By Larry Gellar
Today we’ll be taking a look at last month's most repeated picks from CNBC’s Jim Cramer. It’s been tough for many on Wall Street this past month, and Cramer is no different. Chipotle (NYSE:CMG) has fallen the farthest, losing over $32 per share. In fact, all 5 of the stocks listed below have lost value since being recommended. Let’s see what’s been causing this:
Google (NASDAQ:GOOG) – Recommended at $586.31; now trading at $570. That’s a decrease of about $22 per share, and some investors are now thinking about Google’s Android tablets. In fact, between the Apple (NASDAQ:AAPL) iPad and Amazon (NASDAQ:AMZN) Kindle Fire, there may simply not be any market left for Google’s product. (An interesting neutral perspective for Google can be found here.)
Trefis argues that while Google is clearly the leader of the search engine industry, it may actually be helping out its competitors by making search apps for them. Additionally, Google’s Internet pervasiveness may be attracting at least one lawsit. Specifically, Google is being sued in Germany for search results that pertain to a “Nazi-themed orgy.”
Important competitors for Google include AOL (NYSE:AOL) and Yahoo (NASDAQ:YHOO). Google has the lowest price/earnings to growth ratio, the highest price to sales ratio, and a price to earnings ratio between those two other companies. Google margins continue to be quite strong – those numbers are 65.24% gross and 32.76% operating. As for cash flows, the company brought in $3.432 billion during 2010 but had $3 billion flow out during the first 9 months of 2011. Recent outflows can be attributed to acquisitions that should help this company in the future.
Kimberly-Clark (NYSE:KMB) – Recommended at $70.28; now trading at $70. Kimberly-Clark remains a favorite among dividend investors, and the company’s quarterly dividend was recently declared. Shareholders of record on December 9 will receive 70 cents per share on January 4. More info about Kimberly-Clark’s dividends can be found at this Seeking Alpha article. That article argues that while some aspects of Kimberly-Clark’s dividend history are favorable, payout ratio and dividend growth could possibly use some work.
Also this month, the company was awarded the 2011 American Business Ethics Award under the large company category. Here’s what chairman and CEO Thomas J. Falk had to say:
We are honored to be recognized for our ethical business practices. Creating a culture where our employees are committed to driving business results ethically and doing the right thing for our communities and environment contributes directly to the success of our company.
Important competitors for Kimberly-Clark include Energizer (NYSE:ENR) and Procter & Gamble (NYSE:PG). Kimberly-Clark is in the middle for price to earnings and price to sales, but it is the most expensive using price/earnings to growth. Additionally, Kimberly-Clark margins are a bit weak, with gross margin at 31.41% and operating margin at 14.08%. Investors should note that this stock’s beta is only 0.34.
Corning (NYSE:GLW) – Recommended at $14.13; now trading at $14. As seen here, GLW passes some crucial tests including a low debt-to-capital ratio and high projected EPS growth. Corning has a pretty high market capitalization compared to the other stocks listed in that article, and its forward price to earnings ratio is about average.
Meanwhile, Corning Cable Systems has just secured a lucrative deal with the Australian government. Specifically, the division will provide optical fiber for the National Broadband Network initiative. Here’s what Rainer Dittrich, managing director for the segment, had to say:
Corning’s multi-dwelling unit solutions meet the rigorous installation challenges found within existing homes and businesses and allow for fast and easy deployments using both pre-connectorised and conventional splice solutions.
One important competitor for Corning is Sumitomo (OTCPK:SMTOY). That stock has nearly double the price to earnings ratio but a price to sales ratio that’s a fraction of Corning’s. Corning has significantly better margins though – those numbers 45.16% gross and 23.19% operating. Corning’s quarterly revenue growth of 29.5% is also quite impressive. As for cash flows, Corning brought in $2.057 billion during 2010 and $11 million during the first half of 2011. Paying down debt is one factor that’s led to the diminished cash flows.
Caterpillar (NYSE:CAT) – Recommended at $91.57; now trading at $89. Caterpillar is making some big moves in China, including an offer to purchase ERA Mining Machinery for nearly $900 million. In fact, the company remains quite aggressive in regions as diverse as India, Latin America, and the Middle East. The goal in China has focused on the mining industry, seeing as that country’s growing demand for energy has made many aspects of mining quite attractive.
Specific news for Caterpillar has centered on a deal with Broadwind Energy (NASDAQ:BWEN). That company will make special parts for Caterpillar’s own products, and Broadwind should be able to provide some high-quality pieces. Caterpillar’s earnings also came out recently, and the big news there was improvement in sales numbers. A surprise to some, North America actually turned out to be the most-improved region this past quarter.
Important competitors for Caterpillar include CNH Global (NYSE:CNH), Komatsu (OTCPK:KMTUY), and Volvo (OTCPK:VOLVY). Those stocks have lower price to earnings and price to sales ratios, although Caterpillar has the lowest price/earnings to growth ratio. Margins for Caterpillar have been about average – those numbers are 26.38% gross and 11.67% operating. Quarterly revenue growth has been a spectacuar 41.20% and beta for this stock is 1.94.
Chipotle Mexican Grill (CMG) – Recommended at $332.85; now trading at $310. Even cheaper now than when Cramer previously recommended it, Chipotle is one of the most rapidly growing restaurant chains in the U.S. Both the top line and bottom line for this company is increasing very quickly, and youth around the country especially enjoy its product.
That doesn’t mean everyone’s bullish on this stock. though. One convincing bearish argument for Chipotle suggests that the company is overvalued. Specifically, Chipotle may be overpriced compared to its opportunities for future growth, and more hedge funds own competitors like Starbucks (NASDAQ:SBUX) and Yum Brands (NYSE:YUM). A bullish case for for Chipotle can be found here, in an attempt to compare Chipotle and Panera Bread (NASDAQ:PNRA).
I ultimately conclude that Chipotle may offer better long-term growth. Besides Starbucks, Panera, and Yum Brands, McDonald’s (NYSE:MCD) is one more company that Chipotle competes with. Ratios like price to earnings, price/earnings to growth, and price to sales are all higher for Chipotle. McDonald’s also boasts better margins – those numbers are 39.58% gross and 30.49% operating. As for cash flows, $5.27 million came in during 2010 and $185 million came in during the first 9 months of 2011. Cash flows have recently improved due to less debt payments.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.