CNBC’s Jim Cramer recommended the following 5 stocks on the Monday, December 5th episode of "Mad Money." The following is my analysis of his recommendations on a valuation basis. I conclude that Cramer was right on UPS, CY, VY, MA and BRK.B.
United Parcel Service (UPS) - Trading around $71.
This global package handling and delivery company received a buy recommendation from Cramer, whose charitable trust owns UPS shares. UPS announced it will increase ground and air delivery shipping rates by a net average of 4.9% in 2012. Rival FedEx (FDX) announced a matching rate hike soon after. The higher rates will go into effect at the start of 2012. Consistently high gas prices have added to the company’s raw material costs. UPS has 8% quarterly revenue growth revenue while FedEx boasts an 11.3% QRG. Both UPS and FedEx trade close to 17.35 times earnings. UPS offers a 2.9% dividend while FedEx yields a measly 0.625%. UPS’ 12.4% operating margin nearly doubles that of FedEx’s 6.5%. UPS has a net income of $4.11B while FedEx reported a net income of $1.54B. UPS forecasted a solid holiday shopping season in which volume during the week before Christmas should be up 6.2%. FedEx said the period between Thanksgiving and Christmas should rise 12% year-over-year. Cramer thinks UPS is a good stock to own in both the short and long term. Cramer was right about UPS.
Cypress Semi (CY) - Trading around $18.
Cramer gave this maker of small, low-powered semiconductors a buy recommendation. Cypress reported a strong 3rd quarter, generating in $0.03 beat of $0.37 EPS. The company reported $300M in revenue, a beat by $34M. Cypress’ earnings was a 14.1% year-over-year increase. Cypress Semi is rapidly developing lower-cost chips to be used in a large number of touch screen devices. Now may be a good time to buy, as the company is only trading up 1% YTD. Cypress Semi yields 1.9%, something rare for semiconductor companies. Cypress is performing much better than its direct competitors. Cypress Semi has 14.2% quarterly revenue growth while Integrated Device Technology (ITDI) and Xilinx (XLNX) both failed to grow over the last quarter. Cypress trades at 25 times earnings and has a 15% profit margin. Cramer recommended owning Cypress Semi ahead of the holiday shopping season. Cramer was right about Cypress Semiconductor Corp.
Visa (V) - Trading around $96.
Cramer gave this global payments technology company a buy recommendation. Although the stock is trading up 38% YTD, Cramer thinks there is plenty of growth ahead for the company. Both Visa and its rival MasterCard (MA) are in the midst of a class-action lawsuit over price-fixing, yet trade higher for the year. Visa trades at 27 times earnings and yields close to one percent. Visa, among other firms including Google (GOOG) are taking the dive into mobile payments; it will initially cost billions to kick-start. The industry is poised to benefit from technological advances that would allow customers to pay for transactions without having to go the cash register. Visa has 12.6% quarterly revenue growth, which is only higher than American Express (AXP) 10.9%. Visa’s efficient operations and low overhead allows them to have a 39.7% profit margin. Contrary to what may appear to be, over 75% of the world’s financial transactions are executed in cash. This means years of growth for Visa. Cramer was right about Visa.
Mastercard (MA) - Trading around $373.
Cramer also gave Visa’s rival and fellow payment processing company a buy recommendation. This stock has really been on the run, as it is currently trading up 69% YTD. Cramer gave the stock a buy recommendation, despite its recent rise. This is because there is so much room for both Mastercard and Visa to grow well into the future. Mastercard reported that gross dollar volume of transactions grew 18%, up from Q2’s 16.4% increase. More and more retailers that were once closed-off to “everyday” card-issuers are warming up to them. Nieman Marcus, a high-end retailer known for only accepting its own store card and American Express, started allowing customers to use their Visas and Mastercards to make purchases. The primary reason that Cramer likes both Visa and Mastercard is the fact that they are not financial stocks, although many perceive them to be. Mastercard has a 27.3% quarterly revenue growth rate and trades at 21 times earnings. When compared head-to-head, Cramer prefers Mastercard because its growth is comparable to a C-student becoming a B-student instead of owning Visa, who would be an A-student that remains an A-student. Cramer was right about Mastercard.
Berkshire Hathaway received a buy recommendation from Cramer. This diversified holding company founded and ran by arguably the greatest investor of our time, is trading well off its highs and Cramer thinks now is a good time to buy. Despite some people claiming Warren Buffet is getting too old or may be losing his touch, Buffet has a put a stable of veteran managers in place that are dedicated to building long-term value. Berkshire Hathaway B-shares trade at 15.7 times earnings and is down 3.33%. Getting a long-term value play at this price will prove to be a defensive play against broad market volatility and should provide handsome returns when global markets recover. Some of Berkshire’s recent moves include acquiring a stake in IBM (IBM) and Intel (INTC) while disclosing that it owns shares of CVS Caremark (CVS) and DirectTV (DTV). Granted, Berkshire Hathaway is not the most exciting stock to own, but the market turmoil headlines provide more than enough excitement than many investors can stomach. When all is said and done, investors have far more to gain than to lose by owning shares in Berkshire Hathaway. Cramer was right about Berkshire Hathaway.