Jim Cramer’s Mad Money show is one of the most watched shows in the investment world. Some consider him a better judge than Warren Buffett. His Charitable Trust holds around $3 million of stocks.
E.I. du Pont de Nemours (NYSE:DD): Shares are trading at $47.46 at the time of writing, in the middle of its 52-week trading range of $39.50 to $57. At the current market price, the company is capitalized at $44.25 billion. Earnings per share for the last year were $3.61. It paid a dividend of $1.64 (a yield of 3.60%). Cramer’s Charitable Trust holds 500 shares.
Du Pont’s operating margin of 12.92% is better than that of rival Dow Chemicals (NYSE:DOW) at 7.74%. Supplying chemicals, technology, and agricultural seeds , fertilizers, and nutrients, to a wide range of industries internationally, it’s highly diversified nature should allow it to weather any economic storm reasonably well. On a par with Dow Chemicals (price to earnings ratios similar at 13.16 vs 12.97, dividend yield 3.70% v 3.60%), there is little to choose between the two, save for the better operating margins the Du Pont has shown itself capable of producing.
Costco Wholesale Corp (NASDAQ:COST): Shares are trading at $77.69 at the time of writing, in the top half of its 52-week trading range of $55.41 to $83.95. At the current market price, the company is capitalized at $34.01 billion. Earnings per share for the last year were $3.20, placing the shares on a price to earnings ratio of 24.27. It paid a dividend of $0.96 last year, a yield of 1.20%. Cramer’s Charitable Trust owns 300 shares.
As the economic realities of less money in the pocket start to bite, companies like Costco will benefit when compared to the higher end retailers. However, it operates at a far lower gross margin than rivals Target (NYSE:TGT) and Wal-Mart (NYSE:WMT). Costco’s gross margin of 12.70%, looks tiny when compared to Target’s 29.87% and Wal-Mart’s 25.17%.
It is a similar story on operating margins (2.79% v 7.76% v 6.00%). Whilst Costco could close the gap on its two main competitors, its hard to see how it warrants a price to earnings multiple of 24.30, when Target trades on a multiple of just 12.20, and Wal-Mart on 11.32. Costco will do well, but perhaps not the cheapest buy in the sector.
Apple Inc (NASDAQ:AAPL): Shares are trading at $389.97 at the time of writing, as against its 52-week trading range of $240.35 to $404.50. Earnings per share for the last year were $25.28, placing the shares on a price to earnings ratio of 15.43. It pays no dividend. Cramer’s Charitable Trust owns 200 shares.
As internet commerce levels rise, and mobile connectivity becomes more important, companies with market leading products will win out. Apple is one of those, with its iPad and iPhone products outselling rivals around the world. It lost some ground when it decided not to enter the eBook market some years ago, but its recent announcement of acceptance of Amazon’s (NASDAQ:AMZN) ebook’s has given its products renewed impetus in an expanding market.
Hewlett Packard (NYSE:HPQ) is in some way behind it. Industry standard operating margins, industry average price to earnings ratio, but in my view the company has been left in great shape by outgoing CEO Steve Jobs for further expansion in the years to come.
Freeport-McMoRan Copper & Gold (NYSE:FCX): Shares are trading at $45.81 at the time of writing, as against its 52-week trading range of $33.75 to $61.35. At the current market price, the company is capitalized at $43.42 billion. Earnings per share for the last fiscal year were $5.87, putting the shares on a price to earnings ratio of 7.81. It paid a dividend of $1.00 (a yield of 2.20%).
Freeport has enviable reserves of gold (36 million ounces), and silver (325 million ounces), as well as 121 billion pounds of copper. As debt concerns continue around the world, as well as creeping inflation and slowing economic growth, it is likely that the prices of the precious metals will continue to rise. The downside here is the highly industrial nature of copper.
The industry average price to earnings ratio is 16.57. It is hard to see why Freeport should trade at a multiple so far below this average, particularly when one considers its operating margin is higher than rivals such as Newmont (NYSE:NEM) at 43.06%, and BHP Billiton’s 44.32%. A good play on the metals markets.
Starwood Hotels & Resorts World (NYSE:HOT): Shares are trading at $43.48 at the time of writing, against its 52-week trading range of $37.88 to $65.51. At the current market price, the company is capitalized at $8.22 billion. Earnings per share for the last year were $2.54, placing the shares on a price to earnings ratio of 17.10. It paid a dividend last year of $0.30 (a yield of 0.70%). Cramer’s Charitable Trust holds 1800 shares.
Economic sluggishness is likely to hold back the progress of the hospitality business over the coming years. Room rates may suffer, and this in turn will put the brakes on earnings per share growth amongst the luxury hotel owners, who have a certain reliance on corporate business. It seems odd to me that Cramer would want to buy shares in this industry, but perhaps Starwood is the best of the bunch.
Compared to Hyatt (NYSE:H) and Marriott (NYSE:MAR), its operating margin of 11.31 % vs 2.86% and 6.74% is industry beating. Lower room rates may harm it less than its rivals. Its price to earnings ratio is far less demanding than Hyatt’s 73.33, and lower than Marriott’s 22.39. A better buy than its competitors, but one for the longer term, I feel.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.