It's hard to open the business pages and not read about the stock market's banner year. In 2013, the Dow Jones Industrial Average surged 26.5%, it's best advance since 1995.
But as they say, hindsight is always 20/20. How much further can the Dow advance in 2014? That's the proverbial $64,000 question and one that Jim Cramer is determined to tackle.
Because the Dow Jones Industrial Average is an index made up of 30 individual companies, the "Mad Money' host believes it's prudent to dig into the Dow and look at the prospects for each single stock before drawing any broad conclusions. The concept is something Cramer details at length in his new book Get Rich Carefully.
Following is a summary of Cramer's thoughts on each Dow component for 2014.
"I have to tell you, while I think American Express is short-term overvalued, the stock is loved to death and I think it will stay that way in 2014," Cramer said. Looking at how high American Express may trade Cramer added, "I think the average multiple for stocks this year will gravitate toward 17 times earnings as the economy expands. That should make American Express a $100 stock."
"I am not a huge fan of AT&T," Cramer admitted. "The company is trying to embrace social media, mobile and the cloud, what I call the holy trinity of new tech, but Verizon is chasing that exact same theme, and unlike AT&T, Verizon has real momentum." However, Cramer isn't entirely bearish on the stock, either. He believes it's entirely possible for shares to rally "even if the company does absolutely nothing thanks to the general improvement in business conditions."
Boeing ended 2013 as the best performing stock in the Dow and Cramer thinks "it could have another phenomenal year. The company is really only in the second year of a new plane cycle with the 787 Dreamliner, and as that cycle goes on, Boeing should be able to build these planes faster and cheaper. I expect to see earnings leverage galore."
Cramer believes that 2014 is the year the laggard Caterpillar "turns into a beautiful butterfly." Not only does Cramer think that global growth will drive an advance he also thinks that because it underperformed in 2013 expectations are quite low. "If China hangs in there at all and Europe keeps stabilizing, I think Caterpillar will deliver by the fourth quarter of this year, sending the stock to $110."
Although Cramer is bullish on the energy revolution underway in North America – he doesn't think Chevron is the best way to play it. "The smaller independent oil producers have more exposure to this theme and therefore more upside," Cramer said. "Without a big run in oil, something I don't expect, I just can't see the stock rallying more than five or six bucks." There is a caveat however, Cramer added that "if Chevron splits off its chemicals, refining and marketing businesses, that would promptly take this stock to $140."
Cramer thinks there are better places to put money to work than Cisco. "The company has reported progressively weak numbers quarter after quarter, and I see no end to the deterioration in sight, with Cisco's competitors currently cutting it to pieces," Cramer said. "Although I think the stock can make its way back to $25, where it was before the most recent shortfall that's not a move I'd stick around for."
Cramer is concerned that Coke could lose some fizz. "Carbonated soft drinks, both diet and regular, are declining at an alarming pace," he said. However, if the company becomes less dependent on soda, "via a a big restructuring coupled with a change in management, then I could see Coca-Cola going to $45." There is one caveat here. Because Warren Buffett is so widely followed, Cramer says "if he were to sell some of his stake, the stock could easily sink to $35."
Even after a 50% advance year to date in 2013, Cramer sees more upside for Disney. "As we get to the end of this year, I expect the hype over the new Star Wars film will be rife, and I think Disney will get a much higher price to earnings multiple as people realize that its earnings aren't going down as interest rates rise. In short, I see the stock heading to $86 without much trouble given the pending Star Wars rollout."
Cramer thinks DuPont potentially ends 2014 among the best performers in the Dow. That's because DuPont intends to spin off its titanium dioxide business, "something that I think should immediately give DuPont a higher multiple," Cramer said. "I think the stock could trade to $80 a share."
"Exxon could go as high as $115, a huge move for this $100 stock" Cramer said. Largely, the "Mad Money" host sees two major catalysts. "Exxon is now hitting paydirt on a myriad of projects and should grow consistently," Cramer explained. "And Warren Buffett bought a big position and his buys carry enormous weight."
Cramer thinks GE is on its way to becoming a $40 stock in part because it's spinning off its credit card business. "The remainder of GE is a solid manufacturer of aerospace parts, turbines, locomotives, appliances, medical equipment, and oil and gas equipment," Cramer said. All of those businesses should profit from global growth.
Unlike some other pros, Jim Cramer believes the Volcker rule will benefit Goldman Sachs and help drive shares higher. "Goldman Sachs stock became shackled by some higher risk transactions that went unrewarded by the market. The Volcker takes that off the table. As a Goldman Sachs alum, I don't think the change will damage the firm's earnings power. Rather, I bet the clarity that comes along with the Volcker Rule will boost the stock's multiple dramatically. I could see Goldman earning $20 this year and trading at 11 times earnings, sending the stock to $220."
Cramer likes Home Depot but after last year's 30% gain, he thinks the stock may need time to rest. "As housing comes back, Home Depot benefits," Cramer admitted. "However, I worry here that Home Depot has stopped expanding. I think it can get to $95 this year, but not much higher."
"I don't see IBM having a hard time trading to $200," Cramer said. Largely, the Mad Money host believes global growth will drive gains. "And the stock has been buoyed by aggressive buying from Warren Buffett."
Cramer believes new technology benefits Intel in 2014. "Intel's new chips are both cheaper to make and use up less battery life. Plus, the company has more new chips out new than at any time I can recall, and it still has a terrific balance sheet. If Intel has a downside surprise, I bet the stock wouldn't go down much at all, but if it has an upside surprise, I could see it trading up to $30."
Johnson & Johnson
Many times Cramer has cited Johnson & Johnson as a company that could benefit tremendously from breaking itself into smaller parts. "I bet CEO Alex Gorsky will shed JNJ's slow-growing diagnostics business this year and focus on the faster growing pharma franchise," Cramer said.
"Yet even if JNJ doesn't break-up I still think it's worth owning," Cramer added on Friday December 20th. "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%."
"I don't think people realize just how much earnings power JPMorgan has in an economic recovery with rising interest rates," Cramer said. "Now, just like Goldman, lots of people are worried JPMorgan will be hurt by the Volcker rule, but again I think that's short-sighted. I could see the stock rallying to $75 this year, a huge move from its current $58 perch."
Cramer believes recent weakness in McDonald's has everything to do with Americans actively trying to eat healthier foods instead of burgers and fries. "However, I don't want to write this one off. If McDonald's can put up just one back-to-back set of positive monthly numbers, I bet the stock would go to $110 in a hurry. So I'm predicting McDonald's can make it to $105, if only because by the end of the year, CEO Don Thompson will have been at the helm long enough to figure out what's wrong and how to fix it."
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Although Cramer can see Merck trading up to $55 this year, he doesn't think it gains more than 10% without serious restructuring. "I'd like to see Merck break up, with the animal health division spinning off first, he said.
In this case, Cramer thinks the sum of the parts is worth more than the whole. "If a new CEO comes in and breaks Microsoft up into the utility, the communications business, and the internet and gaming plays, I think the market would rejoice." Should a new CEO announce something like Cramer can see Microsoft trading to $45."
'Just do it'might be a good slogan for investors on the fence about Nike stock. Wall Street was concerned by future orders from China but, "Nike can be a counterintuitive stock: you have to buy when a number is awry, because management has a great habit of quickly fixing what goes wrong. I don't think it would be a stretch to see this stock trade as high as $90."
"What can I say about Pfizer? The company had a nice 31% run last year, but I think it will only tread water in 2014. I see the stock as being hard pressed to go above $34. At the end of the day, I just see Pfizer as one of the bigger blahs of the Dow, but maybe it has something up its sleeve that I can't see."
Procter & Gamble
Although weakness late year triggered concerns about Procter & Gable shares, Cramer isn't among those skeptics. "A.G. Lafley has returned as Procter's CEO to make changes, and I think this is the year he'll do so. To me, this is exactly the time when you want to buy Procter, when there's a lot that can be done—hence why I think this stock could run all the way up to $95 as the earnings pick up, especially if it splits off its slower-growing divisions."
"Higher rates equal more money for Travelers, and I can see the stock going to $100," Cramer said. However, if you're looking to put money to work in an insurance stock, Cramer likes Hartford better. "Many insurance companies screwed up so badly during the downturn that as the economy picks up awful portfolios should spring back to life. That's why I prefer a stock like Hartford over Travelers, because Hartford stumbled horribly and is still coming back, whereas Travelers just kept doing it right."
In a rapidly changing industry, Cramer sees UnitedHealth in a kind of win-win situation. "If Obamacare endures, UNH should be a white knight because they're more efficient than competitors," Cramer said, and should therefore win a significant number of new accounts. "And if Obamacare falters after the coming fall elections, it will win again, because investors who sold it fearing Obamacare will come rushing back."
Cramer called United Technologies, "a Dow stock you should own right now." The Mad Money host does not think the market yet realizes "the potential rewards from the company's brilliant Goodrich acquisition, which skewed the whole business toward more aerospace exposure at a time when aerospace is on fire. Plus, I see orders returning for UTX's heating, ventilation and air conditioning division thanks to the revival of commercial construction." All told, Cramer thinks United Technologies could print $135 by year's end.
"We've heard a lot of talk about a potential T-Mobile Sprint merger, and if that happens, I think Verizon climbs back to the $54 level," Cramer said. However, I don't see Verizon gaining much more than that, though, because the company already talked about how additive the deal is," Cramer said.
Cramer is a fan of Visa in part because it's cheaper than its biggest rival. "Visa is a terrific growth company—just a consistent, higher growth faux financial that portfolio managers crave. There is a ridiculous price-to-earnings ratio disparity between Visa and MasterCard right now: Visa is five multiple points lower. I'm not sure there should be any discount."
Of all the Dow stocks, Cramer thinks Wal-Mart shareholders face the most serious challenges. "First, there's a new CEO, and I hate owning a stock during a CEO's freshman year. Second, I think Wal-Mart's no longer viewed as the bargain it once was, and third, it's getting squeezed by everyone from the dollar stores to Costco, to Whole Foods, Kroger, and even Amazon, one of the great growth companies of our time. In short, Wal-Mart has become the whipping boy of retail. Now, it has too much heft to really disappoint, but I wouldn't be surprised if this stock was actually down for the year."
Cramer looks at 3M as a company that's reinventing itself. "When will Inge Thulin, the CEO of 3M, finally get his due? He is slowly but surely adding more growth through innovation at the exact same time that the global economy's expanding, giving his company a very strong kicker. And he says the growth comes along with a very solid dividend. Therefore, Cramer says, "It's perfect for portfolio managers who want both growth and a dividend. I think it can trade up to $160 this year."
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