CNBC’s Jim Cramer has gone on record for months saying the housing bottom was coming on June 30th. Like him or not, Cramer is not afraid to make bold predictions and stick to his guns. Now that his proposed housing recovery is just two months away, he is starting to get more bullish on stocks that relate to housing. One such stock is Watsco, Inc (WSO), and Cramer has taken issue with an analyst downgrade from buy to hold at Piper Jaffray (PJC).
“Yesterday an analyst downgraded Watsco, WSO, that’s the largest maker of air conditioning, in particular took it from buy to a Hold, this analyst put on Watsco… The time to upgrade it is now, not to downgrade it… Watsco, is a terrific play on housing which by my count, it changes every day. It does change every day. How is that possible? It’s 62 days away based on my June 30th call…As the heaters are put into new homes and they go to the sunbelt with states like Florida and Texas, and you have to have I expect housing to bottom…but you have a 4. 4% yield and a big, juicy dividend and you’re being paid to wait even if our turn call is early.
I’m here to tell you that because of negative analysts you’re getting this one, a steal in Watsco. A company you probably never heard of until tonight. It could be an ATM machine for you. That’s right, spewing cash and also Piper Jaffray disagrees. First, he didn’t believe in the big turn. Frankly, I don’t want him making that big call for me. I want him to report on the company and not the national economy. Second the report says, ‘While WSO shares should be a beneficiary of stabilizing in housing market conditions and we believe this recovery will be slow and the stock order reflects its potential. Translation, the market is too bullish about housing and given …’
But is the stock too pricey? 22 times earnings, that looks high, right? 12.5% long-term growth rate and that assumes the current earnings estimates are right. Watsco is expensive if you don’t believe the housing market will rebound allowing this company to move a lot more merchandise. If you think like I do, it’s the analysts and their hedge funds look at Watsco as a $43 stock, up 14 smackers from its low of $29. The guy who downgraded doesn’t believe the valuation. Watsco are a garden variety depression ended and not just because of the potential for the return in housing. I look at it differently. I see a stock that’s down $18 from the September highs.
If the embargo is lifted and I realize that is a big if, the company is based if Florida. Cuba desperately needs infrastructure and that includes Watsco.
