By Ann McQueen
We look at five stocks that television investment personality Jim Cramer recommends investors buy. Our list includes a cigarette maker, a coffee products maker, a coffeehouse chain/specialty eatery, a home furnishings retailer, and a start-up car sharing service.
Phillip Morris International Inc. (PM) - Cramer likes it. Seeking Alpha contributor Dr. Osman Gulseven agrees. PM is a must-have for retirement portfolios. Do we agree?
Trading around $65.70, PM’s dividend yield is 3.9 percent. It has been paying a very nice dividend of $0.64 for the past four consecutive quarters, which is up from $0.58 for the prior four quarters. Its dividend history dates to 2008. Earnings per share is $4.37, and its price to earnings ratio is 15.05. The current evolution of the company was incorporated in 1987, though its history dates back to 1847.
Its quarterly revenue growth of 17.20 percent outpaces competitor British American Tobacco Plc (BTI) at 1.9 percent as well as the industry average of 6 percent. PM’s return on equity is very strong at 152.36 percent, but its debt to equity ratio is 326.66. BTI’s return on equity is more reasonable at 39.34 percent, and its debt to equity ratio is high at 121.83. BTI’s dividend yield is 2.9 percent, earnings per share is $5.14, and its price to earnings ratio is 16.73.
PM’s performance is worthy of its favor. In his Seeking Alpha article, Dr. Gulseven mentions PM’s yield, its favorable returns since January, its diversified business model and its fair price as reasons for supporting Cramer’s “Buy” recommendation.
Regulatory risk remains a reality for makers of tobacco products. For investors who don’t mind investing in an industry like tobacco with high social costs, PM looks like a reasonable choice. We’re not convinced it will work well in the long run in income portfolios, as it lacks the dividend track record we like to see.
Green Mountain Coffee Roasters Inc. (GMCR) – This stock is receiving a lot of attention from investment personalities for the huge gains it has made over the past year. Currently trading near $110 to $111, its 52-week range is $26.14 to $114.
GMCR does not pay a dividend. Its earnings per share is $1.03, and its price to earnings ratio is 107.11. Its quarterly revenue growth is 126.5 percent. Its gross margin is 33.04 percent, and return on equity is 12.18 percent. Its debt to equity ratio is 23.40. Its competitor Starbucks also found its way onto Cramer’s “Buy” list, and we discuss it below. The small-cap Peet’s Coffee & Tea Inc. (PEET) is currently trading around $53 a share. Earnings per share is $1.54, and its price to earnings ratio is still high at 34.23 but much more reasonable than GMCR. PEET’s quarterly revenue growth is much slower at 12.2 percent. Its gross margin is 21.19 percent, and return on equity is 12.45 percent.
GMCR’s rising earnings estimates, as discussed in this Motley Fool article, are impressive, however, we get scared when we look at the price tag.
Starbucks Corporation (SBUX) – This large-cap coffee maker continues to be adored for its growth rate, international presence, predictable income and brand recognition. This Seeking Alpha article looks at the economic moat SBUX has built around itself to insure its continued performance.
Currently trading around $37.90, it offers a dividend yield of 1.4 percent. Earnings per share is $1.52, and its price to earnings ratio is the most reasonable of the three coffee companies we mention. Its quarterly revenue growth is 12.3 percent. Its gross margin is 58.29 percent, and return on equity is 29.67 percent. Debt to equity is 12.66.
Of the three coffee makers presented here – GMCR, PEET and SBUX – we feel SBUX makes the cut for conservative long-term investors looking to diversify in this industry and sector. GMCR is the riskiest and, as mentioned above, seems absurdly overpriced.
Pier 1 Imports Inc. (PIR) – This specialty home furnishings retailer is expected to release quarterly earnings on or before Sept. 15. According to this Seeking Alpha article, analysts expect to see a drop in earnings per share compared to last quarter, but year-over-year numbers remain strong.
Its earnings per share is currently $0.90, and its price to earnings ratio is 12.34. It is trading around $11. Its quarterly revenue growth looks slow at 9.3 percent but is strong in light of the industry average of no growth. Gross margin is good 58.78 percent, and return on equity is 28.59 percent. Debt to equity – 2.21 – is minimal.
Competitor Bed Bath & Beyond Inc. (BBBY) offers higher earnings per share of $3.28 but is much more expensive per share, currently trading around $59. Its price to earnings ratio at 17.97 is higher, too. BBBY does not pay a dividend. Quarterly revenue growth at 9.7 percent only slightly outpaces PIR. BBBY’s gross margin is 41.42 percent, and return on equity is 21.62 percent. Debt to equity is not available.
Though PIR earned Cramer’s “Buy” recommendation, it has yet to prove its resilience in the face of another recession, as pointed out in this Forbes article about ETFs. We’re not ready to dive in.
Zipcar Inc. (ZIP) - This cool little car sharing start-up company that went public in April is currently trading around $19.60, up from its initial offering price of $18 and low of $17.03. Basic metrics such as yield, earnings per share and price to earnings ratio are not yet available, but according to a report for the quarter ended June 10, 2011, ZIP has increased its members to 604,571 from 576,914 for the previous quarter ended March 31. It has also increased its fleet to 9,490 cars from 8,216 over the same period. ZIP shows an adjusted EBITDA of $2,316,000 for the current quarter, which is up from ($1,885,000) for the previous. We like this company. For investors who are comfortable with risks inherent in startup businesses, and who have a place in their portfolios for it, ZIP is an innovative service that provides people with a cost effective option to buying a car in areas lacking public transportation. It has coolness appeal.