By Larry Gellar
Today we’ll be doing a one-month review of five November 14th recommendations from Jim Cramer. Macy’s is the only stock out of these five to go up, as the company has been riding a strong holiday season. Other strategic moves have also panned out well for the department store. FedEx has fallen the most percentage-wise, but that could change as investors re-evaluate the company’s valuable shipping services. Let’s take a look at what’s been happening with these 5 stocks:
FedEx (FDX) – Recommended at $81.41; now trading at $77.27. As discussed here, this stock is highly sensitive to macroeconomic conditions, so it could definitely turn around once growth picks up again. Furthermore, both ground and air aspects of the company’s business have a lot of potential. FedEx is also being affected by the contraction of the United States Postal Service. In fact, some industry experts are speculating that a smaller United States Postal Service could actually hurt FedEx in some ways. Meanwhile, FedEx stands to benefit enormously from the holiday season.
The company is expecting to do quite a bit of shipping and handling this winter, and current estimates have December 12th as the busiest day FedEx has ever experienced. Much of this can be attributed to the increase in online shopping since FedEx continues to be a popular way to send items. FedEx’s biggest competitor is United Parcel Service (UPS). That stock has higher price to earnings, price/earnings to growth, and price to sales ratios. Part of that can be explained by UPS’s much higher operating margin, although FedEx has a slightly higher gross margin. As for cash flows, $376 million came in during fiscal year 2011 while $369 million flowed out in the 3 months after that.
Coca-Cola (KO) – Recommended at $67.79; now trading at $66.26. The latest news for Coca-Cola is its purchase of a 50% stake in Aujan Industries, a beverage maker based in Saudi Arabia. Here’s what Ahmet Bozer, president of the company’s business in Eurasia and Africa, had to say: “The Middle East is a high-growth region with some of the highest rates of Non Alcoholic Ready To Drink per capita consumption. Today's announcement is a demonstration of our commitment to consumers here that we are investing for the long term”.
Investors should note that this was an especially good choice for Coca-Cola because of the region’s limited consumption of alcohol. In other news, Coca-Cola is moving the location of its secret formula. Previously held in a vault with SunTrust (STI), the formula will now be in a vault on display at the company’s museum. Important competitors for Coca-Cola include Dr Pepper Snapple (DPS) and Pepsico (PEP). Those stocks have higher price to earnings ratios, although Coca-Cola has the highest price to sales ratio by far. Margins are quite strong for Coca-Cola – those numbers are 60.69% and 21.99%. Coca-Cola could be an especially good play for dividend investors.
Macy’s (M) – Recommended at $30.55; now trading at $30.79. Macy’s CEO Terry Lundgren was actually named the second best CEO of 2011 by CNBC, only losing out to Patrick Doyle of Domino’s Pizza (DPZ). Lundgren’s achievements are particularly impressive considering many analysts predicted that the department store would have trouble this year. Instead, Macy’s was able to take advantage of others in the industry that were performing poorly. This has translated into greater market share, although CNBC does point out that the company’s inventory level could be getting a bit high.
Other concerns can be found here. Specifically, October sales were a bit weak for Macy’s, although the items that suffered will probably do better as the weather gets colder. Important competitors for Macy’s includes Dillard’s (DDS) and Saks (SKS). Those stocks have higher price/earnings to growth ratios, although Macy’s has the highest price to sales ratio. Meanwhile, margins for Macy’s are quite strong – those numbers are 40.49% gross and 8.85% operating. As for cash flows, $222 million flowed out during fiscal year 2011 and $367 flowed out in the 9 months after that. Capital expenditures as well as retirement of debt have been the biggest contributors to these outflows.
Union Pacific (UNP) – Recommended at $102.97; now trading at $98.62. As suggested by the CEO comments found in this article, Union Pacific could be a steady gainer in the coming months. Most significantly, the railroad’s business is improving despite a mediocre economy. Additionally, rail traffic seems to be improving. This is especially true when traffic for certain goods is excluded, which is important for predicting future trends. Union Pacific has also been benefiting from a strong holiday season. Specifically, UPS and FedEx are using the railroad company quite a bit to move packages across the country. Other big players in the railroad industry include Canadian National Railway (CNI), CSX (CSX), and Burlington Northern Santa Fe, which is owned by Berkshire Hathaway (BRK.B).
Investors should note that Union Pacific has a higher price to earnings ratio than Canadian National Railway and CSX. Meanwhile, margins for Union Pacific are about average – those numbers are 41.19% gross and 28.50% operating. As for cash flows, $764 million flowed out during 2010 and $561 million flowed in during the first 9 months of 2011. The turnaround in cash flows was partially due to new loans being taken, although cash from operating activities is also improving.
Whole Foods Markets (WFM) – Recommended at $67.61; now trading at $66.01. One interesting story for Whole Foods Market is that the company is teaming up with The Beer Wench to try to bring in some new customers. Here’s what Michael Bepko, global online community manager for the company, had to say: "Taking our experts and knowledge online with The Beer Wench to connect to some new beer connoisseurs is a natural extension of the community we work hard to create in stores.” Whole Foods is also making an appearance on Goldman Sachs’ list of Best Buys for 2012. In fact, the firm says the stock could rise over 15 percent, which would put it at $80. A new store in Phoenix should also have Whole Foods shareholders excited.
In fact, the Phoenix location figures to be quite lucrative because of the area’s interest in organic products. On the other hand, at least one writer believes that Whole Foods’ emphasis on organic foods isn’t that valuable anymore. Important competitors for Whole Foods include Kroger (KR) and Safeway (SWY). Those stocks have significantly lower price to earnings and price to sales ratios. In fact, Whole Foods higher ratios can be explained by its terrific margins – 34.99% gross and 5.51% operating.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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