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These 8 portfolio stocks look pretty cheap, but only a few are worth buying
The holiday shopping season has come and gone. At least when it comes to stock selection, 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 cheap stocks, including one of our more recent additions in Bristol Myers Squibb. However, we don’t necessarily rush to put them all in our shopping cart. Not all good jobs 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 down the list to stocks that met certain valuation criteria, then apply a layer of fundamental analysis to identify those we felt offered value worth pursuing. These are the three characteristics we reviewed: 1. Their current forward price-to-earnings ratio, based on 2025 earnings estimates, is below their average P/E over the past five years. 2. Their current forward P/E is below that of the combined S & P 500, meaning they are cheaper on an absolute basis. 3. They’re also cheaper than the S&P 500 on a growth-adjusted basis. To calculate this, we divided the P/E by the three-year annualized earnings growth rate estimate, according to FactSet consensus earnings estimates. This gives us a metric known as the PEG ratio. We did this for each stock in the portfolio and the S&P 500. Note: FactSet has yet to populate 2027 earnings estimates for the S&P 500. So, to generate a three-year compound annual growth rate, we assumed a 7.3% compound annual growth rate. earnings growth for the S & P 500 in 2027. We used 7.3% because that is the average annual increase achieved between 2012 and 2023, the last full year of earnings we currently have. We found eight stocks in the portfolio that met the above criteria: Bristol Myers Squibb, Coterra Energy, DuPont, GE Healthcare, Constellation Brands, Alphabet, Nextracker and Stanley Black & Decker. Here’s a look at them below and where they stack up by each metric. Simply looking at those numbers and concluding that all eight stocks are buys right now is a very quantitative – and probably wrong – way of thinking about things. Sometimes cheap stocks are cheap for reasons that will limit their growth potential, meaning they are what is known as a “value trap.” That’s why we then took a more qualitative approach to refine the list, singling out those that are not only cheap but, in our view, also have strong fundamentals to own 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 being the most recent), we clearly like the name heading into 2025. While Bristol Myers has a major patent cliff ahead, we think Wall Street is underestimating the upside potential of the moves it has made administration to rebuild its stockpile of drugs, most notably the $14 billion takeover of neuroscience company Karuna Terapeutika last year. The lead asset acquired from Karuna recently received FDA approval and is marketed under the name Cobenfy. It is an antipsychotic drug used to treat schizophrenia, a notoriously difficult disease to treat. Cobenfy prescriptions will be key to boosting the stock in the coming year, and we expect to see upward revisions to sales estimates. Coterra Energy: We debated whether to add this stock ahead of our December monthly meeting, but decided not to. U.S. exports of liquefied natural gas, which drive demand for the commodity and therefore prop up prices, are key for stocks. Unfortunately, the Biden administration’s pause on new LNG permits appears to have had a negative effect this year, and it’s too early to know what President-elect Donald Trump’s policy changes will mean for commodity prices. Nonetheless, we remain invested in Coterra as it benefits from growing data center energy demand. We also like to keep energy stocks in the portfolio as a hedge. The idea is that higher energy prices will burden other sectors of the market, but benefit producers like Coterra. DuPont: With the breakup into three separate companies expected to be completed by the end of 2025, DuPont is definitely a stock to watch. The stock is currently trading at a discount, but we argue that DuPont’s total holdings are worth more on their own than as a combined company. So patient investors should be rewarded as we move closer to the official separation of the water and electronics businesses. Our price target of $100 per share, derived from our sum-of-the-parts analysis, represents significant upside to current levels of approximately $77. GE Healthcare: As good as the company’s medical imaging solutions are, we can’t be too bullish on the stock because of its exposure to China. Until China turns around or becomes so small as to be irrelevant to earnings, we simply cannot justify putting new money into working at GE Healthcare. Of course, the downside is that the current discount in the share price could make this a spiral spring if China starts to turn. Until then, however, we’re probably 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 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 cash flow inflection that will benefit shareholders via dividend increases and share buybacks. Yes, we’ve seen younger consumers move away from spirits in recent years, but beer remains a growth area within the category. The divestiture of its ailing wine and spirits portfolio is another potential catalyst on the horizon. Alphabet: The feel has certainly improved from what was the ugly duckling of “The Magnificent Seven” for most of last year. Among the reasons for the turnaround are the resilience of Google search, strong momentum in YouTube and Google Cloud, and the potential advantage of Waymo, which has emerged as a leader in autonomous vehicles. All told, Alphabet will enter 2025 on solid footing, especially given that its shares are still attractive on an earnings basis despite their 14% gain in December. However, it is not our style to pursue such moves. We maintain our Hold Equivalent Rating of 2 on the name as we await more clarity on the company’s AI monetization strategy. Nextracker: This is another tough thing we discussed before the monthly meeting because it looks cheap; the results of our screen highlight this. Still, the fundamental arguments for raising stocks are murky. Although Nextracker launched an American-made product and Trump is not an enemy of solar energy, he is not its biggest supporter either. Instead, Trump signaled that when it comes to energy, his position is “drill, honey, drill.” So for now, it will be difficult for Nextracker to make a sustainable move, especially given how big the earnings can be. In other words, with Trump back in the White House, we struggle to see the catalyst that makes this one worth new money. Stanley Black & Decker: While we think the stock is now too low to sell — and we’re getting a 4% dividend payout at current levels — we’re not looking to buy this one, as CEO Don Allan himself told us in a recent appearance on “Mad Money.” that he does not expect to see much growth in 2025. Add in the Federal Reserve’s updated view that interest rates will need to stay higher for longer, and it’s hard to be too optimistic about this, even if our screen shows it looks attractive based on Wall Street’s earnings growth estimates. Our current rating of 3 means we want to wait for strength before selling. Conclusion Bristol Myers Squibb, DuPont and Constellation Brands are three bargain stocks that members should take a closer look at heading into 2025. Alphabet would be a fourth name to watch, especially if the stock consolidates around current levels. The stock’s valuation is attractive, but chasing momentum is not our style and we prefer to sell in big moves as we saw at the end of the year. We actually saw some profits in Alphabet earlier this month. Just because we don’t currently recommend buying these other stocks doesn’t mean you should ignore them completely. They’re still worth keeping an eye on as they’re already cheap, meaning they have the potential to rally on any positive updates. In the same way that we eliminated some stocks that were attractive based on valuations for fundamental reasons, such as rates being higher for longer, investors should keep in mind that stocks that were “expensive” based on our criteria may still offer strong potential for worse. In other words, the 27 names in the portfolio that failed to pass all three stages of the screen have their own reasons for ownership. In some cases, a stock might look expensive based on earnings estimates for the next 12 months, but will do much better in the years ahead. In other cases, that’s exactly what’s happening with the stocks of the best companies in a bull market — they’re trading at premium valuations. Costco is a great example of this, as are the other stocks on our list of core holdings. None of those 12 stocks passed this test, but the reason they didn’t pass the test is the same reason they’re major holdings: they’re all the best at what they do, and when you want to own the best, you usually have to pay. That’s not to say that all stocks had a phenomenal year in 2024 — looking at you, Danaher and Linde — but it should be said that they are best-in-class in their fields because they offer top-notch products and are managed by world-class management teams. That’s why following our daily comments is more important than a screen like this, which is just a snapshot of the time. Not all cheap stocks are worth buying, and not all expensive stocks are worth ditching. (See the full list of stocks in Jim Cramer’s charitable foundation here.) As a CNBC Investing Club with Jim Cramer subscriber, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling shares in his charitable foundation’s portfolio. If Jim was talking about a stock on CNBC TV, he waits 72 hours after the trade warning is issued before he executes the trade. INVESTING CLUB INFORMATION ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTY EXISTS OR IS CREATED BY YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
The logo of 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.
Matija Balk | Image Alliance | Getty Images
The holiday shopping season has come and gone. At least when it comes to stock selection, 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 cheap stocks, including one of our more recent additions in the Bristol Myers Squibb. However, we don’t necessarily rush to put them all in our basket. Not all good jobs are created equal.
