Snap-On's Shares Should Snap Back to Life

There is no such thing as a perfectly valued stock. Given the fluidity and constant change in every business, it's an illusion to think any stock can be perfectly valued.

A divergence, sometimes small and sometimes large, always exists between the value of a business and its stock market value.

It's the value investor's job to seek stocks where the business value exceeds the stock value by a wide margin. In an effort to help identify undervalued businesses, I've highlighted 26 stocks in my columns since last December. On average, they're up 20%, well ahead of the S&P 500's 19% decline for the year.

My 27th pick, Snap-On (SNA Quote - Cramer on SNA - Stock Picks), is a leading supplier of power tools and diagnostic equipment for the auto maintenance and repair business. My analysis of the company suggests the business value significantly exceeds the value of the stock.

I like to buy companies like Snap-On, where the business value has steadily increased over the years while the stock value has languished. Snap-On traded at its current level of about $27 per share more than eight years ago. Since then, revenue has more than doubled, and assets and cash flow are way up. Even the dividend is up 50% during that time period.

A Stagnating Snap-On Despite higher revenue, assets and cash flow, the stock hasn't moved up in tandem

I'm expecting Snap-On stock to increase to the high $30s in the next year or so and to the high $40s in two or three years. Collect a fat 3.6% yield while you wait -- Snap-On has paid dividends for more than 60 consecutive years.

Top 10 Turnarounds for 2002

I had a terrific response to my request for turnaround ideas for 2002, receiving about 550 suggestions. Some of the ideas most frequently mentioned were Rite Aid (RAD Quote - Cramer on RAD - Stock Picks), Global Crossing (GX Quote - Cramer on GX - Stock Picks), WorldCom (WCOM Quote - Cramer on WCOM - Stock Picks), 3Com (COMS Quote - Cramer on COMS - Stock Picks), Enron (ENE Quote - Cramer on ENE - Stock Picks), Providian (PVN Quote - Cramer on PVN - Stock Picks), Conseco (CNC Quote - Cramer on CNC - Stock Picks) and Scientific-Atlanta (SFA Quote - Cramer on SFA - Stock Picks).

I will have a column in a few days analyzing some of these companies and other turnaround candidates. The final list, the Top 10 Turnarounds for 2002, will be posted in mid-December right here on RealMoney.com.