Mad Money

Cramer’s Homework: Stay Away from These 2 Troubled Stocks

You Ask, He Answers

Sometimes Jim Cramer tells a caller that he needs to do homework before he can make a decision on a stock. And he's not kidding.

Following is Cramer's research or homework on stocks recently called to his attention by investors who watch the TV show.

Keryx Biopharmaceuticals (KERX)

On January 31st Dino in California asked about Keryx Biopharmaceuticals, KERX, a tiny biotech stock.

After digging through reports and more, Cramer said "On January 28th, Keryx wowed the medical community with some astonishing data on an oral drug called Zerenex for dialysis patients suffering from late stage renal disease."

"The data showed Zerenex was doing much better than expensive IV drugs that are on the market right now. The news was a game-changer and sent the stock from $3.43 before the news, to $9 on January 31st, when Dino called," Cramer said.

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"Since then, though, Keryx sold off to $7 due to reports that cast doubts about the company's ability to obtain an extension for a key Zerenez patent, along with new chemical entity status for the drug," Cramer added.

As a result Cramer called Keryx a battleground. "My view is unless you can afford to hire scientists and patent lawyers, this one's just too difficult. There are plenty of easier ways to make money out there."

Read More from Mad Money with Jim Cramer:

Cramer's Market Generals


Liquidity Services, LQDT

On February 7th, Jason in Massachusetts asked about Liquidity Services.

"This is a company that provides the world's most transparent online marketplaces for surplus asset sales, with some 4,500 commercial and government clients along with 1.7 million buying customers," Cramer explained.

"On January 31st Liquidity Services reported and beat the earnings estimates, but they also dramatically cut guidance, reflecting the company's need to invest in its online platform and integrate recent acquisitions."

This stock is down 22% since the beginning of the year, and it sells for 14 times earnings with a 22% long-term growth rate, which may seem attractive. But Cramer thinks looks can be deceiving.

Read More from Mad Money with Jim Cramer:

Cramer's Market Generals


Cramer said, "we've been worried about Liquidity Services in the past. Back on June 28th I told you to stay away because eBay was entering the wholesale space, the CFO warned about declining margins, and the CEO wanted to sell a big chunk of his holdings. Since then, the company kept cutting guidance throughout 2012, and as a result, the stock is down 37% from where I told you to avoid it. So despite it's cheapness, this is a company where management lacks credibility, it faces lots of competition, and it also has high exposure to the Department of Defense at a time when we know the defense budget needs to be slashed."

Instead, "If you want an online marketplace, stick with eBay," Cramer said.

Call Cramer: 1-800-743-CNBC

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