The holiday shopping season is over. At least when it comes to stock selection, the desire to find a bargain is as strong as ever. A recent analysis of our portfolio showed that we hold more than a few cheap stocks, including one of our newer shares in Bristol Myers Squibb. Still, we're not necessarily in a hurry to put them all in our basket. Not all good deals are created equal. What We Found Our analysis – called a “screen” in Wall Street jargon – began with all 35 stocks in the portfolio. The goal was to narrow down the list to stocks that met certain valuation criteria and then apply a layer of fundamental analysis to identify those that we believed offered value worth pursuing. Here are three features we checked: 1. Their current forward price-to-earnings ratio, based on 2025 earnings estimates, is lower than their average P/E ratio over the last five years. 2. Their current forward P/E is lower than the combined S&P 500, which means they are cheaper on an absolute basis. 3. They are also cheaper than the S&P 500 on a growth-adjusted basis. To calculate this, we divided the P/E by the estimated three-year annual earnings growth rate, in line with FactSet's consensus earnings estimates. This gives us a measure known as the PEG Ratio. We did this for each stock in the portfolio and for the S&P 500 Index. Note: FactSet has not yet entered estimates for S&P 500 Index earnings in 2027. So, to generate a compound annual growth rate in three years, we assumed 7.3% growth in S&P Index earnings 500 in 2027 on an annual basis. We used 7.3% because this is the average annual growth achieved 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. Let's take a look at them below and how they compare with each indicator. Simply looking at these numbers and concluding that all eight stocks are a buy right now is a highly quantitative – and probably incorrect – way of thinking. Sometimes cheap stocks are cheap for a reason that limits their upside potential, meaning they constitute a so-called “value trap”. That's why we've taken a more qualitative approach to refine the list, highlighting those that are not only cheap, but we believe also have strong fundamental reasons to own them in the new year. Where we stand Let's take a closer look at our thoughts on all eight companies. Bristol Myers Squibb: As our second newest addition to the portfolio (the newest being Goldman Sachs), we clearly like this name heading into 2025. While Bristol Myers has a large patent cliff to overcome, we believe Wall Street is underestimating the upside potential of the move moves by management to replenish drug supplies, most notably last year's $14 billion acquisition of neuroscience company Karuna Therapeutics. The leading asset acquired from Karuna recently received FDA approval and is marketed under the Cobenfy name. It is an antipsychotic drug used to treat schizophrenia, an extremely difficult disease to overcome. Cobenfy's prescriptions will be key to increasing inventory in the coming year, and we expect an upward revision to sales estimates. Coterra Energy: We considered whether to increase these stocks ahead of our December monthly meeting, but decided not to. The key factor for the quotations is the export of liquefied natural gas from the USA, which drives demand for this raw material and thus supports prices. Unfortunately, the Biden administration's pause in issuing new LNG permits has proven to have a negative impact this year, and it is too early to know what President-elect Donald Trump's policy changes will mean for commodity prices. However, we continue to invest in Coterra as it benefits from the growing energy demand in data centers. We also like to hold shares of energy companies in our portfolio as security. The idea is that higher energy prices will weigh on other market sectors but benefit producers like Coterra. DuPont: With the split into three separate companies expected to be completed by the end of 2025, DuPont is certainly a stock worth watching. The stock is currently trading at a discount, but we believe all of DuPont's parts are worth more on their own than the combined companies. Therefore, patient investors should be rewarded as the official separation of its water and electronics businesses approaches. Our price target of $100 per share, based on our sum-of-the-parts analysis, represents a material upside from the current level of approximately $77. GE Healthcare: While the company's medical imaging solutions are good, we cannot be too optimistic about the stock due to its exposure to China. Until China turns around or becomes so small that it doesn't matter to earnings, we simply can't justify putting new money into work at GE Healthcare. Of course, the flip side is that the current share price decline could result in a coil spring if China starts to recover. Until then, however, we are probably dealing with something of a value trap. Constellation Brands: The possibility of higher tariffs on Mexican imports is a risk during the next Trump presidency. However, the weakening we have seen in the peso is serving as an offset, and the large Constellation brewery being built in Mexico will be paid off by the end of next year, and as such we may see a shift in cash flow that will benefit shareholders through dividend increases and share buybacks. Yes, we have seen younger consumers move away from alcoholic beverages in recent years, but beer remains a growth area in the category. Another potential catalyst on the horizon is the sale of the struggling wine and spirits portfolio. Alphabet: The mood has certainly improved from the ugly duckling of “The Magnificent Seven” for most of last year. Reasons for this shift include the resilience of Google Search, the strong growth of YouTube and Google Cloud, and the potential benefit of Waymo emerging as a leader in autonomous vehicles. When you put it all together, Alphabet heads into 2025 with strong fundamentals, especially considering its stock still looks attractive on an earnings basis despite December's 14% gain. However, chasing such moves is not our style. We maintain a 2 rating for the name pending greater clarity on the company's AI monetization strategy. Nextracker: This is another difficult issue that we debated before the monthly meeting because of how cheap it looks; our screen results highlight this. Still, the basic reason for adding it to the broth is unclear. Even though Nextracker has launched a product in the US, and Trump is not an enemy of solar energy, he is not its biggest supporter either. Rather, Trump has signaled that when it comes to energy, his view is “practice, baby, practice.” For now, it will be difficult for Nextracker to achieve sustained upward growth, especially given how inconsistent its earnings may be. In other words, with Trump back in the White House, we're having a hard time finding the catalyst that will make him worth the new money. Stanley Black & Decker: While we believe the stock is currently too low to sell – and at current levels we are receiving a 4% dividend – we do not want to buy this stock, as CEO Don Allan himself told us in a recent interview appearing on “Mad Money ” that he does not expect much growth in 2025. Add to that the Federal Reserve's updated stance that interest rates will need to stay higher for an extended period of time, and it's hard to be too optimistic on this issue, even if our screen shows it looks attractive based on Wall Street's earnings growth estimates . Our current rating of 3 means we want to wait for strength before selling. Bottom Line Bristol Myers Squibb, DuPont and Constellation Brands are three bargain stocks that members should take a closer look at in 2025. Alphabet will be the fourth name to keep an eye on, especially if the stock consolidates around current levels. The stock valuation is attractive, but chasing momentum is not our style and we prefer to sell during big moves, as was the case at the end of the year. Indeed, we booked some profits at Alphabet earlier this month. Just because we don't recommend buying these other stocks right now doesn't mean we're completely ignoring them. They're still worth keeping an eye on because they're already cheap, which means they have the potential to get any positive updates. In the same way, we have eliminated some stocks that we considered attractive on a valuation basis due to fundamental concerns such as higher interest rates for a longer period, investors should remember that stocks that were “expensive” based on our criteria may still offer great upside potential. In other words, the 27 names in the portfolio that didn't make it through all three on-screen stages have their own reasons for ownership. In some cases, a stock may seem expensive based on earnings estimates for the next 12 months, but it will perform much better in the following years. In other cases, this is exactly what happens to best-in-class stocks during bull markets – they trade at higher valuations. Costco is a perfect example of this, as are the rest of the stocks on our list of major stocks. None of these 12 companies made it through this screening, but the reason they didn't make it through this selection is the same reason they are core companies: they are all the best at what they do, and if you want to own what best, usually you have to pay. This doesn't mean that 2024 has been a phenomenal year for all companies – looking at Danaher and Linde – but it does mean that they are best in class in their fields because they offer top-notch products and are led by world-class management teams. That's why keeping track of our daily comments is more important than a screen like this that only shows a snapshot in time. Not all cheap stocks are worth buying and not all expensive stocks are worth abandoning. (See Jim Cramer's full list of Charitable Trust stocks here.) As a subscriber to the CNBC Trading Club with Jim Cramer, you'll receive trade alerts before Jim makes a trade. Jim waits 45 minutes after sending a trade notification before he buys or sells shares in his charitable fund portfolio. If Jim mentioned a stock on CNBC, he will wait 72 hours after the trade alert is issued before executing the trade. THE ABOVE INFORMATION ABOUT THE INVESTING CLUB IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, INCLUDING OUR DISCLAIMER. NO OBLIGATIONS OR FIDUCIARY OBLIGATIONS EXIST OR CREATE BY THE RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. WE DO NOT GUARANTEE ANY SPECIFIC RESULTS OR PROFITS.
The logo of pharmaceutical company Bristol-Myers Squibb (BMS) appears on the facade of the company's headquarters in Munich on August 29, 2024 in Munich, Bavaria.
Maciej Balk | Image Alliance | Getty Images
The holiday shopping season is over. At least when it comes to stock selection, the desire to find a bargain is as strong as ever.
A recent analysis of our portfolio showed that we hold more than a few cheap stocks, including one of our newer positions Bristol Myers Squibb. Still, we're not necessarily in a hurry to put them all in our basket. Not all good deals are created equal.