The volatile market environment has provided investors the opportunity to buy some stocks at discount, said Jim Cramer on CNBC’s “Mad Money.” After all, quality stocks are sometimes brought down with the overall market when they should probably be trading at higher levels, Cramer said. Investors should be careful, though.
“There are other stocks that have sold off for a very different reason: because they deserve to go lower. These stocks are dangerous,” Cramer said. “They lure you in with apparently low valuations that seem cheap and then they lose you boatloads of money because they aren’t really cheap — they’re what we call value traps that have a long way to fall before they can find a bottom.”
Cramer put together a list of potential value traps. He recommends investors stay away from these stocks for at least one quarter, so the underlying companies can turn things around.
Best Buy: This stock is currently trading at 5 times next year’s earnings with a 5 percent growth rate, Cramer said. It has lost 31 percent in the last month, too. While some analysts have recently thrown this electronics retailer an upgrade for its cash flows and big buyback, Cramer isn’t so optimistic.
“Best Buy has a broken business model,” Cramer said. “It’s become ‘Best Browse,’ a place where people go to check out electronics in person before they make their purchases on Amazon and that’s not going to change anytime soon.”
While Best Buy’s cash flows are promising, Cramer noted that its same-store sales declined by 5.3 percent in its latest quarter, which was much worse than expected. Management argues the company will be saved by plans to focus on mobile, but Cramer said the super-low margin cellphone business just won’t be enough.
YPF: Based in Buenos Aires, YPF is Argentina’s largest oil producer. Its stock has dropped by 61 percent in the last three months, yet it’s currently trading at just 3 times earnings with a 13 percent growth rate. All of it might sound attractive, but Cramer noted that YPF is being nationalized by the Argentine government. On April 16, the government announced it would seize a majority stake in YPF from Repsol, a Spanish oil and gas company. Cramer suspects the government could continue to seize more and more of the company as time goes on. He recommends avoiding this stock.
First Solar: This stock is “untouchable,” Cramer said. He’s recommended investors stay away from First Solar since it was trading at around $138 a share in September 2010. Today, the stock hovers above the $13 level.
“The entire solar power space is on horrible shape since it depends on government subsidies and governments around the world are tightening their belts, especially on Europe which had been a big booster of solar,” Cramer said.
Last week, however, the U.S. Department of Commerce imposed anti-dumping tariffs of 31 percent on Chinese-made solar cells. In turn, Cantor Fitzgerald said the development could be positive for First Solar. Cramer doesn’t think it’s reason enough to own the stock, though. It remains a stock to avoid, he said.
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