Thirty days ago, Jim Cramer made some recommendations on these five stocks, and now I will take a look at how they have performed since then. I approach each pick from a valuation standpoint and then make a determination as to whether Cramer made the right call. While his record in the recent past has been spotty, He is five for five here. Here is my analysis:
Health Care REIT Inc. (HCN): About a month ago, Jim Cramer recommended Health Care REIT. The stock was just coming off its 52 week low of $41.03 and has made three attempts at the $52 mark before retracing down to its lows, only to rise back to $50 where it stands today. This is a show of resilience in the face of uncertainty in the healthcare sector, if nothing else (see this article). There are two factors that are a little more certain pertaining to this stock. For one, the nation’s baby boomers are in the process of retiring, and increased demand for the company's services is a certainty. The second factor is that the company invests in real estate, which is at an all time low, relatively speaking (prior to 2008, it generally only moved up in value). Some pessimists might take this as evidence to support their misguided premises, but I take it as evidence that the company is well-positioned for the future. Although the ageing of our population does pose significant problems in the near term, history shows that these types of problems only produce more significant solutions. This country has a reputation for overcoming insurmountable odds that go back to the 1940s when problems were more numerous, far greater and technology was in its infancy. Jim's got this one right.
Herbalife Ltd. (NYSE:HLF): This stock has been range bound between $48 and $60 since Jim Cramer recommended it last month. Herbalife Ltd, along with its nearest competitor, Weight Watchers (NYSE:WTW), are benefiting from a global concern about obesity. Herbalife Ltd. has a PEG ratio of 1.28 and forecast earnings growth of 29.39%, while Weight Watchers has a PEG ratio of 1.4 and forecast earnings growth of 57.03%. This indicates that Herbalife Ltd. is a slightly better value at this point. It also might be a bette- run company in the long run, due to the fact that Weight Watchers is paying for a lot of its growth through heavy advertisement and other rising costs (see this article about disappointed investors). Herbalife Ltd has also been beating market expectations with several metrics relevant to the current quarter and for the full year. Herbalife now expects to earn 71 to 76 cents a share for this quarter, with analysts only expecting 69 cents a share. The quarterly results also beat expectations on higher sales across all markets and especially in emerging markets: revenue from Asia pacific rose 38% to $237.1 million and in Mexico 41% to $113.9 million. For the company as a whole, earnings rose to $.88 per share, yet analysts were only expecting $.75; revenue rose 28% to $879.7 million, while the expectation was $829.4 million. This article has more information on earnings surprises. So here’s another one for Mr. Cramer's plate.
Johnson Controls Inc. (NYSE:JCI): Since Jim Cramer recommended this stock last month, it has slowly dwindled from $32 per share to its 52 week low level of $24, but has recently recouped its losses and bounced back up to the $32 level, taking the stairs down and the elevator back up, so to speak. Johnson Controls has a PEG ratio of only 0.74 and a forecast earnings growth of close to 25% per year for the next four years, an extremely good indication the stock is well undervalued. In a recent article, Johnson Controls announced that it expects its profits in 2012 to increase by 20% in spite of weaker economic growth. The company also announced what analysts referred to as a very conservative guidance for the fiscal year that came in under already lowered expectations. Yet, the stock still rose 5.8% on the news. The company is keeping its profits up during this period of uncertainty by investing heavily in the high margin areas of production like its battery business. Johnson Controls eventually expects marginal improvements in all three of its businesses -- Automotive Experience, Power Solutions and Building Efficiency. With a recovery on the horizon, the company should do somewhat better than the forecast as automotive sales will increase and fuel prices will rise, creating demand for its power solutions and building efficiency products. Jim's got a nice play here on green technology and a very good value investment.
BJ’s Restaurants Inc. (NASDAQ:BJRI): Thirty days ago, Jim Cramer recommended buying stock in BJ’s Restaurants and since then, the stock has been hitting higher highs and lower lows to form a nice short term trend line. The volume on the stock has also been steadily increasing in recent trading, reinforcing the short-term trend. The analyst consensus for the stock is a hold with 11 of the 17 analysts that cover the stock recommending you hold it and the other six recommending a buy. The company's nearest competitor, Buffalo Wild Wings (BWLD) is the preferred restaurant of choice among the analysts, with 10 out of the 17 recommending it as a buy (here’s what they say). On a year over year basis, BJ's profits have doubled in the past five quarters, but the company's gross margins shrank 20.5% last quarter giving some analysts a case of indigestion. While the company's revenues grew 17.2%, its cost of sales also rose 57.9%. BJ’s Restaurant’s reported earnings last quarter, and its profits missed expectations. Analysts were expecting $7 million, but BJ’s saw a profit of only $6.4 million, up 10% year over year. Sunny side up, BJ’s Restaurants did report a revenue increase of 18% year over year. This topped expectations and sales at restaurants open at least a year ago were up by 6.5%. The company plans on opening 15 new restaurants next year so its rising costs aren't effecting its growth plans yet, but I'm sure Jim will be carrying around a roll of Tums in his pocket just in case.
Caterpillar Inc. (NYSE:CAT): Jim Cramer recommended CAT a little over a month ago, and the stock is just about where it started - around $90 per share after falling to the $70 level. John Deere (NYSE:DE), Caterpillar's closest competitor, has performed similarly in the same time period between $60 and $70 respectively. I thought we'd do a little comparison shopping and see what we come up with. Both companies have been hamstrung by the global slowdown in the construction industry, but John Deere less so, because of its branding in the farming industry. On the other hand, Caterpillar brand is known and well-established worldwide in the construction industry, although John Deere is making strides in this area by building a manufacturing plant in Brazil. Caterpillar has a PEG ratio of .62 and John Deere's is .77, indicating CAT is cheaper but by much. Caterpillar's forecast earnings growth is 61.81% for this year and 30.89% for 2012, almost doubling John Deere's 2011 forecast earnings growth of 38.46% and 11.97% (2012). Caterpillar has an estimated price to earnings ratio of 12.43 for 2011 and 9.50 for 2012 compared to John Deere's 10.75 (2011) and 9.6 for 2012. This gives Caterpillar another slight advantage and the winning stock for this year. But next year may be a whole new ball game if John Deere's Brazilian aspirations play out. See this article forA Brief History of Caterpillar's Returns. Jim made the right choice here.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.