3 Buys and 2 Sells from Jim Cramer

On Jim Cramer’s Mad Money Wednesday night (last week), he discussed a variety of stocks and talked about the recent market rally. He explained “when stocks have run too much, they often get overextended” and the price starts to matter. Eventually, it reaches a point where it is too high and investors need to step back. Of the stocks Jim Cramer discussed in detail Wednesday night, five really stand out:

Jim Cramer

–  Corning, Inc (GLW): Cramer recommends buy on this stock. GLW has been on a continuous descent, falling 40% after hitting its 52 week high in February. Then, GLW issued its third quarter report. It was better than analysts expected. Revenues rose almost 30% from the same quarter last year and a “6-cent earnings beat off a 42-cent basis.” They were smart. They had lowered expectations in early September and set the bar where they knew they could reach it, then, once they did, they declared “a 50% increase in quarterly dividend… and announced a $1.5 billion buyback.” Cramer says the move signaled that the company thinks its stock is too low and Cramer thinks they are right. He called the stock is a total bargain. GLW closed Wednesday at $14.13. GLW’s forward PE ratio is 8 and the stock is expected to grow in low double digits over the next 5 years. We also believe GLW is a good long-term investment and support Cramer’s call.

–  Panera Bread Co. (PNRA): Cramer recommends PNRA as a buy. He likes that it had a strong quarter and he likes the gains it received after reporting on its earnings, raising 15.5% yesterday. Cramer says that people love PNRA. It is consistently amongst the top-rated quick-service restaurants in the US and consistently underestimated by analysts. Cramer says he understands what makes PNRA a success because he goes there himself. He likes the high level of service, the fresh bread and the food cooked from scratch. As PNRA keeps drawing in more customers and expanding, Cramer thinks there is tons of room for growth. Cramer likens PNRA to Chipotle (CMG) and Starbucks (SBUX) for its customer loyalty. PNRA closed Wednesday at $133.64 a share. Jim Simons’ Renaissance Technologies is also into PNRA with a $88 million position at the end of second quarter. Panera’s forward PE ratio is 29 and analysts expect them to increase EPS by 18% annually. We think there are other stocks like Apple (AAPL) with higher expected growth rates and lower forward PE ratios. Apple is expected to grow its earnings by more than 21% annually and has a forward PE of only 12. We don’t think PNRA is the best place for long-term investors.

–  Allergan (AGN): Cramer said that AGN is the fastest growing pharmaceutical company and he still sees a ton of catalysts that will spur that growth on. Cramer says he has been a fan of the company for years. It is a company with two models – on the one hand, it makes products to treat medical conditions, while on the other it makes vanity products, like Botox, Juvaderm, breast implants and eyelash enlargers. He thinks AGN is poised to be very successful as the population ages. “I like Allergan not just because it knows how to make people look good,” Cramer said, “but because it knows how to make its business grow in a way that’s both smart and sustainable.”  It develops a drug then finds different applications for it, like Botox’s use for migraines and as a cosmetic product. Cramer thinks 2012 will be a strong year for AGN. It closed Wednesday at $83.74 a share. Cramer estimates the stock will reach $93-94 a share easily. Ken Fisher’s Fisher Asset Management has a position worth more than $352 million in AGN. We don’t like AGN as much as Cramer does. The stock’s forward PE ratio is 23 compared with a forward PE ratio of 8.6 for PFE. AGN is expected grow by 16% annually vs. 5% for PFE. We don’t think this is high enough to justify its valuation. It will take AGN 11 years to catch up with Pfizer in terms of PE ratios. We prefer PFE over AGN.

–  SodaStream International (SODA): Cramer is bullish on this stock. He thinks it had a good run and now that’s it. Time to move on. Cramer also noted, “You know, we go back in these things, and the next thing you know, on Twitter, they’re all over you like a cheap KMart suit. I won’t let that happen to me.” SODA finished Wednesday at $29.15, down from a 52-week high of almost $80 a share in early August. SODA had climbed consistently to that point. It fell under $40 a share within a couple weeks after reaching that high and it has been on a descent ever since. It shares fell even further after David Einhorn’s presentation at the Value Investing Congress when he trashed Green Mountain Coffee Roasters (GMCR). Sodastream was not mentioned but investors saw the similarity and SODA shares fell. We don’t like broken momentum stocks or momentum stocks with huge PE ratios.

–  Immunogen, Inc. (IMGN): Cramer is not bearish on IMGN but does not recommend buying it. He said, “Well you should feel fortunate if you own Immunogen, because Daniel Munoz, who has come on the show, tells a great story. We’ve got a big gain it. I want you to continue to own it. In fact, those who don’t own it, buy, buy, buy! But first I like [Celgene Corporation] CELG more.” IMGN closed Wednesday at $13.97. It is expected to report its third quarter earnings today. Analysts are predicting the stock will top $14.88 within the next 12 months, so there is very little upside and no dividend. CELG on the other hand is trading at $64.81 and is expected to hit $73.35 a share within the next year. We aren’t enthusiastic about IMGN either. We also don’t like CELG because of its high valuation even though its numbers are better than AGN’s.