4 Dow Stocks to Outperform In 2012
As all three averages logged strong gains to close the first week of the new year, Cramer on Friday revealed the four stocks he expects to outperform the Dow Jones industrial average in 2012.
Many of General Electric’s businesses seem likely to do well in the year ahead, Cramer said. The Fairfield, Conn.-based company is engaged in energy infrastructure, integrated electrical equipment, aerospace and much more.
Meanwhile, the company recently raised its dividend by 13.3 percent. The stock currently sports a 3.7 percent dividend yield.
Finally, Cramer thinks the stock is “dirt cheap.” It’s selling for 11.7 times forward earnings, which is cheap compared to its 13.4 percent long-term growth rate. Plus, it’s trading at a 20 percent discount to its historical multiple.
Based in Northfield, Ill., Kraft is the largest packaged food company in the United States. Its products are found in 99 percent of American households, Cramer said. Some investors may think this company sounds boring, but Cramer noted that boring, dividend-paying stocks were the savior of many individual’s portfolios last year. After all, high-yielding stocks pay investors to wait until the stock market calms and the economy improves. So no matter what’s going on in the world, dividend-paying stocks are still turning investors a profit. For its part, Kraft sports a 3.1 percent dividend yield.
In addition to Kraft’s dividend, Cramer likes the stock because of the company’s plans to break-up. He thinks management can unlock value by splitting the company into two parts: a fast-growing snacks company called SnackCo. and a domestic grocery business named GroceryCo. The split won’t likely happen until the end of the year, but in the meantime, Cramer thinks Kraft’s stock will rise in anticipation. So he thinks the stock is a great buy at current levels and wouldn’t be surprised if it outperforms the Dow.
The wireless communications company’s stock had been a laggard in 2011 thanks to the collapse of its plans to acquire rival T-Mobile USA.
In March 2011, AT&T announced plans to purchase T-Mobile from Deutsche Telekom of Germany for $39 billion. Had the deal gone through, AT&T would have become the largest cellphone company in the U.S.
AT&T’s proposal was met with opposition from the Department of Justice and the Federal Communications Commission, though.
In August 2011, the Justice Department sued to block the merger, saying it would reduce competition and lead to higher prices. Months later, the companies withdrew their application to the Federal Communications Commission after its chairman also opposed the deal. The FCC claimed the merger would result in a massive loss of U.S. jobs and investment, and significantly diminish competition, while the DOJ said it would lead to higher wireless prices for consumers and businesses.
After facing such fierce opposition from government regulators, AT&T last month ended its proposed purchase of T-Mobile.
But the stock is now pricing in market share losses that haven’t happened, so the “Mad Money” host thinks it’s just way too cheap at current levels.
“Now the company can go back to focusing on the fundamentals, building its business with small deals, and coining money courtesy of its near-duopoly status in wireless,” Cramer said.
AT&T also pays a juicy dividend yield. Cramer tends to like high-yielding stocks because they pay investors to wait until the stock market calms and the economy improves. The dividends can be reinvested into the stock.
The airplane maker is posed to have one of its best years in ages, the "Mad Money" host said, because it is benefitting from the powerful aerospace cycle. Right now, airlines desperately need to buy the latest fuel-efficient planes in order to reduce sky-high fuel costs. And to Cramer, Boeing is the most obvious way to play this cycle.
Boeing already had a good year in 2011, Cramer noted, with its stock up 10.8 percent when reinvested dividends are included. He thinks 2012 will be just as profitable because commercial airplane orders rose by 52 percent last year to 805 aircraft and the company had a backlog of 3,771 planes in the pipeline. Looking ahead, the new orders should only continue to grow.
Another reason Cramer likes Boeing is because it pays a dividend. Last month, the company raised its dividend by 5 percent. So it now yields at nearly 2.4 percent.
On top of it all, the stock is selling for just 14.8 times earnings with a 13.4 long-term growth rate that may be too conservative. To Cramer, this stock is simply a bargain.
Diamonds of the Dow
| TICKER | COMPANY | PRICE | CHANGE | %CHANGE |
|---|---|---|---|---|
| XCS-CA | iShares S&P/TSX Small Cap Index ETF | 19.67 | +0.18 | +0.92% |
| -- | -- | -- | -- | -- |
| MDLZ | Mondelez International Inc | 68.30 | -0.55 | -0.80% |
| T | AT&T Inc | 17.50 | +0.03 | +0.17% |
—CNBC.com and Reuters contributed to this report
When this story was published, Cramer's charitable trust owned AT&T and General Electric owned 49 percent of NBCUniversal, which operates CNBC.
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