Jim Crammer's Mad Money - A Scorecard
From the "For Future Reference" department
The other day, I was watching Mad Money on CNBC, when I noticed that Crammer has recommended Cypres Semiconductors. That company has been one of the most vocal opponents of options expensing, because the firm is a major culprit in abusing option compensation plans to inflate its earnings. Curious how other buy recommendations went, I checked their latest financial statements.
For my small experiment, I looked only at the recommendations from September 8, 2005. I only looked at the companies latest 10-Q, and there only at the financials, which is usually my first step when analyzing a company. I did not take into consideration the company stock price (and thus price-related ratios), nor did I look at the company's line of business. I was more interested in how transparent the company's financials were, and what was its liquidity position, two factors I consider very important for long-term investing. Here are my findings:
- Lowe's - It's got very nice financials. Great liquidity, very low accounts receivable. Inventories are a little too high for comfort, but I still liked what I saw. Point for Crammer.
- Hewlett-Packard - Receivables were a little too high, at roughly 1.5 months of sales. On the positive side, it has very low long term debt. Unfortunately, the company's net earnings fell recently, and on a pro forma basis HP actually posted a loss for the last quarter. Considering a dividend payout ratio of 142% (this includes stock repurchases), the company may need to cut out more repurchases if it doesn't improve its earnings. Crammer's enthusiasm is not justified, but it's not realy terrible, either.
- Chesapeake Energy - The firm shows zero cash and equivalents, and relatively high long term debt. The former is a huge red flag for me; I would do a lot of extra research before deciding on this one. Point off for Crammer; back to zero.
- Grey Wolf - Just turned profitable. Very good liquidity, despite relatively high receivables. This is deffinitelly an attractive company at first look. Crammer: +1.
- Goodrich - Improving margins, but very high inventory levels and long term debt. Neutral.
- Marvell Technology Group - Goodwill accounts for nearly half of the company's assets. Extremely high stock compensation causes the reported earnings to be cut nearly by half when restated pro forma. For me, this is a huge red flag. If I were to look at stock-related ratios, I'd adjust them accordingly; for example, I'd double the P/E ratio. Crammer: -1
- Broadcom - Very nice liquidity position, with nearly no long term debt. However, very high stock-based compensation pushes the company into high pro forma losses, compared with slightly positive reported earnings. Yet another miss for Crammer; we're down to negative territory.
- IntraLase - Very good liquidity, with strong cash position. However, the company also has strong stock-based compensation, but this doesn't seem to be reflected in pro forma statements. Deffinitelly a company that would require more time to research, when I run out of better picks.
- International Paper - Net earnings are falling, and currently the company pays more in dividends than it records earnings per share. With telatively high long term debt and falling cash positions, I'd be afraid that the dividends could be cut soon. Crammer is at -2.
- Sonic - Transparent financials, and a good financial position. Deffinitelly a company I'd research more; point for Crammer.
- Wyeth - Transparent financials, good liquidity position, but high receivables. Still a company I'd look at. Crammer is back to zero.
- BlueLinx Holdings
- Fast growing receivables, relatively high long term debt. Neutral.
- Cypress Semiconductor - As I wrote before, this company is notorious for financing its revenues through stock options, which are not represented in reported net earnings. Pro forma earnings are always significantly lower than net earnings, which is even more unfortunate now, that the company began to record losses. Crammer: -1
- Airgas - Very simple capital structure and transparent financials. Even though the company has relatively high long term debt, I'd still take a closer look at them, thanks to their simplicity in reporting. Crammer: 0
- William Wrigley Jr - Relatively high long term debt, and the financials are not simple or attractive enough to care too much. Neutral.
All in all, Crammer's buy recommendations (with the exceptions of those that didn't file with the SEC) have left me neutral. Of course, a lot more care would have to be done before deciding whether the companies really represent attractive investments or not, but from my quick and dirty analysis I determined that Jim Crammer was completely harmless on September 8. If somebody invested in a portfolio of his recommendations, in a long run I'd expect them to break even.
September 13, 2005 at 3:46 am GMT by Jozef |
