Jim Cramer is a well followed stock market commentator, with his own CNBC show where he extols the virtues, or otherwise, of stocks that come onto his radar. Here we look at 6 of his picks from his July 5th show:
3M Co. (MMM): Shares are trading at $76.87, at the bottom of their 52-week trading range of $76.60 to $98.19. At the current market price, the company is capitalized at $54.54 billion. Earnings per share for the last fiscal year came in at $5.86, placing the shares with a price to earnings ratio of 13. It paid a dividend of $2.20 (yielding 2.90%).
As with many blue chip shares, the shares can be considered ‘boring’. But there’s nothing wrong with boring in this market. They offer a healthy dividend that has increased every year for the last 52 years, and an undemanding price to earnings ratio. A reasonable buy, but for an investor looking for a boring blue chip in this market, perhaps Johnson and Johnson (JNJ) would provide better value. Its operating margin outdoes that of 3M (26% vs 21.38%), and at 15.11 has a similar price to earnings ratio. However, Johnson and Johnson pays a dividend yield of 3.60%, and its absolute dividend (last year $2.28) has increased for 48 years running.
Caterpillar Inc (CAT): Shares are trading at $79.97 at the time of writing, against their 52-week trading range of $63.34 to $116.55. At the current market price, the company is capitalized at $51.67 billion. Earnings per share for the last fiscal year were $6.05, placing the shares on a price to earnings ratio of 13.23. It paid a dividend last year of $1.84 (a yield of 2.30%).
Caterpillar’s main competitor is Deere & Company (DE), both companies supplying industrial and agricultural equipment to world-wide markets. The shares of both companies are moving toward their twelve month lows, and have traded in tandem during this time. However, with Caterpillar’s earnings more reliant on exports to developing countries, it may be time to see its share outperform those of its competitor, as the weakening dollar and need for better equipment to produce more agricultural produce abroad impacts its earnings positively in a generally weak market. A good buy at this level.
Cummins Inc (CMI): Shares are trading at $79.91 at the time of writing, at the lower end of their 52-week trading range of $71.51 to $121.49. Earnings per share for the last fiscal year were $7.61, placing the shares on a price to earnings ratio of 10.48. Its dividend last year was $1.60 (yield 2.00%)
Sales of its diesel and natural gas engines for industrial use may be affected by an economic downturn, though its dividend should be protected by its industry-beating operating margin of 11.29%. Compare this to that of its rival Navistar (NAV) at just 4.05%. With the share price trading so close to 12 month lows, much of the risk has been taken out of the shares. Investors in this industry should have Cummins heavily weighted in their portfolio.
El DuPont de Nemours & Co (DD): Shares are trading at $43.65 at the time of writing, against their 52-week trading range of $38.71 to $57.00. At the current market price, the company is capitalized at $40.83 billion. Earnings per share for the last fiscal year were $3.61, and it paid a dividend of $1.64 (yielding 3.70%). The company has recently announced their latest quarterly results [see transcript]. Revenue and income both grew around 20% year on year, with sales in Asia Pacific and Latin America doing particularly well. Its strength in sales of its chemical products are illustrated when comparing numbers with its main competitor Dow Chemicals (DOW). Dividend yield, and price to earnings ratios are almost identical between the two companies. But DuPont’s operating margin is a far healthier 12.92% (against Dow’s 7.74%). DuPont has also announced price increases in its products, a signal of strong management and strong belief in its customer relations. And good news for profits going forward.
Emerson Electric Company (EMR): Shares are trading at $42.46 at the time of writing, toward the bottom end of their 52-week trading range of $41.37 to $62.24. At the current market price, the company is capitalized at $31.62 billion. Earnings per share for the last fiscal year were $3.24, and it paid a dividend of $1.38 (a yield of 3.30%). When compared to its larger competitor, General Electric (GE), its recent quarterly revenue growth outshines (16.10% vs. –3.5%), as does its operating margin (17% vs. 11.47%). However, the Chief Executive, David Farr, recently said that he only sees uncertainty in the second half of this year. Commendable, perhaps, that he is so openly honest. But hardly a rallying call to would-be investors. Does he know something the market doesn’t about the company’s prospects? Time to go for the cash-rich General Electric.
Deere & Company (DE): Shares are trading at $69.01 at the time of writing, at the bottom end of their 52-week trading range of $60.45 to $99.80. At the current market price, the company is capitalized at $28.80 billion. Earnings per share for the last fiscal year were $6.08, and the company paid a dividend of $1.64 (a yield of 2.40%).
Deere operates in the same market place as Caterpillar, though Caterpillar would appear to be better placed to profit from the opportunities that the export market offers. Deere trades on a lower price to earnings multiple (11.36 vs. 13.23), and its operating margins are similar (13.27% vs 11.70%). However, Caterpillar is displaying a better ability to grow its revenues recently (last quarter’s growth for Caterpillar was 36.70% vs Deere’s 22.50%). With Caterpillar’s greater foreign sales potential, and the market slowing in the United States, perhaps shareholders in Deere would do better switching to Caterpillar.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.