If you watch Mad Money regularly, you know that sometimes when a caller asks about a stock Jim Cramer tells them quite honestly he needs to do more work before he can form a thesis.
And he means it. Following is research and Cramer's resulting conclusion sparked by viewer questions about stocks.
Globus Medical (TICKER: GMED)
Jason in Virginia called in to get Cramer's thoughts on Globus Medical, a medical device company that's a pure play on the spine market.
At first glance the stock looks extremely attractive. "Globus is a relative newcomer in the field so it has a lot of room to grow," said Cramer. "It's developing some exciting new products, and the stock is inexpensive, selling for 14.5 times next year's earnings estimates with a 14% long-term growth rate."
But all that said, Globus is trading near a 52-week low and that's a tell-tale trouble sign.
"Globus faces three headwinds that must clear before I can countenance owning the stock. First, the company only came public in August and there's a big lockup expiration coming next month that will allow lots of selling by insiders. Second, the spine segment of the medical device industry has been in secular decline for years, so we can't touch this until we see a rebound in spinal procedures. And third, Globus has declining gross margins, which is the kiss of death, especially in the medical device space."
All told, Cramer said steer clear of this one. If you're looking for a similar play he thinks Johnson & Johnson is a better option.
Louis in Florida asked about Northern Tier Energy, an independent downstream energy company.
"The company's refinery is located in St. Paul Park, Minnesota, which has a high supply of oil combined with limited refinery capacity, something that has allowed them to enjoy above average margins. Also, Northern Tier is taking advantage of the spread between low priced West Texas Intermediate crude oil and the higher priced Brent crude," said Cramer.
However, "Its sky-high yield concerned me," he added. "Whenever I see a stratospheric dividend like Northern Tier's 12% yield, it raises a red flag.
Because Northern Tier is a variable distribution master limited partnership operating as a refinery, the distribution is variable and can make the yield difficult to nail down.
Therefore, unless you're a pro who's familiar with this nuance of the company, Cramer suggested playing the theme with a different stock - Holly Frontier.
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Dean in New York asked about Casey's General, the owner of 1700 convenience stores located primarily in small towns in the Midwest.
"In the past I've been hesitant to recommend this stock because it faces margin pressures and it's up against a lot of competition," Cramer admitted.
But, Casey's reported a solid quarter and management suggested on the conference call that the company would evaluate turning itself into a real estate investment trust.
Plus, November same store sales were strong, and the company's store remodeling and cost containment efforts are starting to flow through to the bottom line.
Therefore, "I think the current valuation is an intriguing entry point, as I could see the stock trading up to $60—ten points above where it is now—over time," said Cramer.
"But I still want to see more signs of a turn before I get too optimistic on this one. If you want to make a bet on the Casey's comeback, you can start a small position here, but don't overstay your welcome if the stock gets up to $60."
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