A simple rule of investing is: Buy good companies at the lowest possible price. But things never are so simple. In hopes of finding some good companies, we looked through Jim Cramer’s charitable trust to find some buy ideas.
As always, use the analysis below as a starting point for your own due diligence:
Apple, Inc. (NASDAQ:AAPL):
The latest share price of Apple, Inc. is $356.44 which is around $50 lower than the highest price in the last 52 weeks. The stock price reached its peak in the last month following the hype that the company has passed Microsoft (NASDAQ:MSFT) to become the largest tech company in the world. It now rivals Exxon (NYSE:XOM) in market cap.
In terms of financial indicators like margin and price to earnings ratio (P/E) AAPL represents the industry, marginally behind Google Inc. (NASDAQ:GOOG), in operating margin but better in P/E. On the other hand, the company is ahead of Hewlett-Packard Company (NYSE:HPQ) and Research In Motion Limited (RIMM) in profit margin but behind in P/E.
AAPL has done wonderfully in terms of earnings per share and growth in recent years, while industry competitors looked at declining market share. I believe the company still has an opportunity to grow in future years and its stock will be worth accumulating.
Bank of America (NYSE:BAC):
The shares of Bank of America trade at $6.42, whereas the minimum price in last 52 weeks was $6.31. Shares traded as high as $15.31 in the same period.
The financial health of the company does not say much positive. Operating margin is 1.91%, one of industries lowest margins with an average of 20.89%. Lower operating margin leads to negative net income and earnings per share.
The company with around 6,000 retail offices and 58 million businesses and consumers, is lagging behind its competitors like Citigroup, Inc. (NYSE:C) and JP Morgan Chase & Co. (NYSE:JPM). The only consideration to buy this stock is its present market value which is on the lower side.
American Express Company (NYSE:AXP):
The latest stock price for American Express is $44.60 which is somewhere in middle of the 52 weeks range ($37.33 - $53.80).
The company’s revenue generating ability is the best in the industry but gross and operating margins are on the lower side in comparison to Discover Financial Services (NYSE:DFS), MasterCard Incorporated (NYSE:MA) and VISA, Inc. (NYSE:V), even industry average values are far better than those of AXP. Price to earnings ratio (P/E) of the stock is comparable to industry average, better than MA & V but poorer to DFS.
The company has broken its business operations into smaller segments which allow it to have competitive pricing advantage. For the last two to three years, the company’s dividend has been consistent. Even considering a 15% payout ratio for AXP which is on the lower side, the stock is worthy buying.
The Coca-Cola Company (NYSE:KO):
The current price of the stock is $67.27 whereas the 52 week peak is $69.82. The company’s cash generating ability is good, offering an annual 2.88% yielding dividend of $1.88 for each share. Profit margin of the company has been excellent, operating margin is the best, far better than the industry average. Price to earnings ratio is better than the industry average and other competitors except Nestle (OTCPK:NSRGY).
Coca-Cola is very successful in exploiting beachheads in new markets like China and India. The company has a goal to double global sales and improve profitability margins for the next 10 years named the 2020 Vision. The success of this plan will add value for shareholders in the coming years. From an investor’s point of view, a company with these achievements and possibilities is difficult to pass.
Caterpillar, Inc. (NYSE:CAT):
The last trade price for the shares was $79.89, and the 52-week range is $63.33 - $116.55. The company’s profit margin has been good, only Komatsu Ltd. (OTCPK:KMTUY) is ahead of CAT in terms of operating margin. The stock is trading at 13.23 times 2011 earnings (price to earnings ratio) and the dividend yield is 1.90%. Industry price to earnings ratio is 10.05 and all other close competitors’ P/E ratios are smaller than CAT and two of them have a ratio below 10. So, this is one area of concern for investors.
The company’s strength is its continual investment globally resulting in higher capital expenditures this year. There is also news that private equity firms Centerbridge and BC Partners are pursuing CAT‘s logistics business for $1 billion, as the company focuses on its core, heavy equipment businesses. This is a smart move on CAT's part.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.