The Dow’s Top 3 Stocks for 2011
Which stocks will lead the Dow in the coming year? Cramer on Monday picked three:
3. American Express
In third place is AmEx , which Cramer thinks will climb to $60 by the end of the year—a 40-percent jump. He likes the stock for two main reasons: 1. It’s a terrific growth play on the worldwide recovery and the rebound in consumer spending, travel and the return of the business customer; and 2. Nobody yet thinks of AXP as a growth stock. They’re too busy looping it in with the slow-growth banks or Visa and Mastercard, which took a hit in debit-card fees via last year’s credit-card reform bill. But this company has no debit-card exposure at all, and Cramer doubts the feds will go after AmEx next. So investors get the chance to buy the stock while it’s still cheap.
AXP trades at just 12 times forward earnings, though Cramer thinks it deserves 15. Factor in the $4 a share he expects the company to earn in 2011, and you get your $60 a share.
Intel’s on its way to $30 this year, Cramer said, thanks in no small part to a new-generation processor launching this month. He mocked Piper Jaffray’s downgrade of the stock, saying all of the analyst’s concerns—price erosion, being late to the mobile Internet trend—made sense in early 2010, but not in 2011.
Plus, Cramer’s bullish on Intel’s purchase of security software firm McAfee, something the Street has scoffed at repeatedly. He thinks it makes sense in this WikiLeaks world. Just look at how Hollywood’s putting Intel’s chips to work to fight piracy over the Web. Cyber security is big business, and Intel’s now at the heart of it.
Intel also pays a 3-percent dividend yield right now, it’s buying back tons of stock and it trades at just 9.2 times earnings when you back out the $3 of net cash per share. Cramer thinks this one reaches $30 by year’s end, or 44 percent higher than Monday’s close.
The Dow’s top performer will be this cyclical play, Cramer said, the leading independent producer of aluminum. He offered a word of caution, though: Alcoa might not be in the Dow at all by the end of 2011 because it could very well be taken over.
That aside, aluminum’s a base material used in everything from cars to trucks to planes to construction. And the continuing ramp-up in the first three of those industries, as well as the coming rebound in non-residential building, will drive prices ever higher. There’s just too much demand with too little supply right now.
Cramer’s also a big fan of CEO Klaus Kleinfeld, whose leadership offers one way to $18 a share for AA. The other path is through earnings, which Cramer expects to come in at $1.50 a share this year. When you put his 12 multiple on the stock, there’s your $18. Even better, though, might be a takeover—whether from Vale , BHP Billiton or Rio Tinto —something Cramer thinks is likely due to Alcoa’s massive cash flow. He predicted a bid of $22 a share for the company, giving investors a 39-percent gain from Monday’s closing price.
Of course, Alcoa kicks off earnings season next Monday. Cramer recommended starting a position now and then buying more after the report, which he expects to be positive. Sure, the stock is up big after a Deutsche Bank upgrade, but he thinks AA in general is down from previous levels and has done largely nothing for quite some time, making it relatively inexpensive. The stock’s upward trend should continue after the quarter.
“I think this one sprints higher courtesy of off-the-charts demand for its products,” Cramer said.
When this story published, Cramer’s charitable trust owned Alcoa, American Express and Intel.
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