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The holiday shopping season has come and gone. When it comes to stock selection, at least, the desire to find a deal is stronger than ever. A recent analysis of our portfolio revealed that we own more than a couple of good stocks, including one of our newest additions in Bristol Myers Squibb. However, we don’t necessarily rush to put them all in our cart. Not all good deals are created equal. What we found Our analysis – known as a “screen” in Wall Street parlance – started with all 35 stocks in the portfolio. The goal was to narrow the list down to stocks that met certain evaluation criteria and then apply a layer of fundamental analysis to identify those that we felt offered value worth pursuing. These are the three characteristics that we discovered for: 1. Its current price-to-earnings ratio, based on 2025 earnings estimates, is below its average P/E over the past five years . 2. Its current forward P / E is below that of the S & P 500 combined, meaning that they are cheaper on an absolute basis. 3. They are also cheaper than the S&P 500 on a growth basis. To calculate this, we divided the P/E by the three-year annual earnings growth rate estimate, according to FactSet earnings consensus estimates. This gives us the metric known as the PEG ratio. We did this for each stock in the portfolio and the S&P 500. Note: FactSet has not yet populated a 2027 earnings estimate for the S&P 500. Therefore, to generate three-year compound annual growth, we assumed a 7, 3% annual profit growth for the S & P 500 in 2027. We used 7.3% because this is the annual average. increase realized between 2012 and 2023, the last full year of earnings that we currently have. We found eight stocks in the portfolio that meet the above criteria: Bristol Myers Squibb, Coterra Energy, DuPont, GE Healthcare, Constellation Brands, Alphabet, Nextracker, and Stanley Black & Decker. Here’s a look at it below and where it stacks up in each metric. Just looking at those numbers and concluding that all eight stocks are immediate buys is a very quantitative – and perhaps wrong – way of thinking about things. Sometimes, good stocks are good for a reason that will limit their potential upside, which means they are what is known as a “value trap.” That’s why we took a more qualitative approach to refine the list, selecting those that are not only good, but, in our view, also have strong fundamental reasons for ownership in the new year. Where we stand Here’s a closer look at our thoughts on all eight stocks. Bristol Myers Squibb: As our second most recent addition to the portfolio (Goldman Sachs is the newest), we clearly like the name in 2025. Although Bristol Myers has to navigate a big patent cliff ahead , our view is that Wall Street is underestimating the side. the potential for moves made by management to reload its drug pipeline, most notably its $14 billion takeover of neuroscience company Karuna Therapeutics last year. The lead asset acquired by Karuna recently scored FDA approval and is sold under the name Cobenfy. It is an antipsychotic drug used to treat schizophrenia, a notoriously difficult disease to crack. Cobenfy’s prescriptions will be key to driving the stock in the year ahead, and we expect to see upward revisions to sales estimates. Coterra Energy: We debated whether to add to this stock before our December monthly meeting, but decided to do so. US exports of liquefied natural gas, which drive demand for the commodity and therefore support prices, are key to the stock. Unfortunately, the Biden administration’s pause on new LNG permits appears to have had a negative impact this year, and it’s too early to tell what President-elect Donald Trump’s policy changes will mean for commodity prices. prime. However, we are invested in Coterra because it benefits from the growing demand for data center energy. We also like to keep an energy stock in the portfolio as a hedge. The idea is that higher energy prices weigh on other sectors of the market, but benefit producers like Coterra. DuPont: With the split into three separate companies expected to be completed by the end of 2025, DuPont is certainly a stock to watch. The shares are currently trading at a discount, but we argue that the sum of DuPont’s shares are worth more on their own than as a combined company. So patient investors should be rewarded as we approach the official separations of its water and electronics businesses. Our price target of $100 per share, derived from our sum-of-the-parts analysis, represents material upside to current levels of approximately $77. GE Healthcare: As far as the company’s medical imaging solutions are concerned, no we may not be too optimistic about the stock because of its exposure to China. Until China turns around or becomes so small that it is not important to earnings, we cannot justify putting new money to work in GE Healthcare. Of course, the flipside is that the current discount in the share price could make this a spring spiral if China starts to turn the corner. Until then, though, we’re likely looking at something of a value trap. Constellation Brands: The possibility of higher tariffs on Mexican imports is a risk under another Trump presidency. However, the weakening we have seen in the Peso serves as a compensation, and the large Constellation brewery under construction in Mexico will be paid for at the end of next year – and from there, we can see an inflection of the flow of cash that benefits shareholders via. dividend increases and share buybacks. Yes, we have seen younger consumers tend away from alcoholic beverages in recent years, but beer remains a growth area in the category. The disposal of its struggling wine and spirits portfolio represents another potential catalyst on the horizon. Alphabet: The sentiment has definitely improved on what has been the ugly duckling of the “Magnificent Seven” for most of the past year. Among the reasons for the turnaround are the resiliency of Google Search, a strong momentum in YouTube and Google Cloud, and the upside potential from Waymo, which has proven to be a leader in the autonomous vehicle space. Put it all together, and Alphabet enters 2025 on a strong footing, especially given that its shares are still attractive on earnings despite their 14% advance in December. However, it is not our style to pursue such moves. We maintain our 2-equivalent rating on the name as we await further clarity on the company’s AI monetization strategy. Nextracker: This is another tough one that we discussed before the Monthly Meeting because of how cheap it is; the results of our screen underline that. However, the fundamental case for adding it to the stock is blue. Although Nextracker launched an American product and Trump is not an enemy of solar energy, he is not exactly its biggest supporter. Rather, Trump signaled that when it comes to energy, his view is “drill baby, drill.” So for now, it will be difficult for Nextracker to make a sustained move higher, especially given how big its earnings can be. In other words, with Trump back in the White House, we struggle to see a catalyst that makes this worthy of new money. Stanley Black & Decker: While we feel that the shares are now too low to sell – and we receive a dividend payment of 4% at current levels – we do not want to buy this as CEO Don Allan told us himself, in a recent appearance in “Mad Money”, which does not expect that 2025 will see much growth. Add in the Federal Reserve’s updated thinking that interest rates will be higher for longer, and it’s hard to be too optimistic about it, although our screen shows it looks attractive based on the Wall Street estimates for earnings growth. Our current rating of 3 means we want to wait for strength before selling. Bottom line Bristol Myers Squibb, DuPont and Constellation Brands are the three stocks for members to take a closer look at as we enter 2025. Alphabet would be the fourth name to keep an eye on, especially if the shares they are consolidating around current levels. The valuation of the shares is attractive, but chasing the moment is not our style, and we prefer to sell in big moves as we saw at the end of the year. Indeed, we booked some profits in Alphabet earlier this month. Just because we don’t recommend buying these other stocks right now doesn’t mean ignoring them completely. It is still worth watching them because they are already good, which means they have the potential to rally on any positive updates. In the same way, we have removed some stocks that have an attractive screen on a valuation basis due to fundamental problems, such as higher rates for longer, investors should keep in mind that the stocks that were ” expensive” based on our criteria can still offer a strong potential. for upside. In other words, the 27 names in the portfolio that did not pass all three stages of the screen have their own reasons for being there. In some cases, a stock might look expensive based on earnings estimates for the next 12 months, but it is much better in years ahead. In other cases, that’s just what happens to the stocks of best-in-breed companies in a bull market – they trade at premium valuations. Costco is a great example of this, as are the rest of the stocks on our top stocks list. None of those 12 stocks passed this screen, but the reason they did not pass the screen is the same reason they are core holdings: They are all the best at what they do, and when you want to own the best, you usually have to pay. This does not mean that the stocks will all have a phenomenal year in 2024 – looking at you Danaher and Linde – but it is to say that they are the best in their respective fields because they offer top quality products and are managed by management teams of world class. That’s why keeping our daily commentary is more important than a screen like this, which only represents a snapshot in time. Not all good stocks are worth buying, and not all expensive ones are worth dumping. (See here for a complete list of shares in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim talked about a stock on CNBC TV, wait 72 hours after issuing the trade alert before executing the trade. INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTIES EXIST, OR ARE CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION OBTAINED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
The logo of the pharmaceutical company Bristol-Myers Squibb, (BMS) is seen on the facade of the company’s headquarters in Munich on August 29, 2024 in Munich (Bavaria).
Matthias Balk | Picture Alliance | Getty Images
The holiday shopping season has come and gone. When it comes to stock selection, at least, the desire to find a deal is stronger than ever.
A recent analysis of our portfolio revealed that we own more than a few good stocks, including one of our most recent additions in Bristol Myers Squibb. However, we don’t necessarily rush to put them all in our cart. Not all good deals are created equal.
