By Stephen Walker
It’s time to go shopping because these are the 5 stocks CNBC’s Jim Cramer said were worth buying immediately. My actionable analysis concludes that, on the basis of valuation, Cramer was right on his picks. Here is my analysis:
Airgas (ARG) - Liked at $71.98; trading at $70 at the time of this writing.
This packaged gas distributor spent February 2010 through February 2011 fending off a hostile takeover bid from Air Products (APD). Air Products radically undervalued the company, initially offering $60 per share before reaching its highest offer of $70 per share. Airgas CEO Peter McCausland told shareholders the stock was worth more than that and promised to prove just that. Airgas reached $70 per share on its own, thanks to terrific earnings. The company delivered a $0.01 earnings beat on a $1.02 basis and increased same-store-sales by 10%, saying it was able to pass on higher costs to consumers. McCausland said safety equipment and services is up 17% because he approaches new customers with the service and then sells them gas and other products once he’s in. Air Products took a hit after missing its $1.51 EPS estimate by $0.01 and reported revenue of $2.61 billion, which missed by $20 million. Airgas trades at 21.46 times earnings and yields 1.7%. Cramer is right on this name.
CareFusion (CFN) - Liked at $25.17; trading at $24 at the time of this writing.
This medical technology company specializes in helping hospitals save money, which would prove beneficial to the bottom line as increasing medical costs are hurting already hard-hit consumers and the uncertain effect the recent health-care reform will have. CareFusion delivered $0.33 earnings per share, which were in-line with estimates while reporting a 4% increase in year-over-year revenue of $844 million, beating estimates by $4 million. Competitor Baxter International (BAX) reported a stronger quarter, despite being heavily exposed to European sales. Baxter reported revenue of $3.48 billion, a 8.1% YOY increase, beating estimates by $70 million. Baxter just announced the European launch of an IV nutritional solution for preterm newborns. Baxter has a quarterly revenue growth rate of 7.9%, compared to CareFusion’s 3.7%. Baxter’s PE ratio is also lower than CareFusion’s, 14.26 and 22.85 respectively. Baxter is the better company on paper, but CareFusion has more room to grow, which makes it a stock to own. Cramer was right.
Google (GOOG) - Liked at $612.34; trading at $606 at the time of this writing.
Cramer said Google has one of the hottest charts in tech with the fundamentals to match. Cramer’s co-worker at TheStreet.com said if the stock can break out of the $608 per share ceiling, there’s nothing to stop it from running to $625 over the next 6 months. Well, Google broke through that ceiling, closing at $612.34 on Tuesday. Google’s gross revenue grew 33% year over year to $9.7 billion. Aside from an excellent quarter, Google practically owns the pay-search business, the Android software platform is experiencing massive success and the company operates in mobile, social media and the cloud. Growth in that tri-fecta has led to the tech company’s accelerated revenue growth. Google’s recent foray into the daily deals business will put added pressure on established competitors like Groupon (GRPN) and Living Social. Google’s dominance in the search space will allow for rapid exposure of its daily deals business. For investors with limited capital, buy Google with deep-in-the-money calls to take advantage of the predicted run. Cramer was right on this name, but it's a better play for options investors.
Verizon (VZ) - Liked at $37.52; trading at $37 at the time of this writing.
This telecom has been slowly, but steadily, been stealing market share away from rival AT&T (T). The company’s ability to shed some its landline business is what separates it from Century Link (CTL), although Cramer likes them both. While Cramer’s charitable trust owns shares of AT&T, Cramer also likes Verizon for many of the same reasons. Both companies offer a more than 5% dividend and both are striving to improve networks for customers. AT&T has run into a snag while attempting to takeover T-Mobile (OTC:DTEGY) for $39 billion. Antitrust issues have caused the U.S. Attorney General to put a hold on the deal. Sprint (S), who is all but out of the wireless fight, is in support of the blockade. Meanwhile, the other wireless carriers (Verizon included) feel the deal will benefit customers. Verizon has quarterly revenue growth of 5.4% and trades at 15 times earnings. Cramer was right.
Wal-Mart (WMT) - Liked at $59.32; trading at $58 at the time of this writing.
Coming into the holiday season, retailers with quality merchandise and pricing power are in a position to benefit. Wal-Mart is amongst those retailers. Cramer said the stock would be a “launching pad” at $55 per share and that it should be bought on any pullback. Unlike other big-box retailers, Wal-Mart doesn’t stand to be hurt by online retailers attempts to offer deals like free shipping to entice customers because Wal-Mart has an online marketplace with significant exposure. The ability to match other retailers offers also makes it a front-runner for Black Friday success. The biggest competition from the online space will come from Amazon (AMZN), whose reputation has been built upon offering great deals on desired products with reasonable shipping rates. Brick-and-mortar competition will come from the likes of wholesaler Costco (COST), who also has some pricing power. Costco has a 16.8% quarterly revenue growth rate compared to Wal-Mart’s 5.4%, but Wal-Mart is only trading at 12.42 times earnings and yields 2.4% whereas Costco trades at 25.29 times earnings and only yields 1.13 %. Cramer was right on WMT's valuation.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.