One of the secrets to outstanding long term investment returns is to piggy back investing gurus with a solid record. One guru worth following is Jim Cramer. We will look into the new stock positions of Jim Cramer’s charitable trust as a start of our investment diligence. Given the market’s recent sell-off, investors will be given the chance to buy these stocks at a cost lower than Cramer’s entry point:
AT&T, Inc. (NYSE:T) – Investors are quick to dismiss the fact that telecommunications companies operate in a mature and declining industry. Shares of telecommunications companies with losing subscriber base are punished further. However, there are several telecommunications companies that are cheap enough to warrant a second look. One of them is AT&T (T), which trades for 8.73 times trailing earnings, 1.44 times book value and has a dividend yield of 5.90% . This is definitely lower than peer Verizon Communications (NYSE:VZ). VZ trades at 15 times trailing earnings, 2.5 times book value and has a 5.60% dividend yield. Yet AT&T sports a net profit margin of 15.61% and return on equity of 17.90%, higher than VZ’s net profit margin of 9.59% and return on equity of 6.38%.
Meanwhile, it is also acquiring telecommunications companies to boost its subscriber base. It is set to acquire T-Mobile USA division (OTCQX:DTEGY), although the FCC will still look at its impact on the competitive landscape in the telecommunications industry. The future earnings driver of AT&T is the mobile data segment, which is expected to post better than expected growth in the future. As soon as this segment brings considerable contribution to the bottom line, it will only be a matter of time before the market will scoop up shares of this telco giant.
Costco Wholesale Corp. (NASDAQ:COST) – The recent data in retail sector has improved, with strong spending from consumers. In turn, shares of retailers have also picked up since last year amid improving revenue and operating margins. While the overall picture for retail stocks is positive, it is mostly driven by a few players. One of them is Costco Wholesale Corp. In a recent report, it reported better than expected July same-sales stores growth. It said that sales-stores growth for July came in at 10%, better than consensus estimates of 8.6% and higher than BJ’s Wholesale Club, Inc’s 9.2% July same-stores growth. This robust growth is mainly due to expansion in international locations, and is bolstered by a falling dollar. The major advantage of COST over BJ’s Wholesale Club (NYSE:BJ) and Sam’s Club (NYSE:WMT) is its ability to contain costs. In a slim-margin business model, small percentage points are a big advantage. We note that operating margins of COST are at 2.66% compared to BJ’s 1.91%. From a valuation standpoint, the stock is trading at 23.34 times this year’s earnings, compared to 20.41 times earnings of BJ. Investors are paying a premium for higher margins as well as the company’s foray into international locations.
Ensco Plc (NYSE:ESV) – Believers of the long term prospect of the oil industry should buy shares of Ensco Plc, a global offshore contract drilling company. With crude oil prices at $81 a barrel, oil and oil-related stocks took a beating. In fact, ESV year to date returns are at -17.43%, as OPEC has cut its global oil demand forecast and warned that a weaker consumption will cut the outlook even further. The stock is currently trading at cheaper levels, with 11.87 times this year’s earnings and 1.05 times book value. Analysts are expecting earnings per share of $3.69, lower than 2.90% compared to prior year’s results. These expectations are lower than industry’s growth of 50.70% this year. Major oil drillers are also on the bargain prices right now. Transocean Ltd (NYSE:RIG) and Noble Corp. (NYSE:NE) are trading at 13.20 times and 17.25 times this year’s earnings respectively. However, it would not be prudent to buy baskets of oil drillers. We suggest buying solid oil drillers with little debt to avoid variability in cash flow and permanent loss of capital. ESV sports a total debt to equity of 4.03%. Fund managers David Einhorn and Robert Rodriguez has 5% and 7% of ESV in their portfolio.
Fluor Corporation (NYSE:FLR) – This stock is for investors who want to have global exposure in Oil & Gas and Industrial & Infrastructure. It is trading at 27.43% off its 52-week high. In terms of valuation, the stock trades at a premium to its peers, with a 2011 Price Earnings ratio of 16.56 times, 2.81 times book value and a dividend yield of 1%. The premium is warranted, as the company has posted record backlogs of $40.3 billion, which would provide revenue visibility moving forward. The decline in share price would provide good entry point for investors who believe that two economic tailwinds will its shares multiple expansions in the long run. While crude has settled below the $90 level, the prospects for more projects are still viable. Meanwhile, the favorable interest rate environment would also provide incentives for contractors to finance these ventures. Moreover, the company is looking for high-margin projects to boost their bottom line. The downside risks, however, would include slower than expected economic growth from the recent debt drama and higher risks in some countries that it operates. We also note that the share is volatile with beta of 1.30, although volatility would give long-term investors more time to accumulate shares.
Freeport-McMoran Copper & Gold, Inc (NYSE:FCX) - This is one of those good stocks to play out for more gold and copper prices upside. It is rare to find a value stock in a growing industry. In this case, FCX is a company valued in single digit multiples in a double digit growth industry. FCX is trading at 7.68 times trailing earnings, 2.91 times book value and dividend yield of 2.40%. It seems that the company doesn’t deserve a valuation like this. In terms of profitability, the company has operating margins of 50.67% and returns on equity of 48.20%. Moreover, financial position appear solid with a relatively low debt to equity ratio of 20.71%. We note that major mining companies are trading at 15 to 18 times. The recent decline of copper prices, falling at July 2010 lows has provided a buying opportunity on this stock. This brings the 3-month performance of the stock at -13.16%. If copper prices rally again, we may see the stock hitting its highs at $61.35. Another good thing about this stock is that CEO Richard Adkerson owns at least 2 million shares in the company. We can be assured that the management of FCX acts in the interests of the shareholders.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.