Mad Money Machine

Last week’s one Rule 1 stock from Cramer

Of all the stocks featured on Mad Money last week (below), which one meets the Margin-of-safety test from Rule #1?

MGP Ingredients, Inc. (MGPI)
Union Pacific Corp. (UNP)
Archer Daniels Midland Company (ADM)
The Black & Decker Corporation (BDK)
Celgene Corporation (CELG)
NTL Incorporated (NTLI)
Core Laboratories N.V. (CLB)
Dawson Geophysical Co. (DWSN)
FMC Corporation (FMC)
OAO GAZPROM SPONS GDR (OGZPY) (Closest I could get for its ticker)
ElkCorp (ELK)
Syngenta AG (ADR) (SYT)
Arris Group, Inc. (ARRS)
Knight Capital Group Inc. (NITE)
Cano Petroleum, Inc. (CFW)
SGL Carbon AG (ADR) (SGG)
Banco Itau Holding Financeira S.A. (ADR) (ITU)
Foster Wheeler Ltd. (FWLT)
Avnet, Inc. (AVT)

Take your guess… which one do you think it is???

Clues: It is a newer company. Analysts expect it to grow at an annual rate of 25% annually for the next five years. It had a Cramer Crackle of 1.9% and has gained 3.2% 2.8% since then.

Cramer said it owns an apartment on the new high list.
He said that it makes reservoir management equipment, meaning the company evaluates the quality of oil in a given reservoir as well as finds information about the rock that must be drilled into to get at the oil.

If you said Core Laboratories then you’re the winner of Pick the MOS stock.

By my calculations (that’s your cue to take this with a grain of salt), CLB has an EPS of $1.38. It has a P/E of 49. With an assumed growth rate of 25%, that makes the future value price in 10 years equal to $633.62. Divide that by 4 (meaning we assume a stock price growth of 15% per year for 10 years) results in a Sticker price today of $156.62. The Margin of Safety (MOS) would be one half of that at $78.31. The stock dropped from about $68 to $66.50 today.

Let’s assume that the P/E in ten years of 49 is silly and go with 25. What happens? FV is $321. Sticker price is $79.42. MOS is $38.71. So the stock would still be below sticker price (assming 25% growth in EPS per year for ten years).

Note that a 2:1 stock split is scheduled for 10 July.

Before you buy you should figure out if the other three M’s (Meaning, Management, Moat) apply to this stock and to you.

BTW: the next-closest stock to meeting the MOS that I calculate is MGPI.

(OH, and I have no idea what GAZPROM’s numbers are! So I don’t know if it meets MOS or not.)