We’re upgrading Honeywell — plus 2 positions we’d like to build up
Every weekday, CNBC Investment Club with Jim Cramer publishes Homestretch, an actionable afternoon update just in time for the final hour of trading on Wall Street. Stocks are ending the week on another bad note as the S&P 500 enters its fourth straight losing week. Friday’s market decline sent the S&P 500 down nearly 6% from its Jan. 27 closing high. On a yearly basis, the index fell by more than 4%. Oil remains a major story, with WTI and Brent crude up around 1%. However, the most important focus on Friday may be the movement in bond yields; The yield on the 10-Year Treasury note rose nearly 10 basis points to 4.38%. This is the highest level since last July, as the possibility of rate hikes (not cuts) before the end of the year has been floated amid concerns about an oil-fuelled rise in inflation. Energy was the best-performing sector, up nearly 4%, bringing its rise this year to 33%. Financials managed to post a small gain as concerns about private loans eased. New rules that relax capital requirements could also have a negative long-term impact on banks. Goldman Sachs and Wells Fargo gained 4% in the difficult week, while Capital One remained almost flat. The pioneer of this negativity was consumer staple products. Costco and Procter & Gamble are two cornerstones of the portfolio, and both stocks are down about 3% this week. You would expect this defensive, economically resilient group to be better able to withstand a slowdown, but rising input costs in an inflationary environment will put pressure on the sector, especially those that lack the pricing power to offset these pressures. Also, with the 10-year well north of 4%, those dividends don’t look all that meaty. It’s our discipline to chew on stocks when the market is this low and the S&P 500 Short Range Oscillator this low, but our trading restrictions prevent us from adding to some positions in the portfolio. As much as we love the declines in Goldman Sachs, Boeing, and Cardinal Health, we can’t keep buying them every day. Two more opportunities we are interested in are Alphabet and Honeywell. We’ve talked several times about our plan to develop Alphabet and bought shares last Friday. As for Honeywell, we raise our rating to 1. The stock has been down for most of the week after CEO Vimal Kapur said at a conference that first-quarter revenue would be weak. The problem was the turmoil in the Middle East. The company cannot deliver its products to some of its customers in the region due to the war. But Kapur said these are timing issues that won’t impact the company’s full-year guidance and that it’s “shaping up pretty well.” Another reason we like Honeywell in this market that’s struggling to find a foothold is that it has a catalyst: the impending separation of its aerospace division from the automation business. Honeywell is hosting an investor day for its aerospace division in early June, and we expect the stock to trade higher as the return date approaches. We intend to buy back some of the shares we sold in early February at a price of $10 above the current price. Next week will be a quiet week except for watching the war, and there are no companies in the portfolio to report. It’s a relatively quiet period for corporate news, as companies will wrap up their first quarters within the next two weeks. One of the earnings notes will be published by Jefferies on March 25. It typically reports several weeks ahead of major banks like JPMorgan and Goldman Sachs, offering an early look at how investment banking is performing over the period. Economic data is also quite light. We usually pay more attention to what companies say than the Federal Reserve, but a handful of officials are scheduled to speak and what they say about their policy outlook could affect bonds. (See here for a complete list of stocks in Jim Cramer’s Charitable Trust.) When you subscribe to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trading alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim talked about a stock on CNBC TV, he would wait 72 hours after issuing the trading alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH THE DISCLAIMERS. NO CIVIL OBLIGATIONS OR DUTIES EXIST OR SHALL BE RESULTING FROM YOUR RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT CAN BE GUARANTEED.
