012, AT&T's consolidated revenue remained overall smooth compared to the same period in 2011. The firm reported record free cash flow of $6.5 billion. Also, it increased its free cash flow guidance for the full-year of 2012 by $2 billion.
The company is implementing an aggressive strategy aiming to expand its LTE network. This expansion project will be completed three years from now, and it will cost approximately $14 billion. At the moment, AT&T has a debt-to-asset ratio of 0.24, which is lower than the industry's average. If AT&T continues to achieve double-digit growth rates in its core businesses, this capital investment should be manageable.
Verizon offers wireless and broadband solutions to consumers, governments and businesses. Verizon is a step ahead of AT&T as it plans to finish its 4G LTE rollout earlier than expected.
At the moment, Verizon is leading the way in network coverage and quality. Verizon's 4G LTE network covers more than 75 percent of the U.S. population and holds the highest network quality rating. Compared to the other two, Verizon's valuation metrics are favorable. The stock is trading about 11 percent below its 52-week range of $48.24. While the current P/E ratio of 40 is relatively pricey, the forward P/E ratio of almost 15 is considerably attractive.
ecofinstat has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend AT&T.; 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!