Cramer’s stocking stuffers: 10 long-term buys
Sally: [dictating her letter to Santa Claus as Charlie Brown writes it for her] Dear Santa Claus, How have you been? Did you have a nice summer?
[Charlie Brown looks at her]
Sally: How is your wife? I have been extra good this year, so I have a long list of presents that I want.
Charlie Brown: Oh brother.
Sally: Please note the size and color of each item, and send as many as possible. If it seems too complicated, make it easy on yourself: just send money. How about tens and twenties?
Lucy Van Pelt: …. I never get what I really want. I always get a lot of stupid toys or a bicycle or clothes or something like that.
Charlie Brown: What is it you want?
Lucy Van Pelt: Real estate.
-A Charlie Brown Christmas
Jim Cramer likes the way Lucy and Sally think. But instead of tens and twenties or real estate he'd like to make a suggestion – stocks.
Cramer thinks they're just about the best Christmas gift anyone could give or get. And he's made a list of 10 favorites that he thinks are long-term buys right now. They follow:
*Note to Santa, you're seeing this, right?
Johnson & Johnson
Cramer views Johnson & Johnson as a bet on a potential break-up. "I think this is a classic example of a company where the parts are worth more than the combined whole," Cramer said. "And I really believe a break-up (has to be under discussion), in part because the relatively new CEO, Alex Gorsky, is so committed to creating value."
Here's how Cramer sees it playing out.
"I think JNJ should split into three pieces: a top-notch, relatively fast growing drug company with a terrific pipeline that grew sales at a 9.9% clip in the most recent quarter—that's fabulous for big pharma. Then you'd also have a slow growing but incredibly consistent consumer products business. And there would also be a medical device and diagnostics business."
However, management may not agree with Cramer. He knows that. "Yet even if JNJ doesn't break-up I still think it's worth owning," Cramer added.
"I think the company can deliver revenue growth in the mid single-digits and high-single-digit earnings growth, courtesy of better cost containment and a strong product mix going forward. Plus, the company has a great track record of raising the dividend, which currently yields 2.9%."
Cramer sees TJX, the company behind TJ Maxx, Marshalls and HomeGoods as a retailer with major tailwinds at its back.
First "TJX understands the consumer's new, value-oriented mindset like almost no one else in the industry. TJX sells brand-name merchandise at bargain basement prices," Cramer explained.
And it's able to offer such competitive prices because of its business model.
"When other retailers need to offload their old inventory in order to bring in new merchandise, TJX will come in and buy the stuff for far less than its retail value. It works because the company is fabulous at knowing what kind of product its customers want."
And there's more to like. Cramer believes significant growth lies ahead.
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"The company is still in the early innings of its expansion overseas, with only a quarter of its sales coming from outside of the United States."
And the company has raised its dividend every year for the last fifteen years and committed to buybacks.
Cramer's only caveat is valuation.
"Right now the stock is less than two points off its 52-week high. I like TJX but I think you can probably get a better price if you wait for the next market-wide swoon."
Cramer thinks many pros are still very skeptical of Apple and he believes that skepticism creates opportunity.
"I think the stock is ridiculously cheap, and if you buy it around $550, you're still benefiting from low expectations—too low in my opinion," Cramer said. "Apple's got a terrific product lineup right now, with fabulous demand for the iPhone 5S and 5C, not to mention the iPad mini with retina display or the iPad air, all of which sport an excellent new operating system and the software is way ahead of the competition. Taken together, I think these products could give the company's sales a really nice boost."
Also Cramer believes that margins will start to stabilize, another bullish catalyst and he expects the company will complete a deal with China Mobile, the world's largest wireless provider.
And "on top of that, it offers a decent dividend and it's got the biggest buyback on Earth."
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"Now, before you start thinking that I'm crazy for recommending Caterpillar which is negative year to date, you should know that one of the main reasons I like Caterpillar is that the stock is so hated," Cramer said.
That is expectations are so low and so many negatives are baked into the stock, Cramer doesn't think it will trade a whole lot lower.
However, if Caterpillar can perform relatively better next year, he thinks the upside is substantial. And Cramer doesn't think it will take much to perform relatively better.
"Going into next year, not much has to go right for CAT to earn $6 per share," Cramer said. If the company can rack up 6 to 7% growth in its construction and power systems segments and if CAT can simply contain the declines in its Resources division then I think the company can hit earn that $6 per share earnings figure. If that happens I see the stock propelling higher."
Also Cramer added that Caterpillar has slashed costs. "In the first nine months of this year, CAT cut operating costs by $5 billion, a 12% reduction," he said. Cramer says that too, should help ignite some enthusiasm on the Street.
Although the entire tech sector is busting with opportunity, Cramer likes Ciena because it's pegged to a technology trend that he thinks is unbeatable – the cloud.
"As more and more people and companies migrate their data and applications to the cloud, they need a lot more infrastructure to allow their employees to connect," Cramer explained. "That's where Ciena comes in. It's a network equipment maker."
And around $22 Cramer thinks the stock is relatively inexpensive. "At that price, I view Ciena as a stock with great long-term potential that trades at a discount."
Another play on the future of technology, Cramer likes Xilinx because the semi-conductor chips that it makes can be used by a wide range of clients.
"They make what are known as programmable logic devices or PLDs—these are chips that can be programmed and customized for each customer as needed, very different from your typical semiconductor, where the functionality is built-in and can't be changed," Cramer explained
"Because you can change the programming on Xilinx chips, it makes them much cheaper than the competition from traditional semiconductor, hence why these PLDs are critical for a host of sectors, including communications, data processing, industrial, consumer, and autos."
Cramer sees potential galore.
"Xilinx benefits from the telco infrastructure spending. It wins from the transition to smaller 28 nanometer chips as well as the global build-out of 4G LTE wireless networks, especially in China."
Cramer sees Google not only as an industry goliath but also as an aggressive growth company that's inexpensive – a rare combination.
"Google is the sultan of the Internet search business, responsible for 60% of all searches around the globe—not only do they control more than half the market, but that 60% figure is more than five times bigger than Google's next closest competitor," Cramer said. "Get this: 40% of all online advertising revenue in the United States goes to Google."
However, Google isn't resting on it laurels. Google is also actively maneuvering itself into "the sweet spot of mobile, social and the cloud," something Cramer calls the triumvirate of new media.
And Cramer believes Google's industry advantage isn't priced into the stock.
"Google is growing like a weed yet it's cheap. Yes, this $1072 stock is cheap. Google trades at barely more than 20 times next year's earnings estimates, with a 16% long-term growth rate."
"Compare that to Facebook, which sells for 48 times next year's earnings estimates with 30% growth," and you'll see that Google is cheap with a capital C.
Bank of America
Although banks in general, and Bank of America in particular, have been relatively unappreciated by Wall Street, Cramer thinks that's about to change.
First, "banks are one of the few groups that actually benefit as interest rates rise," Cramer said. So if and when the Fed tapers, this stock stands to benefit.
However, in the case of Bank of America, "it's one of the biggest banks in the country, with lending exposure to everybody from the consumer, to small business and large enterprises," Cramer noted. Therefore as the economy improves BofA has multiple ways in which to leverage the improvements.
In addition, Cramer likes that Bank of America has been cutting costs. "Expenses were down 1% sequentially in the latest quarter, and management predicts another $1.6 billion in cost cuts by the end of 2014," he said.
"Plus, the company still has $3 billion left in its buyback authorization, and I think that could get raised."
To make the stock all the more attractive, Cramer doesn't think all these tailwinds are baked into the price. "Bank of America trades at just 1.1 times its tangible book value—that's much less than, say, Wells Fargo, which trades at 1.9 times tangible book. I could easily see this stock heading to $20 in the not too distant future, a 33% gain from these levels."