By David Goldstein
There are few legendary investors who can match Jim Cramer’s passion for investing. He does his homework on different stocks carefully. In this article, I looked at his charitable stock picks to see if there are any interesting ideas on a valuation basis. Here are some good dividend names that Jim Cramer loves and owns in his charitable trust and could be a possible home run in the near future. Cramer's other holdings were not nearly as promising as those in this analysis.
Sanofi SA (SNY) is a good growth opportunity in the healthcare space. Its main focus is on these different business segments: Diabetes solutions, human vaccines, consumer healthcare, animal health and innovative products. At present, its portfolio has around 55 projects in clinical development which focuses on these areas. Its financial track record appears steady. For the last 5 years, it has grown its revenues at 2.36% a year. This is lower than the industry’s growth of 8%. This may be due to lower than expected capital spending, which only grew by 6.59% a year. However, the company’s earnings per share grew by 20% a year during the same period. This goes to show that it has successfully contained operating costs. The average net profit margin is also at 14.35%, higher than the industry’s margins of 13%.
For the year, the stock has risen by 6%. This implies that its shares are trading at 8.35 times next year’s earnings and carries a 3.80% dividend yield. Meanwhile, Bristol-Myers Squibb company (BMY) trades at 15.14 times earnings and has a dividend yield of 4.20%. Pfizer (PFE) is valued slightly higher at 8.65 times earnings and carries a dividend yield of 4%. This kind of valuation of growth stock appears juicy to investors. It is possible that the market will re-rate this stock sooner.
Unilever (UN) is a global company that has a portfolio of strong franchises in the different niche product it operates. The good thing about being big and global is that it has the scale to move into new products and regions. This also translates to a steady financial performance. Its 5-year revenue growth of revenues and earnings per share is at 2.88% and 7.04% respectively. The stock has returned 8% for the year. It has recently announced that 2011 profitability will decline on higher input costs. It would take a while before its price increases will mitigate its higher input costs. Analysts noted that the drop in margins is expected and believes that the company’s revenue growth is ahead of its competitors.
The stock is currently trading at 14.43 times next year’s earnings and has a dividend yield of 3.50%. This is slightly higher compared to its peers. Case in point, Procter and Gamble (PG) is valued at 14 times earnings and carries a 3.30% dividend yield. Also Kraft Inc. (KFT) trades at 14.10 times earnings and has a dividend yield of 3.30%. Historically, the stock trades as high as 20 times earnings. If we use that earnings multiple, the stock could trade as high as $47 a share. This implies that there’s a potential 38% upside from the current levels. This may not seem bad as an investor collects an annual dividend.
El Dupont de Nemours & Co. (DD) or Dupont is a good diversified industrial company. Its acquisition of Danisco has given the company enough diversity to produce solid cash flows. For the year, it has generated around $4.96 billion. With a market cap of $44.83 billion, that’s a yield of 11%. The recent quarter has been exceptionally good as it beats the market’s expectations. It has also raised its full year per share earnings to $3.97-$4.05. Despite better than expected results, the stock is down by 2.73% for the year.
At current prices, the stock is trading at 11.17 times next year’s earnings and carries a dividend yield of 3.40%. This valuation does not make the stock dirt cheap. The reason is that the current market expectations appear low. However, this multiple is at the low end of the historical earnings multiple of 11 to 17 times. In contrast, Dow Chemical Company (DOW) is valued at 9.68 times earnings and has a dividend yield of 3.50%. On the other hand, FMC Corp. (FMC) trades higher at 12.75 times earnings and has a dividend yield of 0.70%. Moving forward, I believe Dupont will trade higher as it could easily beat market expectations.
Alcoa (AA) is another steady industrial stock to consider. The majority of its earnings come from the production and sale of aluminum. It operates in more than 30 countries across the globe. Its stock has fallen by 31% for the year. This is due to the uncertainties surrounding the global economies. Investors fear that industrial companies may decrease its spending on various projects. This will ultimately have an impact on Alcoa’s revenues.
The recent financial performance of the company is good. In fact, it has grown its sales by 18% for the year. This goes to show that expectations of a slowdown are overblown. The stock is currently valued at 10.29 times next year’s earnings and has a dividend yield of 1.10%. Competitor Kaiser Aluminum Corp. trades at 14 times earnings and carries a 2% dividend yield. Another peer, Century Aluminum Corp. (CENX) is valued at 12.51 times earnings. The short ratio is about 5.5% of the total market float. With the lack of aggressive buyers of the stock, it may take a while before Alcoa can match its all-time highs.
Schlumberger (SLB) is a good play on the long term prospects of oil. The company is an integrated project management and information solutions to oil and gas explorers. Its shares are currently down by 9.44% for the year. There are concerns in the past months that lower oil prices will affect the revenue visibility of the company. Given the rising oil prices, it expressed confidence about its good prospects for next year. I believe that investors should also look at Schlumberger's past record. It has grown its earnings by 14% a year over the last 5 years. It has also increased its earnings per share by 13% during the same period. This is quite good considering that the company operates in a volatile industry.
The stock is currently trading at 15.30 times next year’s earnings. It also carries a dividend yield of 1.30%. Most of its competitors are valued lower. Halliburton (HAL) is valued at 9.44 times earnings and has a dividend yield of 0.90%. On the other hand, Baker Hughes (BHI) trades at 10.28 times earnings and carries a dividend yield of 1%. The premium valuation is attributed to the scale of Schlumberger. Investors pick up bigger names once there’s an uptick in the industry. Investors are advised to slowly pick up its shares on pullbacks.