The holiday shopping season has come and gone. When it comes to stock picking, at least, the desire to find a bargain is as strong as ever. A recent analysis of our portfolio revealed that we own more than a few penny stocks, including one of our newest additions in Bristol-Myers Squibb. However, we don’t necessarily rush to put all of these products in our shopping cart. Not all good deals are created equal. What We Found Our analysis — known as a “screen” in Wall Street parlance — began with all 35 stocks in the portfolio. The goal was to narrow the list to stocks that meet certain valuation criteria and then apply a layer of fundamental analysis to identify those that we feel offer value worth pursuing. These are the three characteristics we examined: 1. The current P/E ratio, based on 2025 earnings estimates, is below the average P/E over the past five years. 2. Its current forward P/E is lower than the S&P 500 Compact, meaning it is cheaper on an absolute basis. 3. It is also cheaper than the S&P 500 based on growth rate. To calculate this, we divide the P/E by the three-year annual earnings growth rate estimate, based on the FactSet earnings consensus estimates. This gives us the metric known as the PEG ratio. We did this for every stock in the portfolio and the S&P 500. Note: FactSet has not yet filled out a 2027 earnings estimate for the S&P 500. So, in order to generate a three-year CAGR, we assumed 7.3% year-over-year growth in S&P 500 earnings in 2027. We used 7.3% because this is the average annual increase achieved between 2012 and 2023, our last full year of earnings currently. We found eight stocks in the portfolio that meet the above criteria: Bristol-Myers Squibb, Cutera Energy, DuPont, GE Healthcare, Constellation Brands, Alphabet, Nexttracker, and Stanley Black & Decker. Here’s a look at them below and where they stack up on each metric. Just looking at these numbers and concluding that all eight stocks are spot buys is a very quantitative — and arguably misleading — way of thinking about things. Sometimes penny stocks are cheap for a reason that limits their upside potential, which means it’s what’s known as a “value trap.” That’s why we then took a more qualitative approach to improving the list, identifying those that are not only cheap, but also have, in our opinion, strong fundamental reasons for ownership in the new year. Where We Stand Here is a closer look at our thoughts on all eight stocks. Bristol Myers Squibb: As our second newest addition to the portfolio (Goldman Sachs is the newest), we clearly love the name heading into 2025. Although Bristol Myers has to navigate a significant patent cliff in the future, the destination is Our view is that Wall Street is underestimating the upside. The potential for moves made by management to recharge its drug pipeline, most notably its $14 billion acquisition of neuroscience company Karuna Therapeutics last year. Karuna’s lead asset recently received FDA approval and is sold under the name Cobenfy. It is an antipsychotic drug used to treat schizophrenia, a disease that is difficult to eliminate. Cobenfy’s prescriptions will be key to driving the stock next year, and we expect to see upward revisions to sales estimates. Coterra Energy: We discussed whether to add to this stock before our monthly meeting in December, but decided not to. US LNG exports, which drive demand for the commodity and thus support prices, are key to the stock. Unfortunately, the Biden administration’s holdup on new LNG permits appears to have had a negative impact this year, and it’s too early to know what President-elect Donald Trump’s policy changes will mean for commodity prices. However, we continue to invest in Coterra because it benefits from higher energy demand in data centers. We also like to keep energy stocks in the portfolio as a hedge. The idea is that higher energy prices will affect other sectors of the market but benefit producers like Cutera. DuPont: With the split into three separate companies expected to be completed by the end of 2025, DuPont is certainly a stock to look at. Shares are currently trading at a discount, but we’d say the sum of DuPont’s parts is worth more than a combined company. Therefore, patient investors should be rewarded as we approach the formal separation of the water and electronics companies. Our price target of $100 per share, derived from a sum-of-the-parts analysis, represents a material upside to current levels of ~$77. GE Healthcare: Despite the quality of the company’s medical imaging solutions, we can’t be too optimistic about the stock due to its exposure to China. Until China turns the corner or becomes too small to matter to profits, we cannot justify putting new money into GE Healthcare. Of course, the flip side is that the current discount in the share price could make this something of a coiled spring if China starts to turn around the crisis. However, even then, we are likely looking at something of a value trap. Brand Constellation: The prospect of higher tariffs on Mexican imports is a risk under another Trump presidency. However, the weakness we’ve seen in the peso is offsetting, and Constellation’s large brewery under construction in Mexico will be paid for by the end of next year – and from there, we could see a turnaround in cash flow that benefits shareholders through increased dividends and share buybacks. . Yes, we’ve seen younger consumers move away from alcoholic beverages in recent years, but beer remains an area of growth within this category. Divesting its struggling wine and spirits portfolio represents another potential catalyst on the horizon. Alphabet: Sentiments have certainly improved over what has been an ugly duckling for the Magnificent Seven for much of the past year. Reasons for the shift include the flexibility of Google Search, strong momentum in YouTube and Google Cloud, and potential upside from Waymo, which is proving to be a leader in self-driving vehicles. Put it all together, and Alphabet will enter 2025 on a strong footing, especially since its shares remain attractive on earnings despite a 14% advance in December. However, it is not our style to chase such moves. We maintain our Equivalent 2 rating on the name while we await further clarity on the company’s AI monetization strategy. Nextracker: This is another tough thing we discussed before the monthly meeting given how cheap it is; Our screen results confirm this. However, the basic case for adding to the inventory remains ambiguous. Although Nextracker launched an American-made product and Trump is no enemy of solar energy, he’s not its biggest supporter either. Instead, Trump indicated that when it comes to energy, his view is “drill, baby, drill.” So, right now, it will be difficult for Nextracker to make a sustainable move higher, especially given how large its earnings are. In other words, with Trump back in the White House, we’re struggling to see an incentive that would make this worth new money. Stanley Black & Decker: Although we feel the shares are now too low to sell — and we are on a 4% dividend at current levels — we don’t want to buy these shares as CEO Don Allan himself told us, recently appearing on “Mad Money” that he does not expect 2025 to see much growth. Add to that the Federal Reserve’s updated thinking that interest rates should stay higher for longer, and it’s hard to be overly optimistic about this, even if our screen shows it looks attractive based on Wall Street’s estimates of 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 members should take a closer look at as we head into 2025. Alphabet will be the fourth name to watch, especially if the stocks consolidate around current levels. The stock’s valuation is attractive, but chasing momentum is not our style, and we prefer to sell into big moves as we have seen through the end of the year. In fact, we made some profits at Alphabet earlier this month. Just because we don’t recommend buying these other stocks right now doesn’t mean we should ignore them completely. It’s still worth keeping an eye on it because it’s already cheap, which means it has the potential to rise when there are any positive updates. In the same way we eliminated some attractively screened stocks based on valuation due to fundamental concerns, such as higher long-term interest rates, investors should keep in mind that stocks that were “expensive” based on our criteria still offer strong trend potential. Bullish. In other words, the 27 names in the portfolio that did not make it past the three stages of the screen have their own reasons for being owned. In some cases, a stock may look expensive based on earnings estimates for the next 12 months, but it will do much better in the years ahead. In other cases, this is what happens to the stocks of the best 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 core holdings list. None of these 12 stocks passed this screen, but the reason they didn’t pass the screen is the same reason they’re essential holdings: They’re all the best at what they do, and when you want to own the best, you usually have to pay. This doesn’t mean that all stocks had an exceptional year in 2024 – looking at Danaher and Linde – but it does mean that they are best in class in their respective fields because they offer first-class products and are run by world-class management teams. That’s why keeping track of our daily comments is more important than a screen like this, which is just a snapshot in time. Not all cheap stocks are worth buying, and not all expensive stocks are worth getting rid of. (See here for a complete list of stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim takes a trade. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charitable fund’s portfolio. If Jim talks about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. The above Investment Club information is subject to our Terms and Conditions and Privacy Policy, as well as our Disclaimer. No obligation or fiduciary duty exists or is created by your receipt of any information provided in connection with the Investment Club. No specific results or profits are guaranteed.
The logo of pharmaceutical company Bristol Myers Squibb (BMS) appears on the facade of the company’s headquarters in Munich on August 29, 2024 in Munich (Bavaria).
Matthias Balk | Image Alliance | Getty Images
The holiday shopping season has come and gone. When it comes to stock picking, at least, the desire to find a bargain is as strong as ever.
A recent analysis of our portfolio revealed that we own more than a few penny stocks, including one of our newest additions in… Bristol Myers Squibb. However, we don’t necessarily rush to put all of these products in our shopping cart. Not all good deals are created equal.
