The holiday shopping season has come and gone. When it comes to stock picking, at least, the desire to find a bargain is as strong as ever. A recent analysis of our portfolio revealed we own more than a couple cheap stocks, including one of our newer additions in Bristol Myers Squibb . Still, we’re not necessarily rushing out to put all of them in our shopping cart. Not all good deals are created equal. What we found Our analysis — known as a “screen” in Wall Street parlance — began with all 35 stocks in the portfolio. The goal was to narrow the list down into stocks that met certain valuation criteria and then apply a layer of fundamental analysis to identify those that we feel offer value worth pursuing. These are the three characteristics that we screened for: 1. Their current forward price-to-earnings ratio, based on 2025 earnings estimates, is below their average P/E over the past five years. 2. Their current forward P/E is below that of the combined S & P 500, meaning they are cheaper on an absolute basis. 3. They also are cheaper than the S & P 500 on a growth-adjusted basis. To calculate this, we divided the P/E by the three-year annual earnings growth rate estimate, according to the FactSet earnings consensus estimates. This gives us the metric known as the PEG ratio. We did this for every stock in the portfolio and the S & P 500. Note: FactSet has yet to populate a 2027 earnings estimate for the S & P 500. So, in order to generate a three-year compound annual growth rate, we assumed 7.3% year-over-year earnings growth for the S & P 500 in 2027. We used 7.3% because that is the average annual increase realized between 2012 and 2023, the last full year of earnings we currently have. We found eight stocks in the portfolio that met the above criteria: Bristol Myers Squibb, Coterra Energy , DuPont , GE Healthcare , Constellation Brands , Alphabet , Nextracker , and Stanley Black & Decker . Here’s a look at them below and where they stack up on each metric. Simply looking at those numbers and concluding that all eight stocks are immediate buys is a highly quantitative — and arguably misguided — way of thinking about things. Sometimes cheap stocks are cheap for a reason that will limit its upside potential, which mean they are what’s known as a “value trap.” That’s why we then took a more qualitative approach to refine the list, singling out those that are not only cheap but, in our view, also have strong fundamental reasons for ownership in the new year. Where we stand Here’s a closer look at our thoughts on all eight stocks. Bristol Myers Squibb: As our second newest addition to the portfolio ( Goldman Sachs is the newest), we clearly like the name heading into 2025. Although Bristol Myers has to navigate a large patent cliff ahead, our view is Wall Street is underestimating the upside potential of moves made by management to recharge its pipeline of drugs, most notably its $14 billion takeout of neuroscience company Karuna Therapeutics last year. The lead asset acquired from Karuna recently scored FDA approval and is sold under the name Cobenfy. It’s an antipsychotic drug used to treat schizophrenia, a notoriously hard disease to crack. Cobenfy prescriptions will be key to driving the stock in the year ahead, and we expect to see upward revisions to sales estimates. Coterra Energy: We debated whether to add to this stock ahead our December Monthly Meeting , but decided against doing so. U.S. exports of liquified natural gas, which drive demand for the commodity and therefore support prices, are key for the stock. Unfortunately, the Biden administration’s pause on new LNG permits appeared to have a negative impact this year, and it’s too soon to know what President-elect Donald Trump’s policy changes will mean for commodity prices. Nevertheless, we’re staying invested in Coterra because it benefits from rising data center energy demand . We also like to keep an energy stock in the portfolio as a hedge. The idea is that higher energy prices will weigh on other sectors of the market but benefit producers like Coterra. DuPont: With the breakup into three separate companies expected to be complete by the end of 2025, DuPont is certainly a stock to look at. Shares are currently trading at a discount, but we argue the sum of DuPont’s parts are worth more on their own than as a combined company. Therefore, patient investors should be rewarded as we approach the official separations of its water and electronics businesses. Our price target of $100 a share, derived from our sum-of-the-parts analysis , represents material upside to current levels of roughly $77. GE Healthcare: As good as the company’s medical imaging solutions are, we just can’t get too optimistic on the stock due to its China exposure. Until China either turns around or becomes so small that it’s immaterial to earnings, we just can’t justify putting new money to work in GE Healthcare. Of course, the flipside is that the current discount in the share price could make this a coiled spring if China starts to turn the corner. Until then, however, we’re likely looking at something of a value trap. Constellation Brands: The possibility of higher tariffs on Mexican imports is a risk under another Trump presidency. However, the weakening we’ve seen in the Peso serves as an offset, and Constellation’s large brewery under construction in Mexico will be paid for by the end of next year — and from there, we could see a cash flow inflection that benefits shareholders via dividend increases and share repurchases. Yes, we have seen younger consumers trend away from alcoholic beverages in recent years, but beer remains a growth area within the category. Divesting its struggling wine-and-spirits portfolio represents another potential catalyst on the horizon. Alphabet: The sentiment sure has improved on what’s been the ugly duckling of the “Magnificent Seven” for much of the past year. Among the reasons for the turnaround are the resiliency of Google Search, strong momentum in YouTube and Google Cloud , and potential upside from Waymo, which is proving to be a leader in the autonomous vehicle space . Put it all together, and Alphabet enters 2025 on strong footing, especially given its shares still screen attractive on earnings despite their 14% advance in December. Nevertheless, it’s not our style to chase moves like this. We’re keeping our hold-equivalent 2 rating on the name as we await more clarity on the company’s AI monetization strategy. Nextracker: This is another tough one that we debated ahead of the Monthly Meeting because of how cheap it looks; the results of our screen underscore that. Still, the fundamental case for adding to the stock is murky. Even though Nextracker has launched an American-made product and Trump isn’t an enemy of solar power, he’s not exactly its biggest supporter either. Rather, Trump has signaled that when it comes to energy, his view is “drill baby, drill.” So for now, it’s going to be hard for Nextracker to mount a sustained move higher, especially given how lumpy its earnings can be. In other words, with Trump coming back into the White House, we struggle to see a catalyst that makes this one worthy of new money. Stanley Black & Decker: While we feel shares are now too low to sell — and we are getting a 4% dividend payout at current levels — we don’t want to be buying this one as CEO Don Allan told us himself, in a recent appearance on “Mad Money,” that he isn’t expecting 2025 to see much growth. Add in the Federal Reserve’s updated thinking that interest rates will need to stay higher for longer, and it’s hard to get too optimistic about this one, even if our screen shows it looks attractive based on Wall Street’s estimates for earnings growth. Our current 3 rating means we want to wait for strength before selling. Bottom line Bristol Myers Squibb, DuPont and Constellation Brands are the three bargain stocks for members to take a closer look at as we enter 2025. Alphabet would be the fourth name to keep an eye on, especially if shares consolidate around current levels. The stock’s valuation is attractive, but chasing momentum isn’t our style, and we prefer to sell into big moves like we’ve seen into year-end. Indeed, we did book some profits in Alphabet earlier this month. Just because we’re not recommending buying these other stocks right now does not mean ignore them completely. It’s still worth keeping an eye on them because they’re already cheap, which means that they have the potential to rally on any positive updates. In the same way we eliminated some stocks that screened attractive on a valuation basis because of fundamental concerns, such as higher-for-longer rates, investors should keep in mind that stocks that were “expensive” based on our criteria can still offer strong potential for upside. In other words, the 27 names in the portfolio that didn’t make it past all three stages of the screen have their own reasons for being owned. In some cases, a stock could look expensive based on earnings estimates for the next 12 months, but fare much better in years further down the road. In other cases, that’s just what happens to the stocks of best-in-breed companies in a bull market — they trade at premium valuations. Costco is a great example of that, as are the rest of the stocks on our core holdings list . None of those 12 stocks passed this screen, but the reason they didn’t pass the screen is the same reason they’re core holdings: They are all the best at what they do, and when you want to own the best, you usually have to pay up. That’s not to say the stocks have all had a phenomenal year in 2024 — looking at you Danaher and Linde — but it is to say that they are best-in-class in their respective fields because they offer top-notch products and are run by world-class management teams. This is why keeping up with our daily commentary is more important than a screen such as this, which represents only a snapshot in time. Not all cheap stocks are worth buying, and not all expensive ones are worth dumping. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
The logo of the pharmaceutical company Bristol-Myers Squibb, (BMS) is seen on the facade of the company’s Munich headquarters on August 29, 2024 in Munich (Bavaria).
Matthias Balk | Picture Alliance | Getty Images
The holiday shopping season has come and gone. When it comes to stock picking, at least, the desire to find a bargain is as strong as ever.
A recent analysis of our portfolio revealed we own more than a couple cheap stocks, including one of our newer additions in Bristol Myers Squibb. Still, we’re not necessarily rushing out to put all of them in our shopping cart. Not all good deals are created equal.