5 Stocks Cramer Suggests That You Buy On A Pullback

Includes: BGS, ESRX, ET, HD, MAR
by: Investment Underground

by Stephen Walker

Here are the five stocks that CNBC’s Jim Cramer said were worth buying on a pullback during an episode of Mad Money. My actionable analysis concludes that all of these are good buys on a valuation basis right now.

Starwood Hotels (HOT) - Disliked at $48.31; trading at $50.02 at the time of this writing.

Owner and operator of brands such as Westin, Sheraton, St. Regis and the W, Starwood Hotels reported a standout 3rd quarter. The company beat its revenue guidance by $6 million and EPS estimates by $0.02. In the lodging industry, REVPAR (revenue per available room) is a key metric for measuring a hotel’s operating margins and profitability. Despite a weak macroeconomic environment-- when travel and leisure is the first expense consumers cut, Starwood’s North American REVPAR increased by 8% and Europe’s increased by 7%. Strict cost controls paid off by creating a 140 basis point increase in Starwood’s GOP margins.

With a quarterly revenue growth of 9.3% and a 0.09% dividend yield, Starwood’s stock is a much better buy than competitor Hyatt (NYSE:H), which only has 2% quarterly revenue growth and offers no dividend. Starwood only trades at 15 times earnings compared to Hyatt’s 94.5 PE ratio. Starwood’s stock price rose to current levels on rumors of Thayer Lodging Group & Temasek holdings’ consideration to bid $65 per share for the company.

I think the company has several great years ahead of it. As boomers retire, they will increase travel expenditures-- including hotel bookings. Starwood should benefit from this growth market, from both U.S. and foreign retirees in Europe and Asia traveling to the U.S. Starwood has also done a good job of getting its properties into online booking streams.

Energy Transfer Partners (ETP) - Liked at $45.94; trading at $45.30 at the time of this writing.

This pipeline operator’s business model benefits from not being subject to the price of oil or affected by market volatility. Energy Transfer Partners acts as a toll-booth operator for oil companies who need to transport oil or natural gas. Energy Transfer Partners recently sold its propane operations, which are not as profitable, to Amerigas Partners (NYSE:APU) for $2.9 billion.

Cramer told investors to buy ETP when the stock falls to the point where the yield reaches 8%. Energy Transfer Partners currently yields 8.2%. The company has a 32.9% quarterly revenue growth and generates $1.31 per share. In June, ETP announced plans to invest $700 million for a 530-mile natural gas liquids pipeline in Texas, which shows investors that the company is positioning itself to take advantage of the impending natural gas boom in the United States.

ETP is like a tollbooth operator that collects a commission on the use of its pipelines. This is a cash flow friendly, steady business. Investors would be wise to take advantage of ETP's size and growth opportunities given the company's expanded footprint in Texas.

B&G Foods (NYSE:BGS) - Disliked at $20.79; trading at $20.78 at the time of this writing.

B&G Foods is a small packaged foods company that is proving that “slow-and-steady” can be a path to consistent growth. Cramer recommended buying B&G Foods on a downturn, but that downturn doesn’t appear to be anywhere in sight. The stock is up 10% from when Cramer had CEO David Wenner on Mad Money during the last week of October.

B&G Foods announced that it will acquire six specialty Culver brands from Unilever (NYSE:UL). Executives expect the acquisition to immediately benefit free cash flow and earnings. The company is also positioned to benefit from wheat prices trading at 3-year lows, thanks to a large harvest. B&G Foods offers a 4.2% dividend yield and has a 6.3% quarterly revenue growth rate. Based on recent acquisitions, past performance, and a 19.8 PE ratio, B&G Foods may be worth buying now.

We Like B&G's latest acqusition due to the growth opportunities, including Mrs. Dash seasonings. The European and Asian markets are increasingly experimenting with different flavorings. As a provider, Mrs. Dash has considerable growth opportunities that B&G can provide as it invests in this business.

Home Depot (NYSE:HD) - Disliked at $34.54; trading at $35.86 at the time of this writing.

The home improvement retailer's performance has been terrific, benefiting from recent storms around the United States and a poor housing market that has forced homeowners to renovate instead of buying a new one. Home Depot has taken strides in developing rapid deployment centers, which are aimed at improving supply-chain efficiency. The company has also seen strong sales of its emergency response products. RBC Capital upgraded the company to Outperform from Sector Perform. Scott Ciccarelli of RBC Capital believes Home Depot will outperform its rival Lowe’s (NYSE:LOW) over the next year.

Lowe’s has fallen behind Home Depot over recent years, and only recently decided to take a cue from it’s rival. Lowe’s will begin outsourcing labor, reducing costs through added technology and shutting down unproductive stores, but HD is now years ahead of it under initiatives started by CEO Francis Blake. Home Depot has quarterly revenue growth of 4.2% compared to Lowe’s' 1.3%. Lowe’s offers a 2.4% dividend while Home Depot has a 2.6% dividend yield. With Home Depot’s PE ratio of 17 and Lowe’s trading at 15.4 times earnings, it’s clear to see that Home Depot is the better buy.

Express Scripts (NASDAQ:ESRX) - Liked at $44.17; trading at $43.72 at the time of this writing.

Express Scripts’ recent pullback is great for investors because 2012 will be a strong year for the pharmacy benefit management company. Pfizer (NYSE:PFE) losing significant patents in 2012 will benefit Express Scripts, as well as the acquisition of Medco Health Solutions. Cramer’s charitable trust, Action Alerts Plus, owns shares of Express Scripts. Express Scripts is in an ongoing dispute to keep Walgreens (WAG) in the Express Scripts network. Express Scripts CEO George Paz said, “An agreement to settle would be better for everyone, but it looks less and less likely that it is going to occur.” Cramer thinks Express Scripts will be fine either way.

Ed Kelly, a analyst for Credit Suisse gave Rite Aid (NYSE:RAD) an Outperform rating, saying it could benefit from the mishaps between Express Scripts and Walgreens. Express Scripts trades at 18.62 times earnings, generates $2.54 EPS and has a quarterly revenue growth of 2.8%.

While the acquisition of Medco has been praised, I think the impending patent cliff for big pharma should get ESRX into a sustained growth mode. The trend I see is that big pharma has made major acquisitions and focused on European and Asian growth to maintain profitability, however this leaves the door open for ESRX and other operators to expand margins. On this note, ESRX is a long-term buy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.