We’re downgrading a portfolio stock. Plus, what’s causing the market’s rally
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. Markets: Stocks were making a comeback after a bad sell-off on Tuesday. However, the rally did not focus on names related to artificial intelligence. It developed into a broader move under the influence of several developments. Most importantly, the ADP payroll report showed private employers added 42,000 jobs in October; this was above the Dow Jones consensus estimate of 22,000. This was a good turnaround after September’s loss and helped calm fears about a weakening labor market. The ADP report doesn’t always line up perfectly with nonfarm payrolls, but it’s the best data point we have on the labor market due to the ongoing government shutdown. The ISM Service Index for October was also higher than expected and increased compared to September. The Price Index, which measures how much U.S. companies in the services sector pay for goods and services, reached 70% for the first time since October 2022. Anything over 50% means prices are rising. Positive data may help explain why the 10-Year Treasury yield rose to around 4.15%. The market also rose after Supreme Court justices raised questions about the legality of President Donald Trump’s tariff policy. Rolling back tariffs would likely lead to a surge in companies whose margins have been squeezed by high import costs. Watch clothing and retail stocks as an indicator of sentiment regarding tariffs. The same goes for Stanley Black & Decker, which had big gains on Wednesday. Downgrade: Qnity Electronics subsidiary DuPont has done wonders for its investors. After a day full of earnings, shares of the new DuPont have risen roughly 16% over the past three sessions, reaching record highs each Wednesday split just under $40. Shares are up nearly 24% year to date, well above the S&P 500’s return of 16%. After a long period of so-called purgatory, our patience was finally rewarded. But Qnity shares are experiencing a downturn. They fell nearly 4% on Wednesday; It’s the first decline since Qnity began trading as a separate stock on Monday. However, we attribute this to general post-return volatility. It’s important to note that DuPont’s gains this week were not due to a big increase in earnings per share estimates. Instead, it stems from the realization that the stock’s valuation was heavily discounted to its multi-sector peers before Qnity’s spin. Multiples are rising and the valuation gap has narrowed. According to Bloomberg, the new DuPont 12-month consensus price target is around $44, indicating there is still some further upside in the valuation. However, it is within our discipline to take action against a move of this magnitude. This is especially true of the uncertainty in DuPont’s earnings report on Thursday morning. If we didn’t have trading restrictions, we’d be locking in earnings with a small cut. For now, the Club is downgrading DuPont to 2, meaning we could consider future acquisitions in the event of a pullback. We are also adjusting our price target to $44, implying an upside of approximately 15% from Tuesday’s close. Next up: Some notable reports after the closing bell on Wednesday include Robinhood, AppLovin, Dutch Bros, Arm Holdings, Qualcomm, Figma, Snap, DoorDash, and Lyft. Outside of the portfolio, Datadog and Warner Bros. Discovery is also on hand to publish the results. Solstice Advanced Materials, the latest subsidiary of Club holdings DuPont and Honeywell, is hitting the market Thursday morning. Qnity will provide a business update on Thursday evening. Club name Texas Roadhouse also reported earnings after Thursday’s close. (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 waits 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.
