Cramer’s list of cheap stocks to buy in a market trading at record highs
CNBC’s Jim Cramer said on Thursday he sees plenty of cheap stocks worth buying, even with the S&P 500 sitting at record highs and signs of overvaluation in pockets of the market.
“Forget the craziness” around meme stocks like AMC Entertainment, GameStop — and, most recently, Robinhood, the “Mad Money” host said. “Focus on the cheap stocks that have done nothing and sell for peanuts. They’re a lot more plentiful than you might think.”
Among the stocks Cramer sees as undervalued is Walmart.
“Until it caught an upgrade today, this Dow component was actually down for the year, even though it has excellent financials and sells for just 24 times earnings. That’s a market multiple, meaning it’s got the same valuation as the average stock in the S&P 500, yet I would say it’s anything but average,” Cramer said.
That Wells Fargo upgrade of Walmart came with a price target increase to $165 per share. That’s more than 13% higher than where the stock closed Thursday at $145.49.
Cramer said the “real clincher” as Wells Fargo points out is Walmart‘s underperformance compared to its rivals since Covid began.
So far this year, Walmart has “trailed the S&P 500 by 18 percentage points; compared to the likes of big winners Target, Kroger, that underperformance is even more glaring,” Cramer said, adding the Wells Fargo upgrade makes a lot of sense right now because Walmart‘s customer base is flush with cash from pandemic stimulus programs and higher wages due to the tight labor market.
Ford, trading at roughly 8.5 times earnings, is relatively cheap given cars are flying off dealership lots all across the country, Cramer said. “That tells me the earnings estimates could be too low, not too high.”
He acknowledged that automaker stocks would get hammered in another recession, but he believes the economy won’t go there again.
“Look at it this way, seven years ago, Ford traded at $18. … Now Ford is at $13.71,” Cramer said, adding it’s hard to fathom that Ford created no value in that span, especially now that “it has a full line of electric vehicles on the way, a rapidly improving balance sheet, and a commitment to stop building cars in countries where it has a long history of losing money.”
“When I think of the new Ford, I don’t think of losses, I think of sold out, as in everything they make seems to be sold out,” he said.
Cramer also sees valuations of steelmaking stocks such as Nucor as “absurdly low.”
“Nucor is the best-run steelmaker on earth, one that’s making fortunes right now with a terrific balance sheet and a healthy dividend,” Cramer said.
With Nucor selling at five times forward earnings, Cramer said the stock “would still be ridiculously cheap,” even if its earnings were cut in half in a delta variant-driven downturn in the economy.
“It’s the same deal with the homebuilders,” Cramer said, pointing to Toll Brothers, Lennar, DR Horton, and KB Home, all selling between six and nine times earnings.
“These stocks are all pricing in a future with much higher mortgage rates and no customers, yet they don’t reflect the relentless demand for new homes created by both Covid and plain-old population growth,” Cramer said.
Cramer believes these stocks could really pop if Federal Reserve Chairman Jerome Powell “stays true to his word and lets the economy percolate rather than raising interest rates.”
Disclosure: Cramer’s charitable trust owns shares of Walmart, Ford and Nucor.