By Saurabh Mukherjee
The last few weeks have been pretty choppy for the equity markets with the market reacting to every negative piece of news from the sovereign debt problems in Europe to the deadlock over the debt ceiling limit in United States and the subsequent rating downgrade by Standard and Poor ‘s (MHP). Listed below are 5 recommendations Mad Money's Jim Cramer has bought recently for his charitable trust.
Stanley Black and Decker (SWK) manufactures tools and engineered security solutions worldwide. At a current price of $57.65, it is trading at 16 times its earnings, 1.27 times its book value and has a 2.7% dividend yield. It seems expensive when compared with industry peers like Danaher Corporation (DHR) and Snap-On Inc. (SNA), which are trading at a price-to-earnings ratio of 13 and 11.5 respectively. The stock fell by almost 8% in the last couple of days due to the underlying negative sentiments in the market.
The company’s net revenue for the second quarter jumped from 10.9% year over year to $2.6 billion. The management revised it fiscal year 2011 EPS guidance range to $5.15 - $5.40 from the prior range of $5.00 - $5.25. In the month of June, the company proposed to acquire Niscayah (OTC:NSYHF), which is a company specializing in electronic security services, for approximately $1.2 billion. The transaction is expected to close in September 2011. The management expects to enhance its existing security product offerings and expand its footprint internationally through this acquisition.
VALE S.A. (VALE) engages in the exploration, production, and sale of basic metals in Brazil. The company is also involved in fertilizers, logistics and steel businesses. The American depository receipts of the company are traded on the NYSE (NYX). At the current price of $25.63, it is trading at 5.19 times its earnings and 35.3% off its 52-week high of $37.25. At the current level, the stock seems pretty attractive when compared with its peers BHP Billiton limited (BHP) and Cliffs Natural Resources Inc. (CLF), which are trading at a price-to-earnings ratio of 12.66 and 6.14 respectively.
The company reported a net profit of $6.45 billion, up 74% from $3.71 billion in the same quarter a year ago mainly on the back demand from China. The company also proposed additional dividend of $3 billion to shareholders. The company’s cash and cash equivalents were up 17.4% sequentially to $13,227 million while long-term debt decreased sequentially to $268 million from $603 million in the previous quarter. Overall, the company looks undervalued and many research firms have also upgraded the stock to buy.
WellPoint Inc. (WLP) operates as a health benefits company in the United States. At $58.09, it is trading at a discount of 29% from its 52-week high of $81.92, 7.7 times its earnings, 0.88 times its book value and a dividend yield of 1.7%. It seems relatively inexpensive when compared with its peers like Aetna Inc. (AET) and United Health Group Inc. (UNH), which have a price-to-earnings ratio of 7.73 and 9.72, respectively. The stock has fallen by almost 10.7% in the past two weeks.
The company reported a net income of $701.6 million, down from $722.4 million from the previous year quarter. However, the earnings per share increased to $1.89 per share from $1.71 per share in the previous year quarter as the company repurchased approximately 9.5 million shares in the quarter. The company has also declared a quarterly dividend of 25 cents per share. WellPoint anticipates a net income of $6.9 to $7.1 per share for fiscal 2011, up from the previous estimate of $6.7 per share. Despite the positive outlook, there are some industry–wide concerns as president Barack Obama announced a debt-reduction deal that may lead to Medicare cuts. The company spent $1.3 million on lobbying in the second quarter of 2011. Most of the lobbying was centered on the healthcare overhaul bill announced by the U.S government. Notwithstanding the concerns healthcare bill, most research firms have maintained a buy rating on the stock.
Parker-Hannifin Corporation (PH) manufactures motion and fluid control systems, which allow customers to move and position materials, machines and equipment during manufacturing processes. Currently trading at $64.03, the stock price is 35.5% off its 52-week high of $99.40. At a price-to-earnings ratio of 10 and a quarterly revenue growth of 22.4% year on year, it seems relatively inexpensive when compared with its industry peers Eaton Corporation (ETN) and Honeywell International (HON). Eaton Corporation and Honeywell International have a price-to-earnings ratio of 11.11 and 13.47 and a quarterly revenue growth of 21.1% and 14.6% respectively.
The company’s sales in the reported quarter increased by 22.4% year on year to $3.4 billion while net income for the quarter was $294.7 million, an increase of 32.1% year on year. The full year profit nearly doubled to $1.5 billion in fiscal 2011, from $554 million a year ago and it expects fiscal 2012 earnings per share to be in the range of $6.70 to $7.50. The company also declared a quarterly cash dividend of 37 cents per share. The company recently spent $700 million to buy back its own shares in hopes of increasing the share price. The company recently expanded its presence in Korea with the acquisition of SSD Korea Co. limited based in Seoul.
Abbott Laboratories (ABT) At $49.08, it is trading at a discount of 9.51% from its 52-week high of $54.24, 14.96 times its earnings per share of $3.28 and a quarterly revenue growth rate of 9%. It is much cheaper than its industry peers like Merck & Co. Inc. (MRK) and Sanofi-Aventis (SNY), which have a price-to-earnings ratio of $33.69 and $14.53 and quarterly revenue growth rates of 7.10% and -5.00% respectively. Its price to book ratio of 2.88 also looks attractive.
The company recently acquired the Healthcare solutions business of the Indian company Piramal for $3.7 billion, giving it a leading position in the fast growing Indian pharmaceuticals market. The company reported net revenue of $9.61 billion up 6.3% from the previous quarter, while its net profit was $1.94 billion up 124% from the previous quarter. The management raised its earnings per share guidance for 2011 and now expects to earn between $4.58 and $4.64 per share. The company has generated over $8 billion in free cash flow over the last 12 months and has paid a dividend that yields 3.9%. Since 2000, the company has hiked its dividends at an average annual rate of 9.1%. The general consensus among analysts is a buy recommendation on the stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.