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By Sir Matthew Smith

On his December 5th show, Jim Cramer gave us his five ‘Stocking Stuffer’ stock picks for Christmas, stating: “In a market that’s driven by news out of Europe, you want companies that you can count on no matter what’s happening across the Atlantic.” But the question is, will these stocks really drive value in your stock portfolio and continue to grow in value, despite the ongoing market volatility that has been triggered by the European sovereign debt crisis?

In this article, I will apply my unique analysis and determine whether you should really be buying these stocks and if they will truly give your stock portfolio some Christmas cheer. As you will see from my analysis, I agree with four of Cramer's recommendations; I rate Home Depot, Tractor Supply Company, Deckers Outdoor Corporation and McDonald's as buys, but I disagree on Phillips-Van Heusen.

Home Depot Inc (NYSE:HD)

Home Depot is a home improvement retailer that operates 2,246 stores across the U.S., Canada, Mexico and China. Its target market is the ‘do it yourself’ (DIY) and ‘do it for me’ (DIFM) home improvement market, selling a wide range of building materials, home improvement products, and lawn and garden products, as well as installation programs for products, such as carpeting, flooring, cabinets, countertops, and water heaters. Due to its target market, its overall performance should be affected by the drop in discretionary consumer spending arising from the current recessionary environment in the U.S. November's U.S. unemployment rate is at 8.6%, triggering further negative consumer sentiment. So let’s find out why Cramer has selected this stock.

Our first stop is the numbers for Home Depot. It currently has a market cap of $61 billion, with a 52 week trading range of $28.13 to $40.93. It is currently trading near the 52 week peak at around $40, with a price to earnings ratio of 17. It has quarterly revenue growth of 4%, a return on equity 20% and pays a dividend with a yield of 3%. For the third quarter 2011, Home Depot reported a 17% decrease in earnings of $17 billion, down from $20 billion for the second quarter. It also saw a 31% drop in net income for the third quarter, reporting net income of $934 million, down from $1.4 billion in the second quarter. In addition, its balance sheet weakened, with cash and cash equivalents decreased in the third quarter 2011 by 15% to $2 billion, down from $2.6 million cash in the second quarter.

So far the numbers for Home Depot have not looked particularly impressive. So now we will see how the company stacks up against its competitors. One of Home Depot’s competitors is Lowe’s Companies Inc. (NYSE:LOW), which has a market cap of $31 billion and is currently trading at around $25, with a price to earnings ratio of 18. It has quarterly revenue growth of 2%, a return on equity of 10% and pays a dividend with a yield of 2%. This data indicates that Home Depot is outperforming Lowe’s. From a broader industry perspective, Home Depot’s quarterly revenue growth of 4%, versus an industry average of 3%, and a return on equity of 20%, versus an industry average of 16%, indicates that it is outperforming many of its competitors.

After analyzing the numbers, it is clear why Cramer has recommended this stock. Home Depot has consistently generated earnings growth since 2009, has a solid return on equity of 20%, which along with its solid profit margin of 5.4% are the highest for the industry. Overall it has to be the strongest performing stock in its industry segment and despite the current economic head winds stirred up by the European sovereign debt crisis, it should continue to deliver stockholder value. It also pays a handy dividend of 1.16 cents, which is an attractive yield of around 3%. Finally, its earnings yield of 6% compares favorably with current bond yields, indicating that at the current trading price it is relatively cheap.

Tractor Supply Company (NASDAQ:TSCO)

Tractor Supply operates 1,043 retail farm and ranch stores in the United States. It sells a selection of merchandise, including equine, pet, and animal products; hardware, truck, towing, and tool products; seasonal products such as equipment, gifts, and toys; as well as maintenance products for agricultural and rural use. Again, this is another company that should see its earnings affected by the current economic downturn as it is reliant upon discretionary consumer spending to grow earnings.

Tractor Supply has a market cap of $5 billion, with a high price to earnings ratio of 26. It has a 52 week trading range of $45.25 to $78.22 and is it currently trading close to its 52 week high at around $72. Tractor Supply has seen a 21% decrease in third quarter 2011 earnings, reporting $978 million, down from $1.2 billion for the second quarter. It reported third quarter net income as $42.7 million, a 53% decrease from the second quarter net income of $91.2 million. These figures indicate that Tractor Supply is struggling to maintain both earnings and net income in the current economic environment. In the last quarter, its balance sheet has weakened, with cash and cash equivalents dropping by 43% to $118.5 million, from $207.4 million in the second quarter 2011. Although much of this decrease can be attributed to its 2011 share repurchase program.

Tractor Supply stacks up well against its competitors, outperforming one of its competitors, Inchcape Plc (OTC:IHCPF). Inchcape has a market cap of $1.3 billion and is trading at around $288, with a price to earnings ratio of 966. It has quarterly revenue growth of -5% and a return on equity of 11%. Compared to its industry competitors, Tractor Supply’s quarterly revenue growth of 18%, versus an industry average of 6%, and a return on equity of 23%, versus an industry average of 13%, indicates that it is outperforming many of its competitors.

When we dive deeper into Tractor Supply’s performance indicators, we start to see an attractive and well-managed business that is delivering a solid return on equity of 23%, the sixth highest in its industry segment. For a specialty retailer, it is also generating a solid profit margin of 4.4%, which is the fourteenth highest in its industry segment. The company has an earnings yield of 4%, which I believe in comparison to current bond yields shows it is undervalued at current prices. All of these solid performance metrics show a company that, based on current earning yields, is undervalued and well positioned to take advantage of any uplift in the economy. For these reasons I can see why Cramer has picked the stock.

Deckers Outdoor Corp (NYSE:DECK)

Deckers designs, manufactures, and markets outdoor and casual lifestyle footwear, clothing and accessories. These are sold primarily to specialty retailers, department stores, outdoor retailers, sporting goods retailers, shoe stores, and online retailers. Deckers’ earnings and income are both dependent upon consumer demand and high discretionary spending. Both of which have been affected by the current recessionary economic environment.

Deckers has a market cap of $3.3 billion, with a 52 week trading range of $71.18 to $118.90, and it is trading at around $86, with a price to earnings ratio of 21. Deckers has shown significantly stronger performance in the third quarter 2011, with a 169% increase in earnings, reporting $414 million up from second quarter earnings of $154 million. Its third quarter 2011 net income was $62.5 million, a 952% increase from the second quarter net income of -$7.3 million. Despite the difficult economic climate, Deckers has performed very strongly in the last quarter. The company portrays a debt-free balance sheet, with cash and cash equivalents of $90.4 million, which is a 74% drop from $352 million in the second quarter. The key reason for this drop in cash was due to both a large increase in accounts receivable and increased inventory.

Deckers stacks up well against its competitors, outperforming Wolverine Worldwide Inc (NYSE:WWW), which has a market cap of $1.7 billion and is trading at around $35, with a price to earnings ratio of 14. Wolverine has quarterly revenue growth of 13% and a return on equity of 23%. From an industry perspective Deckers is also outperforming many of its competitors, with a quarterly revenue growth of 49%, versus an industry average of 9%, and a return on equity of 26%, versus an industry average of 20%.

When we dive deeper into the numbers, Deckers becomes an even more compelling investment. It has solid earnings per share of $1.59, the highest for its industry segment, along with a healthy profit margin of 15%, which is the third highest in its industry segment, and its solid return on equity of 26% is the fourth highest. I also believe that Deckers at current prices is relatively cheap with an earnings yield of 4%, when compared to bond yields. For all of the reasons above, I think that the stock screams buy and I believe that Cramer is on the money with picking Deckers. I would have no hesitation in taking this stock for a spin and adding it to my portfolio.

PVH Corp (NYSE:PVH)

PVH designs and markets branded dress shirts, neckwear, sportswear, footwear, and other related products worldwide. It licenses Calvin Klein Collection, ck Calvin Klein, and Calvin Klein brands for sportswear, jeanswear, underwear, fragrances, eyewear, men’s tailored clothing, women’s suits and dresses, hosiery, socks, footwear, swimwear, jewelry, watches, outerwear, handbags, leather goods, home furnishings, and accessories.

It has a market cap of $4.6 billion, a 52 week trading range of $51.15 to $76.04, and it is currently trading at around $67, with a price to earnings ratio of 17. The numbers for PVH do not look that impressive. The company reported a 3% decrease in earnings for the third quarter 2011, reporting $1.3 billion- a drop from $1.4 billion- for the second quarter. Interestingly though, PVH was able to increase third quarter net income by 16% to $67 million, from $58 million in the second quarter. PVH also reported in the third quarter a weaker balance sheet with cash and cash equivalents declining by 2.5% to $288 million, from $295 million in the second quarter.

When compared to its competitors, PVH is not performing particularly strongly and it is being outperformed by Ralph Lauren Corporation (NYSE:RL). Ralph Lauren has a market cap of $13 billion and is trading at around $139, with a price to earnings ratio of 21. It has quarterly revenue growth of 24%, a return on equity of 20% and pays a dividend with a yield of 1%. PVH is also failing to perform when compared to its industry. Its quarterly revenue growth of 9%, versus an industry average of 15%, and a return on equity of 11%, versus an industry average of 12%, indicates that it is being outperformed by a number of its competitors.

I find it difficult to understand why Cramer has chosen this stock, not only has it seen a third quarter decrease in earnings, but it is being outperformed by many of its competitors. It is also lagging behind many of them with its profit margin of 7%, which is the fifteenth highest in its industry. PVH is also carrying a substantial amount of debt on its balance sheet, totaling $2 billion, with a high debt to equity ratio of 76%. This indicates the company is heavily leveraged and may find it increasingly difficult to increase net income in a sluggish economic environment. I also don’t like a company that has a high debt to equity ratio combined with negative net tangible assets, which total -$1.9 billion. When all of this is considered in conjunction with PVH’s weak return on equity of 11.13% and insignificant dividend yield of 0.2%, it shows a company that will find it difficult to deliver improved earnings and net income. PVH will not be able to deliver increased stockholder value in a sluggish and volatile economic environment.

McDonalds Corp (NYSE:MCD)

McDonalds’ operates 32,943 restaurants in 117 countries worldwide as a foodservice retailer. McDonalds’ restaurants offer food items, soft drinks, coffee, desserts, snacks, and other beverages. It has a market cap of $100 billion, a 52 week trading range of $72.14 to $98.95 and is currently trading at close to its 52 week peak at around $98, with a price to earnings ratio of 19. It has quarterly revenue growth of 14%, a return on equity of 40% and pays a dividend with a yield of 3%.

Despite the difficult economic environment, McDonald’s has continued to grow both earnings and net income. It reported a 4% increase in earnings for third quarter 2011, reporting $7.17 billion, an increase from $6.9 billion for the second quarter. Net income increased by 7%, with McDonalds reporting $1.51 billion for the third quarter, an increase from $1.41 billion in the second quarter. It has also seen an improvement in its balance sheet, with a 15.5% increase in cash and cash equivalents, reporting $2.4 billion for the third quarter, an increase from $2 billion for the second quarter.

When compared to its competitors, McDonalds does not appear to be performing that strongly. It is being outperformed by YUM Brands Inc. (NYSE:YUM), which operates 37,000 restaurants in 110 countries and territories under the KFC, Pizza Hut, Taco Bell, Long John Silvers, and A&W All American Food Restaurants brands. YUM has a market cap of $26.4 billion and currently trades at around $57, with a price to earnings ratio of 23. It has quarterly revenue growth of 14%, a return on equity of 67% and pays a dividend with a yield of 2%. However, McDonald’s is one of the best performing companies in its industry with quarterly revenue growth of 14%, versus an industry average of 9%, and a return on equity of 40%, versus an industry average of 30%.

On further analysis McDonald's is the perfect defensive stock for volatile markets and a sluggish economy. It sells moderately-priced meals that offer the convenience of a full service restaurant, but are still within reach of many Americans. So while many consumers are cutting back on more expensive restaurants, McDonald's is still seen as affordable. It has also increased its penetration of emerging markets, with a focus on expanding in Asia, South America, Africa and India. These markets are generating in excess of 14% of McDonald's total earnings. The company has also shown a dynamic ability to add to its food and beverage lines to cater to new and changing consumer demands, with the successful launches of new beverages, including coffee that puts it on consumers' minds like never before. All of this is combined with a very healthy profit margin of 21%, which is the highest in its industry segment. McDonald’s also pays a handy dividend of $2.80, which equates to a yield of 3%. When all of this is considered, it is clear that Cramer is on the money with McDonald’s.

Source: 5 'Stocking Stuffer' Stocks From Mad Money's Jim Cramer