Three Picks from Cramer's Dec. 11 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 suggests investment opportunities in a unique style. During the Lighting Round, he comments on callers' picks. He only needs a few seconds before making a call, but we should take some time digging deeper into his choices. Here, I review three stocks discussed on the Dec. 11 Lightning Round.
First on the list is Monsanto Company (NYSE: MON). Cramer made a bullish call on this one, describing it as a “good company.” Investor sentiment is also positive about this stock, with 15 out of 22 analysts tracked by the Wall Street Journal indicating a “buy” rating. St. Louis-based Monsanto is one of the giants in the agricultural chemicals industry. Monsanto originally operated as a chemical company. Currently, its primary operations focus on the production of conventional and biotech seeds and crop protection solutions.
Throughout 2012, the stock performed strongly and returned over 30%. At the moment, it is trading at 23 times trailing earnings. While its current P/E ratio is rather pricey, it does not exceed the industry's average same variable of 23.70. Its forward P/E ratio of 17.7 makes it a comparably attractive investment. In addition, based on analysts' average target price of $102, Monsanto has at least 13.5% appreciation potential. Considering that in 2012 U.S. farmers witnessed one of the most difficult growing seasons due to weather related conditions, Monsanto had a robust financial performance. For fiscal year of 2012, the firm managed to sustain stable operating cash flows of $3 billion. It achieved net sales of $13.5 billion, up by 14% compared to last year. This increase in sales volumes was mainly attributed to enhanced global corn seeds and traits revenue. Moreover, Monsanto demonstrates remarkable financial discipline by having a very low debt-to-equity ratio, and a comparably favorable current ratio of 2.3. Looking ahead, the company expects reported EPS to be in the range of $4.18 to $4.32 for fiscal year of 2013.
Next is Cisco Systems (NASDAQ: CSCO). This time Cramer made a bearish call on Cisco, which I disagree with. I find Cisco to be a strong player in the space. It is the “go-to” provider of enterprise-class networking equipment. It holds a diverse product portfolio, including access equipment, network-management software, routers, and switches. Moreover, it has set foot into new markets, such as video conferencing and data center servers.
Fundamentally, the stock looks rather desirable. Its valuation metrics could indicate a value opportunity. Cisco is trading at two times book value and 12 times trailing earnings. Technically, the stock is performing satisfactorily. Net profit margin and ROA figures stand way higher than the industry's respective variables. Also, with a gross profit of over 60%, the company reveals solid control of expenses. In the most recent earnings release, the firm reported an 11% increase in net income year-over-year. Cisco ended the first quarter of fiscal 2013 with $45 billion in cash and cash equivalents and investments. It achieved a slight improvement in operating cash flows and paid approximately $744 million in dividends. Overall, the company has enough cash to pursue an aggressive growth strategy and achieve accelerating growth rates. The deal with Meraki, Inc. is expected to provide meaningful returns from the expansion into cloud software. Also, Cisco recently announced a $6 million investment in the venture capital fund Monashees Capital.
When a viewer mentioned Alcoa (NYSE: AA), Cramer reiterated his “hold” position. Alcoa serves as a leading producer of primary aluminum. It is also the largest miner of bauxite and refiner of alumina in the world. Almost 50% of its income is derived from the United States and 27% from sales in Europe.
Alcoa's year-to-date stock chart is quite disappointing. The stock performed poorly and lost more than 5% of its value. Nonetheless, at the moment it is trading with comparably favorable valuations that could indicate a compelling bargain. It is trading with a 61% discount to sales and a 32% discount to book value. Overall, the company's growth prospects are directly linked to volatile commodity price movements and cyclical demand trends. This certainly raises some concerns over Alcoa's risk exposure. The aluminum market grew by 13% in 2010 and 10% in 2011. For the full year of 2012, Alcoa expects the market to grow by a modest 6%. This deterioration had a negative impact on Alcoa's earnings. For the third quarter of 2013, the company's revenue amounted $5.8 billion down by 9% compared to the same period in 2011. However, despite the 17% decline in realized metal price year-over-year, Alcoa managed to improve its performance across all segments. The firm expects global aluminum demand to double 2010 to 2020 indicating a positive outcome for faithful shareholders.
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 Cisco Systems and Monsanto 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!