We’re adding 2 stocks to the Bullpen to benefit from market rotation
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. Market update: Shares are trading lower on Monday, further extending the market’s recent struggle to find ground. Concerns about prolonged valuations, especially in the technology sector, and the uncertain return on debt-based spending on data centers and artificial intelligence put pressure on stocks. Amazon aims to raise $15 billion through a bond sale for the first time in three years, which would help the cause, Bloomberg reported on Monday. Deals like this also benefit the big banks that oversee them. According to the report, Goldman Sachs, JPMorgan and Morgan Stanley were appointed to manage the bond sale. Bullpen additions: As we continue to navigate the emerging market landscape and move towards the possible end of the “Magic Year of Investing,” we’re adding several new stocks to the Bullpen that are poised to benefit from the rotation of technology and AI themes. Another group we follow closely is the packaged consumer sector. The consumer staples sector has been the worst-performing sector to date, but the market may bounce back into the group due to concerns about technology valuations and a slowing economy. We discussed the food and beverage category with the home products group. We’re turning to household products because lower drug prices and increased adoption of GLP-1s due to Eli Lilly’s oral pill next year could add uncertainty to the food and beverage industry. This brings us to Kimberly-Clark, the paper products specialist and parent company of the Cottonelle, Huggies and Kleenex brands. Two weeks ago, it announced it would acquire Kenvue, valuing the consumer healthcare company at an enterprise value of about $49 billion. The market hated the transaction when the news was announced. Kimberly-Clark’s shares fell 14% that day, falling from about $120 to $102 and falling as low as $100 later that week. On a yearly basis, Kimberly-Clark lost nearly 20%. Investors had two main concerns about the deal. Some have questioned why Kimberly-Clark would pay so much for Kenvue, given the headline risk surrounding Tylenol as well as talc-related lawsuits in the United Kingdom. Others debated the strategic feasibility of a toilet paper company entering the healthcare industry. CEO Mike Hsu answered all these questions head-on when he appeared on “Mad Money” to discuss the deal. The packaged goods group desperately needs mergers and acquisitions to reduce costs and spur growth, so we commend Hsu for taking on the challenge. Actually, once you get past the headline noise, there’s a lot to like about this deal. The new company will have ten different $1 billion brands and be the second largest consumer packaged goods company, behind Procter & Gamble. The benefits of the merger are quite solid; With a potential value of $2.4 billion, it consists of $1.9 billion in cost savings and approximately $500 million in increased profits from revenue synergies. The valuation looks attractive, with Kimberly-Clark trading at less than 14 times 2026 earnings per share estimates (a 5% discount to Procter & Gamble) and offering a 4.8% dividend yield. The second addition is Johnson & Johnson. Shares of this pharmaceutical name have performed excellently in 2025, rising nearly 38%. The strength of the oncology portfolio has been a key driver of this success, and management is extremely optimistic about its future. Johnson & Johnson reports oncology sales of about $21 billion for 2024 but expects the business to grow to more than $50 billion by 2030. The company acquired another oncology asset on Monday, with the announcement of the acquisition of Halda Therapeutics. Halda is a clinical-stage biotechnology company with a proprietary platform developing oral, targeted therapies for many types of solid tumors, including prostate cancer. J&J is also in the process of separating its orthopedics business. The unit generated nearly $9 billion in sales last year, but it doesn’t fit the profile of the rest of the high-growth, high-margin MedTech segment. By exiting this business, management can better focus its investment on faster-growing parts of the company. And yet J&J trades at less than 20 times earnings. Next up: No major earnings reports after the closing bell. Before the opening bell on Tuesday, Home Depot, Medtronic, Baidu and PDD Holdings reported results. Additionally, the NER Pulse weekly employment forecast will also be published, which will replace data collected by the government. (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.
