NEW YORK (TheStreet) -- TheStreet's Jim Cramer says growth and value are battling for the soul of the market, and he wants growth that is not trading at an outrageous multiple. Two examples in this case are Procter & Gamble (PG) and Starbucks (SBUX).
P&G has very little growth at 1% to 2% but has a great yield, which has caused the stock to rise ever since it reported earnings that the market did not like. Starbucks, on the other hand, has flatlined even though it reported a remarkable quarter because people are so suspicious of growth.
Cramer advises investors to let go of some of these suspicions. Starbucks CEO Howard Schultz has built an "amazing" company that Cramer thinks can thrive in this environment. Cramer points to March and April 2000 when investors got out of growth stocks and the money piled into Starbucks. He reasons that senior growth stocks such as Starbucks will begin to percolate as big software-as-service companies continue to fail to catch a bid.
Must Watch: Jim Cramer on Procter & Gamble and Starbucks
"We rate STARBUCKS CORP (SBUX) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, increase in stock price during the past year and growth in earnings per share. We feel these strengths outweigh the fact that the company shows low profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 4.8%. Since the same quarter one year prior, revenues slightly increased by 9.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The net income growth from the same quarter one year ago has significantly exceeded that of the Hotels, Restaurants & Leisure industry average, but is less than that of the S&P 500. The net income increased by 9.4% when compared to the same quarter one year prior, going from $390.30 million to $426.90 million.
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
- STARBUCKS CORP has improved earnings per share by 9.8% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, STARBUCKS CORP swung to a loss, reporting -$0.01 versus $1.79 in the prior year. This year, the market expects an improvement in earnings ($2.67 versus -$0.01).
- The gross profit margin for STARBUCKS CORP is currently lower than what is desirable, coming in at 25.80%. Regardless of SBUX's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 11.02% trails the industry average.
- You can view the full analysis from the report here: SBUX Ratings Report
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