By Larry Gellar
Today we’ll be taking a look at some stock picks made by Jim Cramer about a month ago. Our list includes companies involved with telecom, healthcare, entertainment, apparel, and Internet:
Verizon (VZ) – Recommended at $33.66. The stock is now trading at $35.25, and many shareholders are thrilled with the trouble that AT&T (T) is having in acquiring T-Mobile USA. In fact, AT&T is now fighting the Department of Justice’s complaint regarding the deal, and more details about AT&T’s claims can be found here. Essentially, AT&T claims that its customers will benefit from an acquisition of T-Mobile and that there are still plenty of other competitors including Verizon, Sprint Nextel (S), MetroPCS (PCS), Leap Wireless (LEAP), U.S. Cellular, Cellular South, and Cricket. As for news that’s actually about Verizon, investors have been keeping a close eye on the Motorola (MMI) Bionic. Initial sales appear to be poor, but the jury’s still out on this one. With a price-to-earnings ratio of 15.81, VZ is trading at quite a premium compared with AT&T, which has a price-to-earnings ratio of 8.02. Price/earnings to growth and price to sales for VZ are somewhat low, however. Those numbers are 1.82 and 0.93 respectively. Margins are strong too – gross margin is 59.69% and operating margin is 17.57%. As for cash flows, $4.659 billion came in for the company in 2010, while $428 million has flowed out in 2011.
Bristol-Myers Squibb (BMY) – Recommended at $26.46. Now trading at $29.16, this was another good pick by Cramer. The most important news for Bristol-Myers Squibb lately has actually been what’s been happening with rivaroxaban, a drug being put forth by Johnson & Johnson (JNJ) and Bayer (BAYRY.PK) as superior to warfarin. Regulators aren’t completely convinced, although rivaroxaban has for the time been trying to get the approval of an FDA panel. Bristol-Myers Squibb has also finished its acquisition of Amira Pharmaceuticals. This transaction should help Bristol-Myers Squibb in the areas of fibrotic and inflammatory diseases. Investors also eagerly await the company’s appearance at Morgan Stanley’s Global Healthcare Conference. Important competitors for Bristol-Myers Squibb include AstraZeneca (AZN), Merck (MRK), and Pfizer (PFE). All of these companies offer lower price-to-sales ratios and significantly lower price/earnings to growth ratios. BMY’s price-to-earnings ratio of 15.12 is about average for the industry, however. Margins also are about at the middle of the pack – gross margin is 73.36% and operating margin is 32.74%. The company has had some pretty large cash outflows lately: $2.650 billion flowed out in 2010 and $1.368 flowed out during the first half of 2011. Acquisitions and dividends have played a large role in this.
Walt Disney (DIS) – Recommended at $31.54, now trading at $31.11. Important news for the company has centered on a change it’s making with its retail items. Specifically, Disney will centralize its distribution efforts, which should improve future sales in general. Other significant news is ESPN’s recent deal with the NFL. In fact, the network will pay $15.2 billion to broadcast the league’s games for the next eight years. What this essentially translates to is Monday Night Football, although ESPN could even get some playoff games with the deal. As profitable TV shows become harder and harder for networks to find, we think ESPN’s move was a wise one. If there is one type of programming that will be lucrative for years to come, it is definitely the NFL. Now the question is what types of deals ESPN can make with the other big leagues such as MLB and the NBA. Important competition for Disney includes News Corp. (NWS) and Time Warner (TWX). All of these companies trade for similar price- to-earnings and price-to-sales ratios. Gross margin for DIS is somewhat low, although operating margin of 19.11% is better. Cash flows have been mixed as of late: $695 million flowed out for the year ending October 2nd, 2010, but $797 million flowed in for the 9 months after that.
Nike (NKE) – Recommended at $79.33, currently trading at $82.91. Despite that increase, at least one analyst is worried that this company will negatively affected by the current economic climate. Specifically, HSBC moved Nike’s rating down to neutral due to a predicted decrease in consumer spending. We’re a little more bullish though, and NKE does well in certain statistics. These include intangible assets ratio and tangible book value, and you can read more about those here. The company also recently declared a $0.31 quarterly dividend, which puts dividend yield at 1.5%. More bullish sentiment can be found at another Seeking Alpha article. Most significantly, the company’s operations are doing great and international growth should be quite strong going forward. Look for Nike’s business in China to do particularly well. Nike’s most important competitor is probably Adidas (ADDYY.PK), and that company offers lower price-to-earnings and price-to-sales ratios. Nike’s price/earnings to growth ratio is more attractive though – that number is 1.47. Nike also has stronger operating margin than Adidas, although Adidas has slightly better gross margin. As for cash flows, Nike’s aggressive stock repurchase program has been one factor leading to a $1.124 billion outflow in the past 12 months. With a beta of 0.92, this stock is neither very defensive nor very aggressive.
Baidu.com (BIDU) – Recommended at $140.79, currently trading at $143.63. News in the search engine industry has actually centered on Yahoo! (YHOO), as that company recently fired its CEO. Now Yahoo! may try to merge with AOL (AOL) or find someone to buy its business. Another possibility is that it spins off its Japan business. While Baidu may not be interested in Yahoo’s properties, the company is certainly on the prowl for acquisitions. Some speculate that this would come in the form of some type of video business. Baidu’s partnership with DELL has also sparked interest from investors. This would actually involve Dell’s mobile hardware, and Baidu would provide the operating system for those devices. Important competitors for Baidu include Sina (SINA) and Sohu.com (SOHU). Sina has negative trailing twelve month earnings, while SOHU’s price-to-earnings ratio is about a fourth of BIDU’s. Baidu’s price to sales is also quite high (31.03), although price/earnings to growth of 1.09 is more reasonable. With a gross margin of 80.51% and operating margin of 52.18%, many shareholders are excited about the future prospects of this Internet information provider. Additionally, quarterly revenue growth year over year is 78.4%. As for cash flows, BIDU brought in the equivalent of $546.55 million during 2010.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.