There are many various reasons why an investor would sell stocks. Jim Cramer recently unloaded shares of all the stocks below from his charitable trust. These companies all face economic headwinds that could put pressure on stock prices. As always, use the analysis below as a starting point for your own due diligence:
Shares of Conoco Phillips have traded at 18.30% off its 52-week high. Its share price performance mimics the performance of energy stocks like Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX). At the current price of $66.83 a share, the stock is trading at 8 times this year’s earnings, 1.32 times book value and 4% dividend yield. This is cheaper than XOM but slightly higher than CVX valuations. XOM is trading at 8.55 times this year’s earnings, while CVX is valued at 7.32 times this year’s earnings.
There are issues surrounding this company. Aside from the price of oil hovering below $90 levels, the company plans to restructure its business. It announced that it will spin off its refining and marketing holdings into a new publicly traded company and plans to sell as much as $17 billion worth of assets by the end of 2012. The company also said that production is not expected to increase until 2013. Cramer does not like uncertainties as it may take a while before the stock price will move higher. The recent actions of COP management have caused the recent earnings of the company to fall. Deustche Bank (DB) has downgraded the stock from buy to hold.
Altria Group (MO)
Altria Group is a holding company with different interests in cigarettes, smokeless products, cigars, wines and financial services. For the year, the stock has gained slightly by 3.78%. At current price of $25.70, it is trading at 11.78 times forward earnings, 10.13 times book value and 6.04% dividend yield. These valuations would suggest that the stock is not trading at inexpensive levels and could face headwinds such as high unemployment and economic pressures moving forward.
In fact, the recent quarterly report has showed weakness in the performance of the company. It reported a net profit of $444 million, lower by 57% compared to prior year’s results. Excluding restructuring charges, earnings rose slightly higher by 6%. In terms of segment breakdown, decline in revenue and operating profit were broad based. The management has acknowledged that the rest of the year will be challenging. However, it re-affirmed its full year guidance of $2.01 to 2.07 in 2011. This implies a 6% to 9% growth over the past year. Research firms covering the company gave mixed ratings. Stifel Nicolaus and Davenport have upgraded the stock to buy, while Argus downgraded it to sell. Target price is at $28.25, implying only an upside of 9%.
General Mills, Inc (GIS)
Shares of General Mills, Inc. have risen by 3.30% for the year. However, we have seen shares dropping by 7.42% for the past 3 months. For the year, shares have traded within the range of $35 to $39. While these non-cyclical consumer stocks are defensive in nature, the recent issues surrounding stricter regulation on advertising unhealthy foods to children have worried investors. In fact, Kellog Company (K)’s and ConAgra Foods, Inc. (CAG) shares have declined by 6.46% and 6.75% respectively. The stock is trading at 14.04 times this year’s earnings and 3.71 times book value. These valuations suggest that GIS is not at all cheap, but still lower than peer companies which trade at 15 to 20 times this year’s earnings.
The overall outlook for the company is positive. Management expects continued strong sales and earnings over the next four years. The long-term target is to grow 40% in per share earnings from this year’s level. Analysts are expecting per-share earnings of $2.61 this year, suggesting a growth of 5.2%. At 40% growth, per-share earnings would be at $3.6 in 2014. Based on the historical multiple of 12 times, the value of the shares should be at $43 or an upside of 19.5% from the current levels. Research firm Argus has downgraded the stock to hold.
Honeywell International, Inc. Co (HON)
Honeywell International' stock has fallen by 26.09% from its 52-week high of $62.28 a share. The company is a diversified technology and manufacturing company that has exposure in the aerospace, security technologies for buildings and homes, process technologies in refining and petrochemicals and energy. These segments appear to be economically sensitive, which means uncertainties over economy will punish these types of stocks. At the current price of $46.03, the stock is trading at 11.62 times this year’s earnings, 3.06 times book value and 2.80% dividend yield.
In the recent quarterly report, the company reported strong results. It reported per-share earnings of $1.02, an increase from the previous year’s $0.73. This is due to the strong performance of its aerospace segment. At these levels, it seems that the company will be on its way to beating full year guidance of earnings per share of $4. Despite the positive outlook, shares may still lag the market given that investors would still be jittery with these types of issues. Analysts have a target price of $66.32 a share, an upside of 44% from the current levels. Research firms have also upgraded the stock to buy from the recent share price decline.
Kellogg Company (K)
Shares of Kellogg Company have advanced by 4.77% for the year. Over the past three months, shares have declined by 6.46%. The company sells strong brands of ready-to-eat cereal and convenience foods. While management appears to be on track to meeting its goals through increased investment in branding and innovation, the economic headwinds have caused the stock to underperform the market. These headwinds are all common to food companies. Since Kellogg uses materials such as corn, wheat, sugar and cocoa, the company is prone to volatility in the prices of these commodities. Higher commodity prices will definitely affect margins. Adding to worries of the market is the competitive pressures surrounding the ready-to-eat cereal space.
At a price of $53.56, the stock is trading at 15.31 times this year’s earnings, 7.84 book value and 3.30% dividend yield. The company has a stable long-term financial performance. Over the last 5 years, revenues have grown at an annual pace of 4%. Meanwhile, earnings have also increased by 6.9% during the same period. This is due to cost cutting and integration of its US operations. On the near-term, the market is not convinced that it will move past its 52-week high. However, UBS research has recently upgraded the stock to buy. The target price is at $59, implying an upside of 11%