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These 6 Club Stocks Look Affordable As Wall Street Avoids High Flyers
userJanuary 7, 2023
There are growing concerns about some companies in their high-value portfolios, such as Nvidia (NVDA) and Microsoft (MSFT). As with most of last year, overvalued stocks have not been popular on Wall Street, and there may be more room for stocks to fall amid growing fears of a recession. No other stock in the Jim Cramer Charitable Trust, the portfolio we use for our clubs, carries the same level of valuation risk. I would like to draw your attention to stocks with low multiples that I think are worth watching. It focuses on the future price-to-earnings ratio, calculated by dividing the stock price by his expected earnings per share over the next 12 months. The quotient is what is known as the multiple. The overall multiple for the S&P 500 fell from around 21x expected returns in early January 2022 to around 16.8x on Thursday. Investors’ willingness to pay for stocks includes many things, such as rising interest rates (which makes bond yields more competitive with stock returns) and corporate earnings growth relative to peers. will be Investors looking to buy stocks may find it easier to run the P/E in reverse. This rough hypothesis starts with the multiple you want to pay and multiplies it by your future earnings projection. If he assigns a multiple of 10 to an earnings per share of $5, that translates into a stock price of $50. But now, with growth uncertain and interest rates rising, we believe paying 10x futures returns is too risky. Instead, we think it would be more appropriate to pay him eight times his future earnings. That means you’re only willing to pay $40 per share. Ultimately, it becomes clear that profits are shrinking, and the company can no longer make his $5 per share. EPS is currently estimated at $4. In this scenario, paying 8x future revenue is too much because revenue growth is not very strong. You decide that you are only willing to pay 7x futures earnings of $4 per share, which translates to a stock price of just $28. Admittedly, this is an oversimplification. But it shows what happens to stocks when investors are generally unwilling to pay a premium for equities in an environment where corporate earnings growth slows and bonds become more attractive. A key issue for the market right now is that many investors believe earnings estimates are too high. If the Federal Reserve remains tough and the U.S. economy continues to weaken and slip into recession, corporate profits could fall more than currently expected. This could add pressure on the stock price. In this situation, the higher the multiple, the smaller the margin of error. Even a small downward revision in earnings can lead to large losses in high-value stocks. With that in mind, here are six of his club stocks that currently fit the definition of reasonably priced. In other words, it’s trading around or below the overall valuation of the S&P 500. JNJ Mountain 2022-01-05 Johnson & Johnson stock performance over the past 12 months. Johnson & Johnson (JNJ) is currently trading at about 17.4 times expected earnings, and the healthcare company fits in with what we think is appropriate in this market. increase. Also nearing is the split of J&J into his two publicly traded companies. We believe this decision will enhance shareholder value. On Wednesday, the company’s consumer health division, which will be called Kenvue, filed with U.S. securities regulators to list on the New York Stock Exchange. Own at least 80.1%. META Mountain 2022-01-05 Meta Platforms stock performance over the last 12 months. Meta Platform (META) stock is trading less than 16 times its future earnings projections after 2022 was a brutal turnout for the once-strong stock. Meta’s reliance on advertising revenue makes it more susceptible to economic conditions than J&J, for example. Additionally, the company, the parent company of Instagram and Facebook, laid off more than 11,000 of his employees late last year. HAL Mountain 2022-01-05 Halliburton’s stock performance over the last 12 months. Oilfield service provider Halliburton (HAL) is trading at around 13 times futures earnings, a very reasonable valuation. The company’s underlying business is performing well, according to FactSet, with the stock trading below his five-year average P/E of 17.2. Management spoke of a multi-year drilling cycle resulting from underinvestment in the past few years. This should help keep your business resilient. Halliburton is up more than 7% since adding his 150 shares to the position on Dec. 16. Three of his other energy stocks — Pioneer Natural Resources (PXD), Devon Energy (DVN) and Coterra Energy (CTRA) — also maintain his P/E well below his S&P 500. PXD stock on Wednesday. Morgan Stanley MS Mountain 2022-01-05 Morgan Stanley stock performance over the past 12 months. Morgan Stanley (MS) is one of only two financial stocks in the portfolio with just under 12x futures earnings. I have no problem owning it at its current valuation despite the possibility of an imminent recession. With an annual dividend yield of about 3.6%, it’s a reward for investor patience, with the company repurchasing $2.6 billion worth of his shares in his three-month period ending Sept. 30. Returns capital to shareholders for profit and is reasonably priced. WFC Mountain 2022-01-05 Wells Fargo Stock performance over the past 12 months. Another bank in the portfolio, Wells Fargo (WFC), trades at 8.3 times futures earnings and is an analyst favorite. Recession fears may be weighing on stocks, but Wells Fargo’s loan portfolio is very high quality. Banks are also benefiting from higher interest rates from the Federal Reserve. We also see the company as a story of rebirth as it seeks to navigate regulatory constraints. F Mountain 2022-01-05 Ford Motor’s stock performance over the past 12 months. Ford (F) has the lowest multiple to price/earnings ratio in the portfolio at just under 7x. We like the automakers here and Jim said he would buy stocks at current levels on Thursday. In December, Ford’s profitable F-Series pickup set a record for his best-selling month of 2022. We are also fans of the company’s electric vehicle strategy. (For a complete list of Jim Cramer’s Charitable Trust shares, see here.) Subscribers to Jim Cramer’s CNBC Investing Club receive trade alerts before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling shares in his charitable trust portfolio. If Jim talks about his stock on his CNBC TV, he will wait 72 hours after issuing a trade alert before executing the trade. 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Halliburton oil field workers work on the wellhead at the fracking rig site near Stillwater, Oklahoma, January 27, 2016.
J. Pat Carter | Getty Images
https://www.cnbc.com/2023/01/06/these-6-club-stocks-look-reasonably-priced-as-wall-street-shuns-high-flyers.html These 6 Club Stocks Look Affordable As Wall Street Avoids High Flyers
