In today’s market there are many stocks available for us to choose from, and identifying and picking the best performing stocks is no easy task. To that end, Jim Cramer has recommended five stocks that he thinks are currently undervalued.
Here we will review and analyze five of these stock picks from Jim Cramer`s CNBC show, and see how they have been doing since August 22, 2011. Specifically, we have analyzed their insider cash flow data and value statistics for our readers:
Caterpillar, Inc. (CAT)
The shares of Caterpillar last traded at $85.45, within a 52-week range of $70.80 - $116.55. The share price has decreased by -0.70 (-0.81%) since August 22, 2011. This share pays a dividend of $1.84 (2.20%) with a payout ratio of 29%, and has generated a net income of $4 billion in the last 12 months. The earnings per share figure is $6.05 with a current price-earnings of 14.13 times. This year alone, the analysts have upgraded CAT's earnings growth rate by 43.60% and revenue growth rate by 36.70%.
In comparison, CNH Global (CNH) has been performing as well as CAT. CNH has generated earnings of $3.18 per share and has increased its quarterly earnings growth by 122.20%. This is 50% more than the increase CAT has generated. Currently CNH has a price-earnings ratio of 9 times and price-book ratio of 0.96 times.
With these results in hand, we disagree with Cramer`s pick, and instead prefer one of CAT’s competitors (CNH). Although CAT could be a good stock to buy now, it may still be no match for the CNH, which could prove cheaper and better.
Peabody Energy Corporation (BTU)
Peabody Energy recently traded at $47.38 within a 52-week range of $41.20 - $73.95. The share price of BTU has decreased by -1.29 (+2.79%) since August 22, 2011. It has made earnings per share of $3.28, and quarterly earnings growth has increased by 38.10%. The profitability of the company is positive with a net income of $893.40 million. Currently shares have a price-earnings ratio of 14.43 times and a price-book ratio of 2.46 times. Taking these things into account, BTU has increased its quarterly revenue growth rate by 20.90%.
ACI and CNX are comparable competitors of BTU. ACI has improved its quarterly revenue growth by 28.90%, while CNX increased it by 23.60%. Both of these companies have also generated a positive net income. ACI has made $161.18 million and CNX has made $449.38 million. The difference between these two stocks is that they have a higher price-earnings ratio, which could make them more expensive. ACI has price-earnings of 21.25 times and CNX has price-earnings of 21.91 times.
All three stocks are performing well, but our goal is to buy low and sell high, so I would agree with Cramer on this one.
Enterprise Products Partners (EPD)
The shares of Enterprise Products Partners last traded at $41.82, within a 52-week range of $36.00 - $44.35. Since August 22, 2011, the shares decreased by -0.96 (-2.30%). According to Cramer this stock was dirt cheap, but we would like to take a closer look and see if this is true. The stock pays a dividend yield of 5.90%, with a very high payout ratio of 199%, and its recent earnings per share came in at $1.75, while quarterly earnings growth has skyrocketed with an improvement of 701.70%. Not only that, but it has had a net income of $1.05 billion in the last 12 months. The quarterly revenue growth rate is also up by 48.70%.
I now turn to valuation. The price-earnings ratio is currently at 23.92 times and price-book is at 3.14 times. In comparison, competitors SE and WMB have made a negative net income in the last 12 months, and only SE could possibly attempt to match EDP. SE has generated earnings per share of $1.78 and a net income of $1.15 billion. It has a price/earnings ratio of 14.59 times and a price-book of 2 times. However, its revenue growth rate is 11.80% and earnings growth rate is 63.20%.
As the data has been analyzed, we agree that EDP is now trading dirt cheap. It might be a good idea to keep an eye on SE as well, since it is also growing but remains cheap. Nonetheless, EPD is the best bet due to its growth rate.
Philip Morris International, Inc. (PMI)
Philip Morris is a tobacco and cigarette manufacturer. It last traded around $69, off a 52-week range from $54.66 - $69.27. It has gained +0.79 (+1.16%) as of August 22, 2011, and pays a dividend yield of 3.7% with a payout ratio of 59%. It has a profit margin of 27.52%, and generates a high return on equity of 152.36%. The recent earnings per share figure was $4.37. There was an improvement in the quarterly earnings growth of 21.50%, and 17.20% in the revenue growth.
The price-earnings ratio is currently at 15.83 times, with a price-book ratio of 32.78 times. In comparison, competitor BTI has a higher price-earnings ratio of 17.42 times. However, its quarterly revenue growth has only increased by 1.90%, while earnings growth was a much higher at a rate of 22.60%. The overall cash flow for this company is also positive.
It is quite possible that PM will continue to rally as time passes. This stock is safe to buy and hold as long as it maintains its profitability for shareholders.
Ford Motor Company (F)
The shares of Ford Motor last traded around $10.50 off of their 52-week high of 18.97%. The share price has decreased by -0.01 (-0.09%) since Jim Cramer endorsed it on August 22, 2011. Jim said that the first stock to fall when going into a recession is car companies, largely because none of the big institutional money managers will buy Ford. This company is making a 755% return on its equity. Its quarterly earnings have decreased by -7.70%, but there was a small increase in its revenue growth rate at 1.30%.
Since there seems to be the potential for a double-dip recession, this stock has a fairly low price-earnings ratio of 6.12 times and a price-book ratio of 7.61 times. Unlike competitor TM, Ford seems to be selling at a cheaper price compared to its value. TM has a price-earnings ratio of 77.81 times and a price-book ratio of 1.67 times.
Ford is a world leading car manufacturer, and at the moment it is a cheap buy largely because of the hint of further recession and because big institutional managers are still on the sidelines.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.