11. General Electric (GE) is, at last, ready to roar. This another firm that somehow believed the market is dumb enough, and its participants stupid enough, to accept finance profits with the same love that they do industrial profits. That era had a shelf life, and it has come and gone. Now GE gets it. It's done shutting down the really toxic part of its portfolio, and now it is going to spin off the part that is actually likeable but not core, like U.S. credit cards. The remaining company is a solid manufacturer of important parts of planes, turbines, locomotives, appliances, medical equipment (just an OK business) and oil and gas. If GE makes two more acquisitions in the oil-and-gas area, I think it will be able to call itself an energy and energy-saving company, although that would be deeply aided by selling the slower-growing healthcare business.
I believe this stock will get back to the $40s this year based on solid worldwide economic growth, and given the cutting loose of the millstone around the company's neck. Action Alerts PLUS owns some. I want to double down, because I think the order book will be much more robust this time next year than it is now, and this stock is going to begin trading on orders, not tax shenanigans and sale leasebacks.
12. Goldman Sachs (GS). This is another company that will benefit from the Volcker rule. What people don't realize about Goldman Sachs is that it used to be the foremost customer-centric house, and that it shunned the making of profit with its own money. It was all about the client, and I think that was one of the reasons the stock always had a premium multiple and not a discount one. The shackles for the stock were all Volcker in nature, meaning the risky transactions were very unrewarded by the marketplace because of that potential risk.
As a Goldman Sachs alumnus, I for one am grateful for the change, and I don't even think it will damage the firm's earnings power. In fact, I believe it will increase the price-to-earnings multiple dramatically. The Street is looking for earnings of $16 per share in 2014, but I think initial public offerings will continue to be strong, and that mergers and acquisitions will get much stronger, so I believe Goldman could do $20 and it will get at least an 11x on that. Yep, I think $220 is in the cards for Goldman Sachs as the Volcker rule allows its old glory to return. Hey, did I ever say I was from the consensus?
13. Home Depot (HD) stock has been stalled in the high $70s long enough. If housing prices are coming back despite the increase in U.S. Treasury interest rates, then we are going to begin to see the real spend on the home. Right now, as CEO Frank Blake told me in a recent interview, the U.S. is still running way below its traditional spend on homes as a percentage of gross domestic product. That should step up very big in 2014, especially if employment improves.
Amazingly, Home Depot has bought back a ton of stock, even when others were writing it off. It has taken share count down from 2 billion to 1.4 billion shares, and that's going to lead to much heftier profits on the increase in sales that I am predicting. My only real worry here is that the company has stopped expanding. It is adding only one store in the U.S., a new North Dakota location to take advantage of the booming Bakken. If Home Depot had a more aggressive expansion plan, that would allow the market to give the stock a 25x on the $4-per-share number I foresee for fiscal 2014.
Home Depot does have some killer new products that will actually drive traffic, like the new Cree (CREE) light bulbs that last 22 years. Also, I am confident that more and more money will be spent in the store. But I think the 30% share gain will be hard to top for this one, and that the stock can reach $95 but not higher.
14. IBM (IBM) is real hard because no one seems to trust the $16 per share it is supposed to earn next year. IBM has been making that number through a monster buyback, and its stock has been buoyed by aggressive buying on the part of the Oracle of Omaha. I find it curious that Warren Buffett has always prided himself on refraining from owning because he said he doesn't understand it. I think his purchase of IBM confirms that.
But perhaps the company can restructure somehow. Maybe it will be able to take advantage of what I believe will be a worldwide economic expansion. Either way, I don't think the stock will have a hard time getting back to $200 because it, like Cisco (CSCO), it will soon be going up against easy comparisons. IBM is really being hurt by the cloud, and the reason for that is simple: the cloud is meant to hurt it. It is a rebellion against a closed IBM system. Still, Buffett's back buying, so if we see any good news it will head north for certain.
15. Intel (INTC) became less controversial as the year went on as it became clear that the personal computer was not going the way of the typewriter and Intel's new chips are cheaper to make and use up less battery life. Plus, Intel has more new chips out now than at any time that I can remember, and it still has a terrific balance sheet. This is one of those companies for which, if it were to have an upside surprise, shares would go right to $30, but if it surprised to the downside it likely wouldn't go down much at all.
I like this stock, as does my colleague Matt Horween, who has been suggesting -- quite rightly -- that Intel has once again become a very interesting stock. The recent moves by new CEO Brian Krzanich do make you feel that he knows the company is not going to have any sacred cows. This includes products that failed to scale for Intel, but that could help other companies in the business.
16. Johnson & Johnson (JNJ). Lots of people have noticed that J&J shares have stalled at current levels through no fault of the company. The vicious end-of-the-year rotation has truly kept the stock from having its day at year-end, but the stock's 30%-plus increase under CEO Alex Gorsky is nothing to squeeze at. This year I think Gorsky will shed the slow- growing diagnostics business, and that he'll focus on the faster-growing drug franchise. The latter came close to putting up double-digit numbers -- rather remarkable for an old line drug company.
J&J is being rejuvenated after a battering that can be laid squarely on the feet of William Weldon, the recently retired CEO, who probably did more to hurt this pristine franchise than any other chief executive in the company's history. The Street is looking for $5.50 EPS in 2014, but I think that's conservative, especially when you consider a weakened dollar. I see earnings coming closer to $6 per share next year, and a 18x multiple. That would take the stock to $108 -- not too shabby. If anything, that could be a conservative target if Gorsky keeps the restructuring going. Action Alerts PLUS will hold this one the whole way, as it is one of my favorite recommendations and a very big position, in part because it has appreciated so much.
17. JPMorgan Chase (JPM). What would JPMorgan earn if the bank were able to focus on being a bank rather, than on being a pinata of the Justice Department? What could it earn if the 10-year Treasury bond creeps up on 4%? That uptick would happen slowly, of course, because it would be quickly perceived as disastrous, even though the company operates much better in a rising-rate environment. I don't think people recognize how much earnings power JPMorgan has in an economic recovery when it is not being hectored by the authorities.
Now lots of people are concerned that the bank will be hurt because of the Volcker rule. I think that's short-sighted. Banks used to be able to get about an average price-to-earnings multiple, but then we saw that craziness of the internal hedge funds, and that wrecked our ability to figure out both normalized earnings figures and what to pay for them. Plus, we always had the dividend stream going higher, which made them advantageous in market selloffs.
JPMorgan was one of the banks that fared best in terms of accumulating market power during the Great Recession, and I think you will see it shine next year. I think the shares can go up substantially, perhaps to $75, on $7 per-share earnings for next year. The price-to-earnings multiple would then be north of 10x.
18. McDonald's (MCD). I honestly know what to say about McDonald's. Really, think about it. Just consider the fact that McDonald's had a chicken-wing surplus after a recent promotion, which most observers thought would going to clobber one of my faves, Buffalo Wild Wings (BWLD). As people want to eat more healthily, McDonald's has somehow become public enemy No. 1, even though it has introduced a number of good and good-for-you dishes that should have made the stores more attractive to the health-conscious. But this simply hasn't happened.
Plus, there is the on-off, maddeningly "strong Europe, weak U.S., weak Europe, strong U.S." numbers. The instability makes it impossible for anyone to be comfortable, especially when revenue growth, even when good, seem to be at 2% or below. I don't want to write this one off, because then I am tempting the Dogs of the Dow thesis. In fact, we all know that if McDonald's can put one back-to-back set of positive monthly numbers, the stock would go to $110 rather quickly, especially given its balance sheet and its bountiful dividend. That's why I think that $105 is a safe bet just on the idea that, at this time next year, CEO Don Thompson will have been in long enough to figure out what's going wrong and fix it -- which I am confident he will.
19. Merck (MRK) is smug. There's no room for smug. It's time to shake up this company and to split it up. The animal-health division should depart first, as I suggested in Get Rich Carefully. I think Merck has lost its way, and that the Schering Plough merger didn't help much at all. Right now the company is supposed to earn $3.50 per share for 2014, but it's tough to see how it will be able to get more than $53 without a restructuring. At this time last year, I thought Merck had a decent pipeline, but there some high-profile failures have spoiled the upside. I don't think management will be broomed any time soon, but the company's performance these last couple of years has been distinctly subpar at best.
20. Microsoft (MSFT). By this time around we could have three pieces of Microsoft -- the utility, the communications and the Internet and gaming plays -- and the market would be rejoicing at the breakup. It would take an outsider to see this, but it doesn't even take a bright outsider to know this is what needs to be done. Microsoft is just too big, and there is too much value to be brought out, to keep all of these disparate pieces under one roof. The last quarter's shortfall showed, glaringly showed, that the current configuration just isn't working. This is the only Dow stock for which a sum-of-the-parts story can be made that would dramatically increase the price of the stock. That's why I think Microsoft will trade to $45 next year on the strength and vision and execution of a new CEO. That CEO would only have to announce a breakup to get the darned cash-larded thing moving again.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long GE, JNJ and JPM.
Editor's Note: This article was originally published at 10 a.m. on Real Money on Dec. 24.