by Ann McQueen
The five stocks reviewed below received “Buy” recommendations from Jim Cramer, host of the television investment show “Mad Money,” on the Aug. 4 episode. We review them to see how they are faring since he issued his rating.
Apple Inc. (AAPL) – The computer giant opened at $380.44 the morning after Cramer’s “Buy” recommendation aired. This was up over $3 from the previous day. AAPL closed at a low of $353.21 on Aug. 8 and a high of $413.45 on Sept. 20 in the period that followed the rating. It is currently trading near $402. Its price has bounced around considerably over the past 52 weeks, ranging from $275 to $422.86. It does not pay a dividend. Earnings per share is $25.28, and price to earnings ratio is reasonable at 15.90. Return on equity is strong at 41.99 percent. Quarterly revenue growth is strong at 82 percent. Quarterly earnings are very nice, too, at growth rate of 124.7 percent. AAPL carries no debt and reports $28.4 billion in cash. Market capitalization is $372.54 billion.
Its smaller competitor, Research In Motion Limited (RIMM), with a market capitalization of $11.89 billion, is currently trading around $22.84. Its 52-week range is also characterized by price swings, ranging in this case from $20.41 to $70.54. It doesn’t pay a dividend, either. Earnings per share is $5.48, and price to earnings ratio is 4.17, which looks very modest. Return on equity is 33.49 percent. RIMM is showing declines in both quarterly revenue and quarterly earnings of 9.8 percent and 58.7 percent, respectively. RIMM also carries no debt and reports $1.15 billion in cash. Company officials attribute the declines in revenue and earnings to decreased demand for its older BlackBerries after releasing the newer BlackBerry7 smartphone in August.
Speculation is surrounding reports that Apple has cut fourth quarter iPad orders from Asian supply-chain partners by 25 percent. The cut could be due to a transition to the third version iPad. Management could be moving production to another market. Officials may also have intentionally over ordered to keep parts out of the hands of competitors. Some headlines focus on Amazon’s (AMZN) release of its $199 Kindle Fire tablet, which some say challenges the iPad. Most attention seems to remain on Apple’s release of the iPhone 5, which is set to happen on Oct. 4.
AAPL remains a very nice stock for more experienced investors who do not shy away from the high price or extreme price swings. Earnings and growth estimates are strong. It offers a solid brand image with noteworthy loyalty, and it has a huge market share.
Alcoa Inc. (AA) – Founded in 1888, this Dow 30 producer of aluminum and related products with market capitalization of $10.88 billion opened at $13.15 the day after the recommendation aired. It had closed previously at $12.94. In the weeks that followed, AA ranged in closing price from a low of $10.07 on Sept. 23 to a high of $12.80 on Aug. 31. It is currently trading near $10.25, and its 52-week range is $9.91 to $18.47. Its dividend yield is 1.1 percent or $0.12 a share. Dividend payment history dates back to 1962. Earnings per share is $0.87. Its price to earnings ratio is 11.66. Return on equity is 6.55 percent. AA is showing strong growth in both quarterly revenue and quarterly earnings of 27 percent and 136.80 percent, respectively. AA shows a lot of debt at $9.35 billion and cash of only $1.27 billion.
Its competitor Aluminum Corporation of China Limited (ACH), with market capitalization of $6.3 billion, is trading near $11.65. It has also shown a broad 52-week trading range of $11.16 to $26.80. Its dividend yield is 0.60 percent or $0.07 a share. Earnings per share is $0.20. Price to earnings ratio is 58.20. Return on equity is 1.51 percent. ACH shows growth in quarterly revenue of 22.8 percent, but quarterly earnings growth is not available. Its debt of $11.32 billion is excessive; total cash is $1.5 billion.
AA offers a dividend reinvestment plan. In March, it completed the purchase of TransDigm Group Inc., a manufacturer of fasteners used in the aerospace industry. AA is involved in a number of environmental assessments and clean-ups near several of its U.S. and international plants. The industry is characteristically cyclical and sensitive to global macroeconomic factors. It is also particularly susceptible to reductions in demand by China. Cost of operations can be adversely impacted by energy cost inflation and interruptions, raw materials cost inflation, currency exchange rates, competition, environmental regulatory risk, and credit risk.
AA is an established company, though it faces a number of potential threats to its performance. It is attractively priced. Investors interested in purchasing AA should do their homework, but it could serve a purpose under the right conditions.
Consolidated Edison Inc. (ED) – This diversified utility company with market capitalization of $16.59 billion opened at $52.79 the day after Cramer issued his recommendation, which was up a few cents from the previous day’s closing price of $51.74. ED ranged from a low of $50.41 on Aug. 8 to a high of $58.10 on Sept. 20 in the days that followed. It is currently trading near $56.80, which is toward the high end of its 52-week range of $47.51 to $58.79. ED is a 2011 Dividend Champion, having increased its payment for 37 consecutive years. Its dividend yield is 4.2 percent or $2.40. Earnings per share is $3.64, and price to earnings ratio is 15.60. Return on equity is 9.61 percent. ED shows a loss in quarterly revenue of 0.8 percent and a loss in quarterly earnings of 9.8 percent. It carries $10.69 billion in debt and only $492 million in cash.
Its peer American Electric Power Co. Inc. (AEP) is currently trading near $38.25. Its 52-week trading range is $33.09 to $38.99. It offers a dividend yield of 4.9 percent or $1.84. Its dividend history dates to 1970. Earnings per share is $2.99. Price to earnings ratio is 12.79. Return on equity is a little higher than ED at 10.54 percent. Quarterly revenue growth is 7.4 percent, and quarterly earnings growth is 158.8 percent. AEP carries $18.27 billion in debt versus $516 million in cash. Its market capitalization is $18.45 billion.
Zack’s has issued a “Short-Term Buy” rating on ED. Both ED and AEP could serve dividend investors well since they boast such nice yields and track records.
Federal Realty Investment Trust (FRT) – This real estate investment trust opened at $82.46 the morning after Cramer recommended it as a “Buy,” up a couple of dollars from the previous day’s close of $81.61. It ranged from a closing low of $75.31 to a closing high of $90.55 in the weeks that followed. It is currently trading near $83.50. Its 52-week range is $74.66 to $91.47. Its dividend yield is 3.3 percent or $2.76 a share. Earnings per share is $2.06 and price to earnings ratio is high at 40.56. Return on equity is 10.74 percent. FRT reports quarterly revenue growth of 2.5 percent and quarterly earnings growth of 11.7 percent. It is heavy with debt of $1.76 billion. It reports cash of $19.85 million. It develops and manages retail and mixed-use properties in the northeastern and mid-Atlantic regions of the U.S., California and Maryland. Its market capitalization is $5.24 billion.
Its competitor National Retail Properties Inc. (NNN), with market capitalization of $2.32 billion, is currently trading near $83.50. Its 52-week range is $74.66 to $91.47. NNN’s dividend yield is 5.8 percent or $1.54 a share. Earnings per share is $0.85. Price to earnings ratio is 31.57. Return on equity is 4.89 percent. Quarterly revenue growth is 6 percent, and quarterly earnings growth is 0.5 percent. It also develops and manages retail properties in the U.S.
FRT announced Friday that it will release its third quarter earnings on Nov. 4. Current headlines favor FRT for its dividend performance. Lower rents are pushing retailers into growth mode and encouraging them to open more stores. FRT faces risks associated with the real estate industry and broader macroeconomic factors, environmental factors at its properties that could impact costs, competition, and more. Its dividend is definitely a positive, but investors will pay a high price for it, based on its price to earnings ratio. We encourage potential investors to carefully evaluate FRT before adding it to a portfolio.
Kinder Morgan Energy Partners LP (KMP) – This large-cap company owns and manages oil and gas pipelines and storage facilities. The morning after Cramer’s recommendation, KMP opened at $67.46, up from $67.05 at the previous close. It has ranged from a closing low of $64.88 on Aug. 8 to a closing high of $71.66 on Sept. 20. It is currently trading near $69.65 with a 52-week range of $63.42 to $78. Its dividend yield is attractive at 6.6 percent, or $4.60 a share. Earnings per share is $0.58. Its price to earnings ratio is insane at 120.92. Return on equity is 17.66 percent. Quarterly revenue growth is 2.9 percent, and quarterly earnings growth is -36.20 percent. Debt is excessive at $12.13 billion. KMP shows $360.6 million in cash.
Its competitor Enterprise Products Partners LP (EPD) has a larger market capitalization of $34.42 billion. It is currently trading near $40.65, and its 52-week range is $36 to $44.35. It has an attractive dividend yield of 5.9 percent or $2.42. Earnings per share is $1.75 and price to earnings ratio is 23.24. Return on equity is 13.39 percent. Quarterly revenue growth is 48.7 percent, and quarterly earning growth is 701.7 percent. It also carries a lot of debt, reporting a total of $14.4 billion and $160.2 million in cash. It also owns and manages oil and gas pipelines and storage facilities.
Current analyst recommendation trends rate KMP a “Hold” with a few “Buys” and “Strong Buys.” Some industry professionals favor KMP for its dividends. Others believe that pipeline owners like KMP will remain somewhat protected from the negative impacts of macroeconomic downturns and lower oil and gas prices.
KMP has a very high price to earnings ratio, which is a red flag. Its most recent quarterly revenue and earnings numbers aren’t encouraging. We recommend potential investors proceed with caution and a lot of due diligence when considering KMP. Why not look more closely at EPD?
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.