In Agreement With Cramer On 7 Picks

Includes: AA, AAPL, BTU, CAT, HD, PM, SCCO
by: Efsinvestment

Jim Cramer is one of the most joyful stock pickers on the street. I have been examining Cramer’s Lightning Round stock picks from a fundamental point of view, explaining my opinions about them. Recently, Insider Monkey revealed a report on Cramer’s favorite stock picks, based on the number of recommendations in the last 30 days. There are several stocks that I totally agree with Cramer on. Among his favorite stocks, Alcoa (NYSE:AA), Apple (NASDAQ:AAPL), Peadbody Energy (NYSE:BTU), Caterpillar (NYSE:CAT), Home Depot (NYSE:HD), Philip Morris (NYSE:PM) and Southern Copper (NYSE:SCCO) offer the best deals. I have examined these stocks from a fundamental perspective, adding my O-Metrix Grading System where necessary. Here is a fundamental analysis of these stocks on which I agree with Cramer.


P/E Ratio

Forward P/E Ratio


EPS Growth Next 5 Years

O-Metrix Score













Peabody Energy












Home Depot






Philip Morris






Southern Copper






Data obtained from Finviz/Morningstar, and is current as of Sep 12.

Cramer does not want you give up on Alcoa, and he expects the company to turn around in accordance with the global economy. As of September 12, The New York-based aluminum maker was trading at a P/E ratio of 13.62, and a forward P/E ratio of 8.51. It paid a 1.04% dividend last year, while the profit margin was 4.0%.

Morningstar analysts estimate an annual EPS growth of 3.0% in the next five years. Interestingly, Finviz suggests 70% EPS growth for the next 5 years. Yahoo Finance states 36.4% EPS growth for the next 5 years. The stock lost almost 25% since January. I think it is trading at its dip right now. Surely, debt to equity ratio of 0.6 is a red flag, but Alcoa is one of the few basic materials trading below its book value. P/B ratio is 0.79. I think the stock is fairly priced for 10% EPS growth rate. If earnings grow higher than 10%, Alcoa will be a market-beater.

Apple has been one of Cramer’s favorite stocks for a long time. He has been bullish on Apple since 2006. Apple has been an outperformer, returning 17% since January, and 43% in a year. Nevertheless, the stock still has great potential. Based on my fair value estimate, Apple should be trading for at least $400.

Analysts estimate 18.2% EPS growth for the next 5 years, which is conservative given the 58% annualized EPS growth in the last 5 years. The stock has an O-Metrix score of 6.83. I was hoping to buy more Apple during the recent panic, but the stock showed a strong resistance at $355. Apple has a market cap of $350 billion as of September 12 close. If there is one company to hit $1 trillion market cap by 2020, I think it will be Apple. (Full analysis, here.)

Peabody Energy has a 4-star rating from Morningstar. The stock is trading with a trailing P/E ratio of 14.23 and a low forward P/E ratio 8.04. The current valuation level is well-below the 5-year average P/E of 22.8.

Out of 22 analysts covering the company 11 have buy, 5 have outperform, 4 have hold, and one have underperform rating. Its PEG ratio of 0.8 is below the norm of 1. Based on 10% EPS growth estimate, Peabody has an O-Metrix score of 4.82. Barclays Capital has a target price of $75, implying almost 70% upside potential.

Caterpillar lost almost 30% since its peak in May. Nevertheless, the stock has been an outperformer, returning 20% in a year. It is trading with a P/E ratio of 13.88, and a low forward P/E ratio of 9.24 as of September 12.

Morningstar gives 3-star rating to Caterpillar, stating that the company is the largest heavy-equipment manufacturer in the world with a competitive edge in the market. If you believe in economic recovery, Caterpillar is offering a deep value with a yield of 2.19%. Based on 10.3% EPS growth estimate, Caterpillar has an O-Metrix score of 5.4.

Home Depot is the world’s largest home improvement specialty retailer. The company has more than 2200 stores around the world. Home Depot has a 4-star rating from Morningstar.

While its trailing P/E ratio is 14.23, it has a forward P/E ratio of 11.80. Out of 29 analysts covering the company, 15 have buy, two have outperform, 11 have hold, and one has outperform ratings. With a profit margin of 5.23%, Home Depot offered 3% dividend yield last year. My FED+ fair value range for Home Depot is between $40.34 and $51.79 per share. The stock has 60% upside potential to reach the upper boundary of its fair value range. (Full analysis, here)

Philip Morris is a diversifed dividend pick for the ultimate retirement portfolio. The company offers a nifty yield of 3.88%. The stock has been an outperformer, returning 14.81% since January. Nevertheless, it is still trading with a fair trailing P/E ratio of 15.08, and a low forward P/E ratio of 12.62.

Out of 19 analysts covering the company 12 have buy, 2 have outperform, and 5 have hold rating. While I do not appreciate their business, I think Philip Morris is a safe stock to invest in.

Arizona-headquartered Southern Copper has operations in Peru, Mexico, and Chile. While the company is doing well, the stock lost almost 37% since its peak in January. Cramer is still bullish on the stock, stating

Southern Copper is smart speculation with a juicy seven percent yield, and it’s even smarter after the hammering it took today.

Southern Copper is trading with a trailing P/E ratio of 13.14, and a forward P/E ratio of 9.05. It offers a nifty yield of 7.09%. Analysts have extremely diversified opinion on Southern’s future. Out of 14 analysts covering the company, 7 have buy, 1 has outperform, 5 have hold, and 1 has sell rating. The top-line EPS growth estimate if 51.5%, whereas the bottom line EPS growth estimate is -5.7% for 2010. Annualized EPS growth estimate for the next 5-years is 16%. I totally agree with Cramer on Southern Copper. If analysts’ average EPS growth estimate holds, with an O-Metrix score of 10.41, Southern Copper can beat the market with a large margin.

Disclosure: I am long AAPL.