Digging deeper into Cramer's Nov. 29 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. Cramer has one goal: to help stock traders understand the rules of the Wall Street game. He presents market insights and offers investment ideas in a unique style. During the Lightning Round, he comments on viewers' picks. He only needs a few seconds before deciding on a bearish or bullish call. Nevertheless, I think we should take some time digging deeper into his rates. After all, as he advises, we should never invest without doing our homework. Here, I review three stocks discussed on the Nov. 29 Lightning Round.
First on the list is Nokia (NYSE: NOK). Cramer rejected it because he cannot find any fundamental reason to own this stock right now.
The once invincible technology giant is missing out on the smart phone revolution and has lost its leading position within the market. Over the past five years, sales have been going down along with the company's earnings. In an effort to regain some of its past glory, Nokia established a strategic partnership with Microsoft in 2011. The Lumia 800 and Lumia 710 were the first handsets to result from this partnership. For the first half of 2012, Nokia managed to beat analysts' average estimations and sell about 200,000 Lumia phones. Is this enough? Most importantly, what now?
The smart phone business is a tough one. It resembles a battlefield, where rivals keep bringing deadly new weapons to the table. Will Nokia's newest Lumia handsets be “deadly” enough to help it knock out its peers? Good news surrounding sales figures of the Lumia pushed the stock upwards by 17% over the last month. According to a Yahoo! China report, Nokia has already received more than 2.5 million orders for the Lumia 920 alone. This is more than the entire Lumia lineup sold in the third quarter of 2012. Some analysts estimate that Microsoft's Windows Phone operating system will carry the second position among competing OS by 2015.
Nokia may benefit from its strategic alliance with Microsoft. However, as other leading manufacturers seek for a piece of the Microsoft pie, Nokia has to be extra creative. The HTC 8X and HTC 8S are already available, and recently Samsung announced that it will soon release a new Windows 8-based handset. To achieve a turnaround and obtain a strong position within the industry, Nokia still has a long way to go.
Next is Heckmann (NYSE: NES). Cramer made a bullish call on this one, suggesting that it can offer significant returns in the long-term. I believe he is right.
Heckmann Corporation is a provider of environmental services. It operates through two business segments, namely, Heckmann Water Resources (HWR), and Heckmann Environmental Service (HES). The first segment is responsible for the treatment and disposal of water generated by firms involved in the production of natural gas and oil. Through the second segment, the company offers collection and recycling services for oily waste products. For the third quarter of 2012, Heckmann missed average analyst estimations on EPS by 4 cents. Nevertheless, the company had a robust financial performance by achieving a 95% increase on revenues compared to last year.
Over the last couple of years, Heckmann has followed and aggressive growth strategy. It has been successful in enhancing its growth potentials with acquisitions and mergers. Recently, the firm announced the closing of its merger with Badlands Power Fuels, LLC. Badlands Power Fuels is a North Dakota based environmental company with a strong foothold in rich oil shale areas. This merger is very likely to provide Heckmann with a unique opportunity to differentiate itself from its peers and emerge as an industry leader. It will give the company access to the very attractive Bakken market, as well as every significant unconventional basin.
When a viewer mentioned Wells Fargo (NYSE: WFC), Cramer did not hide his enthusiasm. He gave it a clear “buy” rating. Having doubled in size after the purchase of Wachovia, Wells Fargo is one of the biggest banks in the U.S. Cramer suggested it could even be a stronger player in the space than Bank of America (NYSE: BAC).
Banking businesses were in many cases crushed by the recent global financial turmoil, but Wells Fargo managed to recover to its pre-crisis price levels. At the moment, the stock is trading just 3.5% below its 2008 peak of $34.29. Based on analysts' mean target price it has at least 19% upside potential. On the other hand, Bank of America's stock chart is the definition of a falling knife. The stock reached the peak of $45 in the beginning of 2008. Since then, it has followed a downward trail by losing almost 80% of its value.
During the first nine months of 2012, Wells Fargo generated approximately $13.8 billion in net income. This is almost four times the net income generated by Bank of America. ROA and ROE figures were up by 4 basis points, and 52 basis points, respectively, compared to the second quarter of 2012. Moreover, Wells Fargo dominates the mortgage market. For the third quarter of 2012, alone, it originated an impressive $139 billion worth of home loans. Wells Fargo offers some of the most compelling interest rates within the mortgage market and lower than those of Bank of America.
Overall, Wells Fargo is well positioned to benefit from its lending operations. Over the past few years, the bank has been expanding its operations in the space while others have been scaling theirs' back. In particular, Bank of America closed one of its mortgage divisions at the end of last year. Out of 38 analysts tracked by Wall Street Journal, 20 suggest that Well Fargo is a “buy,” while 5 indicate an “outperform” rating.
ecofinstat has no positions in the stocks mentioned above. The Motley Fool owns shares of Bank of America and Wells Fargo & Company. Motley Fool newsletter services recommend Wells Fargo & Company. 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!