A Deeper Look into Cramer's Nov. 30 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.

First aired in 2005, CNBC's Mad Money show is one of the most popular finance shows on air. Jim Cramer, the host and former hedge fund manager, has one goal: to help stock traders make some “mad money” by explaining to them the rules of the Wall Street game. During the Lightning Round, he accepts callers' challenges and comments on several stocks. Here, I review the three stocks discussed on the Nov. 30 Lightning Round.

First on the list is Rentech Nitrogen Partners (NYSE: RNF). Cramer made a bullish call on it, and I think he is right. Rentech is a strong player in the space. Operating since 1965, Rentech serves as a nitrogen fertilizer company. The company's major competitive advantage derives from its facilities' position in the centre of the nitrogen fertilizer market. Rentech's facilities are located in East Dubuque, Illinois and in Pasadena, Texas. As most of its customers are within 200 mile distance, Rentech does not have to worry for weather-related delivery delays.

Fundamentally, the stock looks favorable. Compared to PotashCorp (NYSE: POT), Agrium (NYSE: AGU), and CF Industries, Rentech looks attractive. It performs remarkably in terms of profitability and management efficiency. Most importantly, Rentech's financial strength is based on solid control of expenses. With a gross profit margin standing above 50% and operating margin of 42%, the company is ahead of its peers. Return on equity figures of over 560% certify its ability to generate growth. ROI of over 93% is also impressive and much higher than Potash's, Agrium's and CF's same variable.

In addition, when it comes to financial leverage, Rentech is considered to be a safer investment than the other three companies. Potash, Agrium, and CF industries have a debt-to-equity ratio of 0.42, 0.36, and 0.29, respectively. Moreover, they all offer a dividend yield of less than 2.50%. Rentech's financial discipline is translated into a debt-to-equity ratio of 0.26 and a 3-year average free cash low year over year growth of 675%. Thus, the current dividend yield of 8.60% is perfectly sustainable. Overall, I am optimistic about the company's future growth potentials. Recently, it revealed its plans to acquire Agrifos, the third largest producer of ammonium sulphate in the U.S. Rentech expects this deal to provide fruitful cash flows and help it diversify its market penetration.

Next on the list is Vale (NYSE: VALE). Cramer was bullish about it and encouraged investors to start a position on this stock. I think it could provide meaningful returns in the long-term.

With operations in 37 countries, Brazil-based Vale is one of the largest metals and mining firms worldwide. For 2011, Vale produced 312 million tons of iron ore and earned the top spot among the world's biggest iron ore producers by capacity. It is also the world's second biggest nickel producer.

Overall, Vale might seem quite a risky investment primary because its growth prospects are directly linked to the well-being of the global steel industry. The drop in iron ore prices and the sluggish demand in Europe and China have negatively impacted the company's profits. As a result, over the past five years the stock has been on a downward trail and has lost about 50% of its value.

However, Vale is well positioned to benefit from Brazil's stimulus package. A few months ago, Brazil revealed the first phase of a long-term infrastructure program. Over the next five years, the Brazilian government will be spending about $60 billion on building new roads and railways. Brazil is aiming to boost the domestic economy and achieve growth rates of around 5% by encouraging private investments. Vale could be a potential winner among the investment opportunities that lie behind this infrastructure project. At the moment, the stock is trading 7 times trailing earnings and with a 32% distance from its 52-week range of $25.39. According to analysts' average mean target price it has at least 30% upside potential.

When a viewer mentioned Applied Materials (NASDAQ: AMAT), Cramer immediately rejected it. However, Morningstar gives it five stars. Also, out of twenty analysts tracked by Wall Street Journal, ten suggest a “hold” rating while eight identify it as a stock worth buying.

With a market cap of over $13 billion, Applied Materials is among the most valuable companies of the Semiconductor Equipment & Materials Industry. It operates as a leading supplier to the semiconductor, liquid crystal (TFT-LCD) and solar PV industries and has a significant global reach. In addition, over the past five years, the company has been rewarding its shareholders with increasing dividends. Since 2008, Applied Materials raised its quarterly cash distribution by 50%.

Nevertheless, I am quite concerned about the firm's growth potentials mainly due to the uncertain demand environment. In the most recent quarterly earning release, the company reported net sales of $1.65 billion, down by 30% compared to the previous quarter, and 17% on a year-to-date basis. In an effort to counterbalance the weak demand, Applied Materials decided to eliminate about 9% of its global workforce. This way the company aims to save between $140 million and $190 million annually. Despite the company's restructuring plans, the worst is yet to come. The PC market is estimated to grow by less than 1% for the full-year of 2012. This is the worst annual performance in over a decade. Thus, declining orders for PC components are highly likely to prompt the company's biggest customers, such as Intel, to cut spending. 


ecofinstat has no positions in the stocks mentioned above. The Motley Fool owns shares of CF Industries Holdings. 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!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure