I recently wrote an article about Jim Cramer’s Lightning Round, analyzing his picks from a fundamental perspective. After seeing that it drew quite a bit of attention, I decided to write about Cramer regularly from now on. Cramer is the most popular face on The Street. Therefore, it is worth investigating his stock picks further. I will try to write about both his shows Lightning Round and Mad Money. Here, is a fundamental analysis of the stocks mentioned in Cramer’s Mad Money on July 5.
Cramer says that in economic recoveries, while the other businesses start speeding, the early-cycle businesses like housing and automobiles outperform. He suggests diversified industrial players. Here, are two suggestions to buy:
3M Company (MMM): 3M returned 18% in a year, and Cramer is bullish about this company. It is trading at 0.58% lower than 52 week high. P/E is 16.74 and forward P/E is 13.79, as of July 9. Analysts estimate a 12.17% EPS growth for the next five years. Debt-to assets ratio is going down. One thousand dollars invested in 3M in March 2009 is about $2310 now. Insider transactions for the last six months increased by 43.18%.Target price is $107.76, implying about a 10% increase. Moreover, it pays a 2.25% dividend. 3M’s performance is admirable and it seems to be an excellent candidate to add to portfolios.
Emerson Electric (EMR): According to Cramer, Emerson is a truly profitable company, especially in the emerging markets. As of July 9, the Missouri-based company was trading at a trailing ratio of 19.93, and a forward P/E of 14.78. Analysts expect the company to have a 14.36% EPS growth for the next five years, which is fair given the 8.92% EPS growth during the last five years. Target price is $65.27, which implies about a 15% upside potential. Dividend yield is 2.41%. The company needs a good plan to deal with its debts. Overall, the company is a sweet stock to invest in.
Cramer’s two chemical picks:
DuPont (DD): DuPont is the only conglomerate Cramer wants to hold. I also find Dupont’s performance admirable. It returned about 50% in a year. As of the July 9 close, Dupont was trading at a P/E ratio of 15.48, and a forward P/E ratio of 12.74. Analysts estimate a 9.38% EPS growth for the next five years, and ROE is 36.29%. Target price implies about an 11% upside movement potential. Dividend yield is 2.96%. Dupont is a stable profit-maker for the long term.
PPG Industries (PPG): PPG returned 42% in a year, and Cramer is bullish about PPG. "Industrial America is alive and well," Cramer says, “PPG and DuPont (are) two more made-here stocks that belong on your shopping list.” The coating company, as of July 9, was trading at a P/E ratio of 15.69, and a forward P/E ratio of 12.85. Earnings increased by 128.32% this year, and 681.05% this quarter. Estimated EPS growth for the next five years is 9.20%, whereas dividend yield is 2.48%. Insider transactions for the last six months have increased by 23.83%. Although debts are starting to become a pain, I believe the momentum will not fade away soon.
Two picks of manufacture industry:
Cramer thinks that Honeywell Int’l (HON) is a winning stock, and remains bullish on Honeywell. Like Cramer, I also think that Honeywell is a trustworthy and profitable stock. It performed well since October 2010, leapfrogging from $43 to $59.54. As of July 9, Honeywell was trading at a 20.82 trailing ratio, and a 13.03 forward P/E ratio. Analysts estimate a 15.34% EPS growth for the next five years, while dividend yield is 2.23%. Insider transactions for the last six months increased by 194.75%, and its target price implies a 15% upside movement potential. Debts are melting for the last three years. Cramer likes Honeywell's ability to provide service in different sectors like a ““beautiful webbed mosaic”. I think the momentum is solid, and will continue for a long time.If investors wish a direct play, Cramer suggests buying Cummins Inc. (CMI). He says “America is still a great manufacturing nation, and Honeywell and Cummins are two of our greatest manufacturers." It had a profitable quarter in Q1 2011. As of July 9, the Indiana-based company has a P/E ratio of 17, and a forward P/E ratio of 11.15. It is trading 11.90% lower than the 52-week high, and a target price of $134.25 implies an about 25% upside potential. Analysts estimate an 11.23% EPS growth for the next five years, which is reasonable when its 13.88% EPS growth of past 5 years is considered. However, dividend yield is thin (0.98%), and debts have tended to increase over the last four years.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.