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Sell Block: The Problem With Analysts
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The style in question? Recommending a company all the way to its near bottom and then downgrading it.
One analyst who covers Foster Wheeler [FWLT
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] did exactly that, cheerleading the infrastructure name from about $79 to $24, where it is today when he changed his call from “buy” to “hold.”
Strange, Cramer thinks, that a stock is cheap at $79 but expensive after it plummets 55 points. Especially considering that Foster Wheeler now has a strong balance sheet with $1.3 billion in cash, is shrinking its float with a massive buyback and trades at just six times earnings.
There’s also a strong engineering and construction division here that makes up 75% of FWLT’s business, and one of Mad Money’s favorite CEOs, Ray Milchovich, is pushing off his retirement for three more years. Plus, there’s chatter that the company is about to announce eight new mega-deals, putting Foster Wheeler in a much better position than some of its peers, namely McDermott [MDR
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] or Shaw Group [SGR
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].
Any worthwhile negative news about Foster Wheeler is already in the stock, and the earnings estimates are cut so low that the coming quarters could be better than many companies in this market.
So now is not the time to sell FWLT, Cramer said, it’s the time to buy. Leave the Sell Block to misguided analysts with no talent for making stock calls.
Jim’s charitable trust owns Foster Wheeler.
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