There's no denying that Mad Money host Jim Cramer is entertaining, popular, and passionate. On many occasions, he's even right. So he's smart, funny, and the closest thing to a stock market rock star -- but is he smarter than you?
Cramming for Cramer
The Fool's free investing community, Motley Fool CAPS, aggregates the opinions of more than 135,000 members to assign ratings for each stock's likelihood of outperforming or underperforming the market.
Below, we look at some top stocks that Cramer picked and panned during last week's "lightning rounds," and we compare them with how the CAPS community sees their future.
| Stock | Show Date | Cramer's Rating | CAPS Rating (Out of 5) |
|---|---|---|---|
| Ford (NYSE: F) | Monday | Bearish | ** |
| Disney | Monday | Bullish | **** |
| Bristol-Myers Squibb (NYSE: BMY) | Tuesday | Bullish | ***** |
| SanDisk (Nasdaq: SNDK) | Tuesday | Bullish | ** |
| Newmont Mining (NYSE: NEM) | Wednesday | Bearish | *** |
| Exelon | Wednesday | Bullish | **** |
| Alcoa (NYSE: AA) | Thursday | Bullish | **** |
| Chesapeake Energy (NYSE: CHK) | Thursday | Bullish | ***** |
| Verizon (NYSE: VZ) | Friday | Bullish | **** |
| Nordic American Tanker | Friday | Bullish | **** |
Cramer says …
It's not so much that Cramer doesn't like Ford. He just thinks you could do better buying Ford's preferred shares:
All right, Al Mulally is the real deal ... he is an unbelievable CEO ... he is terrific ... that turn is sustainable ... the July figures were beautiful. ... I think Toyota is going to have come and sit down at the table with Ford. ... I think Ford makes the best cars in the country right now ... but I prefer the Ford preferred to the Ford common ... and I believe that if Ford does an equity offering, like they did, that beautiful one they did in foreign exchange ... you will make more money in the preferred. ... Al Mulally is two thumbs up ... he may be the best CEO in America.
CAPS says …
Ford has a two-star rating based on the 7,400 ratings out CAPS members have given it, and our investor-intelligence community seems to share Cramer's outlook. Cheesespan, for example, isn't saying that Ford is not a good company -- just that the multiple the market has given it doesn't hold up.
Potential [earnings] do not support current share price. Based on $8.30/share, even if Ford made a $100 million profit in the next 12 months (they won't), the price would represent 320x earnings. [Note: Current consensus forward earnings stand at about 200 times earnings.]
This Fool says …
I find myself agreeing with Cheesespan. The iconic automaker has staged a remarkable turnaround, but it has moved very far, very quickly. That it was able to post a profit at all in the second quarter is a testament to the genius of Mulally -- an observation that underscores Cramer's point.
Yet a company that's just coming into profitability will often display outrageous market multiples that will rationalize themselves over time. Avoiding such stocks simply because their valuations reside in the nosebleed section means you'll miss out on their ascendancy.
That's not to say Ford doesn't have its share of problems: It has debt that needs servicing, legacy costs that still linger, and an auto-parts industry that's ready for the junk heap itself. And although the auto market looks better -- July sales numbers at Ford rose by 1.6% -- car sales for the year are still sharply below last year's results. Let's also not forget that Ford will have to begin competing in earnest against its two revamped domestic competitors, General Motors and Chrysler, post-bankruptcy.
Still, Ford has a lineup of vehicles that are proving popular with car shoppers. As Ford mulls revving up its plants sooner rather than later to restock inventories, investors may find that Ford's stock is not a clunker after all.
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