<
Demand Foods (DMND) -- was panned as a sell in one of this week's lightning rounds as Cramer called it "too crazy for this guy" and invited the CEO to appear on the show to give the counter argument to why the stock should be avoided after large losses in recent weeks. DMND trades at a respectable 13X earnings and 1.47X book value. The company is producing a 12% return on equity but drops only 5% of sales to the bottom line. We prefer businesses which earn a 10% profit margin or higher, but we also note that certain retail oriented business models can do well despite lower margins. DMND has actually experienced fairly robust YOY growth in sales (32%) and YOY growth in net income (26%) which makes this a stock to watch if the name becomes a bit cheaper in the months and weeks ahead in our view. For now, however, we will stick with Cramer and say that it's a bit too hard to call right here.
Alcoa (AA) -- Cramer clearly unmarried this trade which he liked earlier in the year, stating that Alcoa had a "weak quarter" and "may not make money" going forward. He thinks that the stock is "dead money" and that "estimates are way too high." Alcoa is clearly a cyclical enterprise who's fate is tied to the ups and downs of not only the aluminum and base metal market but also the demand side stemming from macro-economic trends and pressures out of China. While Alcoa does look quite cheap at first glance with a PE of just 9.4X and forward PE in the 9X range, the discount to book value does not leave investors with much of a margin of safety because much of Alcoa's book value is in the form of intangible assets like Goodwill (Spanish for brand value) which should be excluded from liquidation value by the astute equity analyst. While Alcoa does look cheap, remember that in recessions and contractions these cyclical names tend to get clobbered. Recently, Cramer has become a little more bullish on Alcoa, but still thinks the quarter will be ugly.
Baidu.com (BIDU) -- Baidu is a name that Hedgephone recommended shorting at the $150 level this summer because we felt the name was in a speculative mania. Cramer is a great teacher and investor, but sometimes his favorite names like Netflix (NFLX) and BIDU become crowded trades and can actually be shorted for short term profits when the charts become too vertical and the law of economic gravity takes hold. Cramer still notes that Bidu "is the only Chinese stock I like" but says that with the market in China down for "33 straight weeks" investors should sell the stock or at least avoid it in the short run. We completely agree as the name is trading at far too high a price to sales multiple for our taste. Bidu is still trading at a heady 21X sales and for 45X earnings, which makes the name expensive by most any traditional valuation metric.
Groupon (GRPN) -- While Groupon grew revenues at an astonishing 426% rate YOY, the company is trading for 11X sales and is not generating meaningful profits for shareholders. The stock is highly speculative in our view and Cramer affirmed this stance stating that this market is not the kind of market where you want to own social media stocks. Instead, Cramer has suggested utility and drug stocks would make better investments than social media stocks.
Amazon (AMZN) -- Amazon has long been a short recommendation of Hedgephone's due to the company's astronomical price to earnings and price to book value multiples. Although the stock has come down a bit in recent months, we still feel an opportunity exists to short the name based on valuation due to the company's more than robust 82X price to earnings multiple. Cramer recently said that AMZN stock is a "don't buy" and told a caller to "let it go lower." We agree, and feel that AMZN should trade at around $130 or so before investors could consider looking at the name as a potential buy, though we are less optimistic on this particular name than most
Posts
1 comment:
Amazon .com was one of the first internet companies to start selling on line. I would not agree with all of the fans of these type of stocks. Most of the major sales of product are still made at stores and I believe it will remain that way. The real threat to brick and mortar retail stores would not come from online retailers with large regional distribution centers. These operations are from one two or three for amazon maybe ten large distribution centers. But anykind of scaling down of their large operations to more of a local district or general area with in ten miles or so of where their customers live customers could than come and pick their product up and also buy product at warehouse style centers.
Post a Comment