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By Lucas Scholhamer

Jim Cramer began his investing career as a law student by leaving his favorite stock picks on his telephone’s answering machine. Later, he founded a hedge fund, Cramer, Berkowitz & Co., that returned an average of 24% during his 14-year stint at the helm. Now, he serves as the energetic, outspoken host of the hit CNBC show "Mad Money" and is a co-founder and chairman of TheStreet.com. Investment Underground took a look at some of his latest buy ideas from his charitable trust:

E.I. du Pont de Nemours and Company (NYSE:DD): The specialty chemical giant, also known as DuPont, was founded in 1802 and offers products and services ranging from genetically engineered seeds to safety materials like Kevlar. DD stock traded up to $46.74 at the time of writing, after a fall from nearly $56 that started in early July and intensified over the last several days. However, DuPont had a strong second quarter. According to its Q2 earnings report, revenue increased 19% to $10.26 billion year-over-year, an EPS of $1.37 beat consensus estimates by 2 cents, and earnings guidance for the year has been raised to $3.90-$4.05 from $3.65-$3.85 per share last quarter. Furthermore, these numbers came even after expensive acquisitions of enzyme-maker Danisco and solar materials maker Innovalight.

DuPont has recently been criticized by many analysts for the $6.5 billion Danisco deal, with many arguing that it is unwise to sink so much money into corn-related technology that has been largely underwhelming to this point. Furthermore, DD’s high sensitivity to market fluctuations has scared many potential investors away. However, part of value investing is buying stocks that are out of favor, and a combination of the current market-wide uncertainty with DD’s underappreciated-yet-strong quarterly earnings report may represent a good entry point. Also, DuPont’s product portfolio is heavily diversified, it offers a 3.19% dividend yield, and its P/E ratio, at 14.36, is lower than competitors like Dow Chemical (NYSE:DOW) at 15.48. Finally, with price target estimates ranging from the upper $50’s to the lower $60’s, DD stock has some upside potential, especially if the recent acquisitions indeed pay off.

Emerson Electric Co. (NYSE:EMR): Emerson Electric is a global manufacturing and technology company, offering a diverse portfolio of products and services, from industrial automation and motor technologies to process management and appliance solutions. EMR stock is attempting to reverse its plummet off of a 52-week high of $64.56 back in February, trading up to $44.68 at the time of writing. The company posted decent Q3 results, with sales growing 16% year-over-year, profits increasing 17% year-over-year, and an EPS of $0.90 per share just missing analyst estimates by 1 cent. Still, EMR has been hit hard by rising input prices, and its operating profit margin dropped by some 30 basis points to 18.1% on the quarter. Furthermore, the company is experiencing weakness in its U.S. and western European divisions, mainly due to increasing government regulations and restrictions that stifle GDP growth — EMR’s main driver. CEO David Farr made clear his disdain towards the federal and European governments, equating their handlings of debt issues to “rearranging chairs on the Titanic”, and he warned of “slower growth” in the next half year or so.

So what made Jim Cramer believe this was a good stock? First of all, it is a Fortune 500 company that has been operating since 1890, so the chances of an unrecoverable breakdown are slim, historically speaking. Second, it has a strong operating cash flow of $903 million that has been driven upward 29% by increased earnings. EMR also has made a number of strategic acquisitions in the last 12 months, most notably including Chloride Group PLC. Third, underlying sales for the company’s Process Management and Industrial Automation divisions increased 13% and 18% respectively, driven largely by manufacturers in Asian nations where cheap labor markets no longer provide as wide a competitive advantage as in the past. Finally, analysts are predicting that EMR will grow EPS to $1.00 next quarter, and with price target estimates averaging around $59.00, its current price looks like a bargain.

Ensco PLC ADR (NYSE:ESV): Ensco PLC is a major offshore drilling contractor with an extensive and relatively young fleet of deepwater, midwater, and premium jackup rigs. Shares traded up to $43.80 at the time of writing, trying to recover from a fall in which its stock price drop from its 52-week high of $60.31 to levels unseen since last October. ESV stock has a P/E ratio of just 13.4 and offers a dividend yield of 3.4%. Although Ensco’s Q2 EPS of 59 cents came in well below the consensus earnings estimate of 71 cents per share, revenue shot up 37% year-over-year to $564.2 million. The disappointing earnings were a result of rising costs, including a 400% increase in administrative costs (likely a temporary byproduct of its acquisition of Pride International), a 39% increase in drilling expenses, and a 61% increase in depreciation expenses.

Despite this, Ensco is an attractive buy for several reasons. First, it has some of the highest margins in the industry, with a gross margin of 51.71% and a profit margin of 28.08%. This compares to competitor Transocean’s (NYSE:RIG) gross and profit margins of 42.1% and 6.5%, respectively. With a reported contract revenue backlog of over $9 billion, ESV should be busy for the second half of the year, potentially boosting its already-high 77% overall fleet utilization rate. As mentioned earlier, the company recently acquired Pride International, expanding its customer base and penetration in high-growth markets such as Brazil and Africa. Cramer prefers ESV over RIG, partly because of Ensco’s relatively limited liabilities (think about Transocean after the Macondo disaster), and also because ESV hasn’t been hit by bad press from the New York Times. Finally, price target estimates for Ensco PLC are averaging in the mid-$60 range. I recommend getting in on Ensco while prices are still low.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Continue to Part 2 >>

Source: Jim Cramer's Newest Buy Ideas (Part 1)