Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. Market moves : Stocks were mixed Monday as money continued to shift out of high price-to-earnings multiple technology stocks that have outperformed this year and moved into cyclical areas of the market like energy, the financials, and industrials. It’s no wonder why the Dow Jones Industrial Average was higher Monday and the S & P 500 and Nasdaq were lower. For example, Club name Nvidia , the company at the center of the rally in artificial intelligence-related stocks, has quickly lost about 12% since hitting a closing high of $135.58 last Tuesday. It is worth noting that Nvidia has historically been prone to volatility at times. Conversely, the energy and utilities sectors — two of the worst-performing groups in June — charged higher. The oil rally was certainly helping our lone energy stock, Coterra Energy, which was nearly 4% higher on Monday. Next for tech : These rotations, which saw the Nasdaq recently lead and the Dow lag, have a habit of lasting a handful of sessions, making it hard to predict when and where those beloved tech stocks will stabilize. But what could turn the tide is a positive data point on industry spending later this week when Micron reports earnings. “People are picking apart the part of tech that’s been working and the Mag7 members except Apple. I think that this move will be hard to stop until we hear from Micron on Wednesday, which could tell us about actual demand and supply. I think that demand will stay strong,” Jim Cramer said Monday. Don’t chase : Still, the quick pullbacks in some of these AI names that were monster gainers over the past month is another reminder of why investors should be hesitant about chasing parabolic moves. This discipline is part of the reason why we trimmed Broadcom last week after it shot up after earnings. We ended up putting about half of the cash from that sale into Dover , an industrial company that can benefit as a second-order AI stock. Dover makes things that go into data centers, which are being upgraded and constructed at a fast clip to handle AI workloads. Record runs : As money rotated into other areas of the market, non-tech stocks like consumer products giant Procter & Gamble and off-price retailer TJX Companies reached all-time highs Monday. Industrial conglomerate Honeywell reached its highest levels back to late 2022. “Procter & Gamble might have the best consumer packaged goods profile and is barely up versus the rest of the group. I think it still has room to run,” Cramer said. Up Next: No earnings are out after the bell Monday. Cruise line Carnival reports before the opening bell Tuesday — and later in the morning, the Conference Board’s consumer confidence survey is released. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber 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 trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street.
With the S & P 500 on Friday closing above 5,000 for the first time ever, recognizing the winners this year has not been difficult. But what about the ones that are still cheap â or less expensive â on a valuation basis? Those are not as easy to spot. We screened the 32 stocks in our portfolio late Monday and identified 10 that are undervalued based on traditional market metrics following their latest quarterly earnings reports. (The market was under heavy pressure Tuesday after a hotter-than-expected consumer price index.) To determine valuation, we reviewed two metrics â price-to-earnings (P/E) ratios and P/E-to-growth (PEG) ratios â and compared each to their historical five-year averages. P/Es and PEG ratios A stock’s P/E shows how much shareholders are paying in share price for earnings. We use forward P/Es in our analysis. A stock with a lower P/E is considered to be cheaper on a valuation basis. Sometimes, however, a low P/E could be a red flag â signaling earnings estimates are too high and need to come down, which usually leads to a drop in share price, or something is fundamentally wrong with the company, such as slowing growth. The PEG ratio, another valuation tool, starts with the price-to-earnings ratio and divides the P/E by estimated earnings growth. This metric helps investors determine whether they’re paying too much today for a company’s estimated growth in the future. A good PEG ratio is 1 or lower. There is a major consideration when analyzing five-year valuation average comparisons: interest rates. As inflation has cooled, there has been a debate recently over when central bankers should cut rates. If rates come down this year, as expected, then higher multiples could be supported. The 10 undervalued companies from our screen all have strong businesses. Some of these stocks, like the overall market, are trading at or near record-high prices. But price is what you pay and value is what you get. Stocks can have high prices based on historical trading patterns and still be considered cheap based on valuation. As a yardstick, the S & P 500 has a price-to-earnings multiple of 20.5 times the next 12 months’ earnings estimates. That’s above its five-year average of 18.9. The stocks we’re highlighting here are all trading below their five-year average. In other words, the overall market is more expensive compared to historical norms and these stocks are less expensive. All data is from FactSet as of Monday. 1. Alphabet Price-to-earnings ratio (P/E): 21.1 P/E vs. peers: 10% cheaper P/E-to-growth ratio (PEG): 1.3 Alphabet ‘s forward P/E of 21.5 times is 10% cheaper than peers and below its five-year average of 23.4. The PEG of 1.3 is below the historical average of 1.5 â meaning you’re paying less for estimated growth, too. Alphabet shares have the cheapest valuation of all our Significant Six mega-cap tech stocks, which include Amazon, Apple , Microsoft , Meta Platforms and Nvidia. Alphabet’s attractive valuation comes despite multiple avenues for growth within Google Cloud and generative artificial intelligence through Gemini, the successor to Bard. Ongoing cost discipline should also benefit margin expansion. While advertising revenue came in softer than anticipated in Alphabet’s most recent quarter , we believe the tech firm’s use of gen AI in Google search can help improve results. GOOGL 5Y mountain Alphabet 5 years The stock would need to gain about 4% to reach last month’s all-time high. We have our wait-for-a-pullback 2 rating on shares because it’s not our style to chase moves higher even if the valuation is attractive. 2. Amazon Price-to-earnings ratio (P/E): 40.9 P/E vs. peers: flat P/E-to-growth ratio (PEG): 1.3 Amazon ‘s forward P/E of 40.9 times is relatively flat compared to peers and well below its five-year average of 62.7. The PEG of 1.2 is half its historical average. The bargain here is on growth versus what was paid for Amazon’s growth in the past. That’s significant. Amazon shows promise in delivering consistent revenue and earnings growth in the years to come. Profitability in retail is incrementally growing as management focuses on speeding up delivery times supported by the regionalization of its fulfillment network. Cost efficiencies also show the strength of its operating margin growth opportunity across segments. Amazon continues to exhibit strong advertising revenue growth, and the company’s Amazon Web Services cloud unit is back and presents a major multiyear growth opportunity. AMZN 5Y mountain Amazon 5 years Shares of Amazon hit a 52-week high Monday but would still have to increase 9% to hit their July 2021 all-time closing high. For the same reasons as Alphabet, we have a 2 rating on Amazon shares. 3. Constellation Brands Price-to-earnings ratio (P/E): 18.1 P/E vs. peers: flat P/E-to-growth ratio (PEG): 1.8 Constellation Brands ‘ forward P/E of 18.1 times roughly the same as peers and below its five-year average of 20.2. The PEG of 1.8 is well below its historical norm of 2.7. So again, cheaper all around. The maker of Corona, Modelo, and Pacifico delivered a largely positive third quarter last month, with its core Beer business delivering solid results during an off-season period. The company’s struggling Wine & Spirits segment continued to disappoint. Jim Cramer has said over and over that Constellation should concentrate on Beer and offload Wine & Spirits. Management reaffirmed its consolidated comparable earnings guidance while raising its full-year outlook for operating and free cash flow. Shares of Constellation would need to add 10% to match their record closing high of nearly $273 each back in July. We think the stock can get back to those levels. And with an attractive valuation to boost, we have the stock at our buy-equivalent 1 rating. 4. Disney Price-to-earnings ratio (P/E): 22.3 P/E vs. peers: 20% cheaper P/E-to-growth ratio (PEG): 1.2 Disney stock is undervalued even with shares rallying roughly 12% after the company reported an upbeat fiscal 2024 first quarter. The company’s P/E ratio of 21.5 times is about 20% cheaper than peers and below its historical average of 29.6. The PEG of 1.2 compared to its historical 2.6 also flashes bargain, too. Nelson Peltz sees “undervalued” as a problem here. That’s why the activist investor is fighting for Disney board seats. Jim has said he wants Disney’s board to have more “skin in the game,” meaning more share ownership among its members. Peltz would bring that and past success in creating more shareholder value. Disney doesn’t want Peltz on the board, saying outside distractions are not what the company needs. CEO Bob Iger was able to show strength in parks as well as some progress in the entertainment giant’s financials. Management delivered improved profitability, cut streaming losses, and issued guidance of earnings-per-share growing at least 20% for fiscal year 2024 compared to the prior year. However, advertising trends in Disney’s linear networks have been weak as customers migrate to streaming services and a series of the company’s recent films have been duds at the box office. Disney would have to nearly double to get back to its March 2021 all-time closing high of almost $202 per share. We know the turnaround at Disney is going to take a while. But with an inexpensive valuation and an emerging path to growth ahead, we have a 1 rating on the stock. 5. Honeywell Price-to-earnings ratio (P/E): 19.4 P/E vs. peers: 10% cheaper P/E-to-growth ratio (PEG): 2.3 We like how Honeywell ‘s stock is valued post-earnings . The forward P/E of 19.4 times is 10% cheaper than peers and below its five-year average of 21.5. The PEG of 2.3 versus its average of 2.8. Shares pulled back about 3% after the company reported lower-than-expected organic sales. But what Wall Street didn’t credit was the company had better margins, cash flow and solid backlog. We bought shares on weakness on earnings day Feb. 1 because we still believe in the long-term for the industrial giant’s strong execution. While sales were disappointing. Honeywell’s historically strong Aerospace segment continued to deliver. However, the company is still dealing with softness in its Safety and Productivity Solutions as well as Building Technologies segments. HON 5Y mountain Honeywell 5 years Honeywell shares still need to gain nearly 20% to get back to its record close of just over $234 each back in August 2021. We have a 1 rating on the stock, appreciating its valuation and long-term prospects. 6. Nvidia Price-to-earnings ratio (P/E): 33.5 P/E vs. peers: 10% most expensive P/E-to-growth ratio (PEG): 0.8 After Nvidia ‘s stellar triple in 2023, shares still screen cheap even after its 40% year-to-date gain. In terms of valuation, Nvidia is attractive boasting a forward P/E of 33.5 times. That’s about 10% higher than peers but you could argue that it deserves it due to its utter domination of the market for semiconductors that can artificial intelligence. Not to mention, Nvidia’s P/E is still lower than its historical average of 39.6. Add in the PEG, at a reading of 0.8 versus the 2.2 five-year average, and that’s a dirt cheap cost for expected sky-high growth. NVDA 5Y mountain Nvidia 5 years As every day seems to bring a new high lately, we have a 2 rating on the stock in recognition that we don’t want to chase this runaway train higher. But we still believe Nvidia should be part of any long-term portfolio. We explain in a recent commentary how investors with no Nvidia position (or no positions in the rest of our Significant Six), might think about getting in. 7. Salesforce Price-to-earnings ratio (P/E): 30.3 P/E vs. peers: 10% cheaper P/E-to-growth ratio (PEG): 1.4 Salesforce ‘s forward P/E of 30.3 times â 10% cheaper than peers and below its historical average of 46 âand a PEG of 1.4 versus its five-year average of 2.5 show how undervalued the stock is. Back in November , the consumer relationship management software company reported a solid fiscal 2024 third quarter. (The most recent quarter comes at the end of February.) Management at the time boasted solid deal activity even after the tech giant hiked prices on some of its products. The company’s guidance was also upbeat as it expects to grow revenue at a solid pace, accompanied by margin gains. CRM 5Y mountain Salesforce 5 years The stock has been on a tear and would need to add only 7.6% to reach its nearly $310 all-time closing high in November 2021. Shares hit a 52-week high last week. Acknowledging the run, we have a 2 rating on the stock. 8. Starbucks Price-to-earnings ratio (P/E): 22.5 P/E vs. peers: 10% cheaper P/E-to-growth ratio (PEG): 1.3 Starbucks ‘ forward P/E ratio of 22.5 times is 10% cheaper than peers and below its 5-year average of 28.3. The PEG at 1.3 is below its historical average of 2. Both indicators reflect an undervalued stock. But similar to Disney, those low readings might also signal caution. We know from its fiscal 2024 first quarter results, out last month , that the company is facing headwinds such as a slowdown in business due to Middle East protests and sluggish economic activity in China. These are factors that could impact growth. SBUX 5Y mountain Starbucks 5 years However, even when we take this into account, the stock has fallen way too much. Starbucks would have to gain more than 30% to eclipse its July 2021 record close of $126 per share. If we consider growth may be a little slower due to the Israel-Hamas war protests and China rebounding slower than expected, we’re still seeing a good value in Starbucks shares. We have a 1 rating, accordingly. 9. Wells Fargo Price-to-earnings ratio (P/E): 9.9 P/E vs. peers: 10% cheaper P/E-to-growth ratio (PEG): 0.7 Wells Fargo ‘s forward P/E of 9.9 is 10% cheaper than peers and lower than the 11.2 five-year average. The PEG under 1 â in this case 0.7 â is low, especially when you compare it to a historical average of 1.1. Are these low numbers a sign of trouble? We don’t think so. While Wells Fargo stock came under pressure following conservative guidance, the bank’s fourth-quarter earnings report was solid. It beat on both net interest income and noninterest income. We have come to expect CEO Charlie Scharf to set measured expectations, which can be beaten. We like how management is managing and reducing expenses on a year-over-year basis, which balances the softer outlook. Wells Fargo also expects to buy back more shares in 2024 compared to last year, which adds to shareholder value. While hitting a 52-week high at the end of January, Wells Fargo stock would need to gain roughly 35% to get back to its January 2018 record close of nearly $66. But a cheap valuation coupled with an industry getting further and further away from last year’s regional lender crisis after the collapse of Silicon Valley Bank in March 2023 leads us to our 1 rating 10. Wynn Resorts EV-to-EBITDA (enterprice value/earnings before interest, taxes, and amortization): 9.1 We’re mixing it up a bit with Wynn Resorts â focusing on the company’s adjusted EBITDA because this is the financial metric of choice on Wall Street when it comes to the best-in-class hotel and casino operator. With adjusted EBITDA being the key metric, the multiple we’re focused on is enterprise value to forward EBITDA. Before Covid, Wynn generally traded in a range of about 9 times to 13 times â with two very brief periods in late 2015 and late 2018 where the multiple was closer to 8 times EV/EBITDA. However, with shares now trading at roughly 9.1 times EV/EBITDA on a forward basis, we find them highly attractive given what we just heard from management. WYNN 5Y mountain Wynn Resorts 5 years Investors received a positive update on Wynn ‘s financials when it reported beats on its top and bottom lines in its fourth quarter . Macao is coming back, while Las Vegas is strong and Boston Harbor is resilient. It seems even cheaper when considering that China isn’t fully back online yet, but the company is already operating at structurally higher profit margins compared to historical norms. We added to our Wynn position with a small buy last Thursday after its stronger-than-expected quarter because we think the stock has more room to run. (Jim Cramer’s Charitable Trust is long GOOGL, AMZN, STZ, DIS, HON, NVDA, SBUX, CRM, WFC, WYNN. See here for a full list of the stocks.) As a subscriber 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 trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A trader works on the floor of the New York Stock Exchange
Michael Nagle | Bloomberg | Getty Images
With the S&P 500 on Friday closing above 5,000 for the first time ever, recognizing the winners this year has not been difficult. But what about the ones that are still cheap â or less expensive â on a valuation basis? Those are not as easy to spot.
We screened the 32 stocks in our portfolio late Monday and identified 10 that are undervalued based on traditional market metrics following their latest quarterly earnings reports. (The market was under heavy pressure Tuesday after a hotter-than-expected consumer price index.)
PUNTLAND, SOMALIA – JANUARY 29: Puntland Maritime Police Forces (PMPF) are patrolling against the recently increasing pirate attacks off the coast in Puntland, Somalia on January 29, 2024. (Photo by Abuukar Mohamed Muhidin/Anadolu via Getty Images)
Anadolu | Anadolu | Getty Images
Somali pirates are back on the attack, with piracy around the Horn of Africa rising sharply in recent months and adding to concerns for shipping vessels, government forces and private security already locked in a battle in the Red Sea with Houthi rebels.
Over the past three months, there has been more piracy in the Horn of Africa region than at any point in the last six years, according to Royal United Services Institute (RUSI), an independent think tank, with high ransoms for seafarers or vessels, and robbing of ship passengers by pirates.
Piracy off the coast of Somalia had been on the decline in recent years after peaking in 2011 when Somali pirates launched 212 attacks. The United Nations Security Council (UNSC) passed seven resolutions targeting Somalia piracy between December 2010 and March 2022, permitting foreign naval and air forces to enter and patrol Somali waters and authorizing the European Union Naval Force Operation Atalanta, working with a U.S.-led task force, to use “all necessary means to repress piracy and armed robbery at sea.”
The cost of piracy to the global economy is a steep one. A 2013 World Bank study, still widelt cited today, estimated that piracy cost the global economy around $18 billion annually.
According to the UNSC, the anti-piracy measures in place to enforce the freedom of navigation off the coast of Somalia expired quietly after its last renewal for three months after December 3, 2021.
Since last November, merchant vessels have been the target of about 20% of Somali piracy-related incidents, according to Dan Mueller, lead analyst for the Middle Eastern Region for maritime security firm Ambrey. On December 14, The International Chamber of Shipping reported the hijacking of a Handymax bulk carrier, the first successful hijacking of a vessel off the coast of Somalia since 2017. The pirates have also been attacking fishing vessels, mostly Iranian, as well as many other small boats such as skiffs.
Ocean piracy is rising across the world
Data from 2023 shows that by many key measures, piracy is on the rise in key global shipping lanes.
There were 120 incidents of maritime piracy and armed robbery against ships reported in 2023, compared to 115 in 2022, according to the annual Piracy and Armed Robbery Report of the ICC International Maritime Bureau (IMB). The IMB also found increased threats to crew safety, with the number of crews taken hostage rising from 41 to 73 in 2023, and crews kidnapped from two to 14.
A spokesperson for the International Maritime Organization (IMO) which represents the seafarer spokesperson stressed to CNBC in an email, “The entire world depends on international shipping and seafarers, and therefore ships and cargoes should not be the subject of any type of attacks. The safety of seafarers are paramount – they are innocent victims who are simply doing their jobs in very harsh conditions.”
The UNSC did not respond to CNBC’s request for comment about reinstating anti-piracy resolutions related to Somalia.
The IMO said it is working very closely with countries in the region through the Djibouti Code of Conduct to address piracy and avoid any escalation, through capacity-building, national legislation, information sharing and regional coordination.
“We are also looking the possibility of updating the IMO guidance on piracy to take into account new threats and technologies that can affect the safety of seafarers,” said a spokesperson.
A 2010 photo of an armed Somali pirate keeping vigil on the coastline at Hobyo, northeastern Somalia, while the Greek cargo ship, MV Filitsa is anchored just off the shores of Hobyo where it was held by pirates after beimng captured some 513 nautical miles northeast of the Seychelles as it was sailing from Kuwait to Durban in South Africa loaded with fertilizer.
Mohamed Dahir | Afp | Getty Images
According to maritime security firm Dryad Global, shipping from the coast of the Horn of Africa to the coast of India is considered a “high risk zone.” There are 25 countries in the region with their naval forces, but given the size of the area, the numbers are not a sufficient guarantee of safe navigation.
A slight increase in piracy has also been recorded in the Gulf of Guinea on Africa’s West Coast, where 22 piracy incidents were recorded in 2023, compared to 19 in 2022, 35 in 2021, and 81 in 2020. According to the IMB, these waters accounted for three of the four globally reported hijackings, all 14 crew kidnappings, and 75% of reported crew hostages and two injured crew in 2023.
The Singapore Straits are another area of concern due to the high number of incidents in the region. While the IMB considers these incidents low-level opportunistic crimes, 95% of the reported incidents were successful.
“Crew continue to be harmed with nine taken hostage and two threatened. Guns were reported in three recorded incidents and knives in 15,” the IMB report noted.
Maritime security efforts
To help deter piracy and enhance maritime security, vessels deploy what’s called Best Management Practice (BMP) 5 when operating in the Red Sea, Gulf of Aden, Indian Ocean, and Arabian Sea.
“Private armed security teams have proven effective alongside BMP 5 measures,” Mueller said. “An adequate citadel has proven vital to enable the crew to remain safe until military responses can be coordinated.”
Citadels are a pre-determined fortified area on a vessel built to resist pirates from gaining entry for a period of time to protect a crew.
Dozens of companies in the maritime security space could see an increase in their business as the threats against commercial shipping widen. The size of the maritime safety market has grown to keep up with the flow of trade and will grow from $19.85 billion in 2023 to $21.18 billion in 2024, according to ResearchAndMarkets.com, and is forecast to reach $25.93 billion in 2028 at a compound annual growth rate of 5.2%. The list of major companies operating in the market of maritime safety systems includes several niche players as well as major industrials and defense contractors, such as Raytheon, Honeywell International, Elbit Systems Ltd., L3Harris Technologies, Lockheed Martin, and General Dynamics Corporation.
Mueller said the Indian Navy and Coast Guard along with the EU Operation Atalanta and national counter-piracy missions are active in the region where Somali pirates have attacked.
“Indian forces have successfully operated against PAGs [pirate action group] in four boarding incidents,” he said.
U.S. and allied defense
On February 1, the Biden Administration approved a $3.99 billion sale of drones and military equipment to India to be used to augment its maritime safety and surveillance. Included in the sale, according to the State Department: 31 Sky Guardian drones, 310 small-diameter bombs, 170 Hellfire missiles, and other related support equipment.
A spokesperson for the Atalanta anti-piracy effort based out of the Rota Naval Base, Spain, told CNBC via email that the coalition of maritime forces protecting against pirates around the Horn of Africa will be enhanced.
“In a week’s time, we will have additional ships and forces deployed to the area. We will do our utmost to continue fulfilling our missions, which include the fight against piracy and the protection of Word Food Programme vessels and all vulnerable vessels in our Area of Operations against these criminal networks,” the spokesperson wrote. “We will continue to work together with our international partners to maintain maritime security.”
Atalanta includes permanent flagship vessel ESPS VICTORIA and at certain periods of time, numerous other vessels to support the operation. EUNAVFOR currently has four more ships offering support: ITS Martinengo, FS Alsace, FS Languedoc, and ITS Duilio. The spokesperson said EU member state support allows the operation to increase the number of assets very quickly, if necessary.
In response to a question from CNBC about expanding Red Sea security coverage to the Somali Coast, a U.S. Navy spokesperson wrote,“To protect operational security and the safety of our service members, we do not discuss or forecast future operations or postures.”
“What we can tell you is that Operation Prosperity Guardian (OPG) is working with participating countries to utilize increased patrols in the Red Sea to offer reassurance to the shipping industry and protect maritime traffic,” the Navy spokesperson said.
In the Red Sea, the U.S. Navy is working with allies to increase efforts to prevent Houthi rebel attacks, which are continuing despite multiple U.S. airstrikes against Houthi targets. Much merchant vessel traffic is now taking the longer transit around the Cape of Good Hope instead of transiting the Red Sea. French ocean carrier CMA CGM is among firms to fully halt its Red Sea transits, according to a person familiar with the matter. It joins shipping giants MSC, Maersk, Hapag Lloyd and others who have earlier announced they were diverting away from the Red Sea. According to Kuehne + Nagel data, almost 100% of the former Red Sea traffic has been rerouted around the Cape of Good Hope.
The Houthis most recent attacks on commercial vessels in the Red Sea this week were against a commercial container vessel and a U.S.-owned bulker vessel carrying U.S. cargo. The Houthis have attacked commercial shipping a total of 39 times.
The Club on Friday is changing the rating and price target on one of our favorite semiconductor stocks, while updating the price targets on four other names in the portfolio to reflect recent earnings, new internal developments and broader economic forces. AVGO YTD mountain Broadcom year-to-date performance. We’re increasing our price target on Broadcom to $1,200 a share, up from $1,000 to reflect the strong quarter it reported last week. At the same time, we are bullish on the integration of recently acquired VMware , and appreciative of the semiconductor firm’s capital returns through a growing dividend and aggressive share-repurchase program. The stock has been one of the best performers in the S & P 500 this week, advancing roughly 20% compared to the index’s 2.5% gain. Given the run it’s had in such a short period of time, we are downgrading our rating to 2, meaning we would be buyers on a pullback. In addition, Broadcom’s surge this week has us feeling a little greedy on this big position. It’s not every week you see a company of its size go on a run like this — with the company’s market cap swelling to roughly $460 billion. We plan to trim a small number of shares out of discipline to lock in our huge gains when we are not restricted from trading. COST YTD mountain Costco Wholesale year-to-date performance. We are increasing our price target on Costco Wholesale to $680 a share, up from $630. The decision reflects the stronger-than-expected quarter the retailer reported Thursday, with earnings of $3.58 per share beating estimates of $3.42. We think more gains are ahead for Costco on appreciation of its $15-a-share special cash dividend and anticipation of a membership-fee increase that could come sometime in late 2024. HON YTD mountain Honeywell year-to-date performance. We are nudging up our price target on Honeywell to $230 a share, from $225. The market didn’t care at first for Honeywell’s $4.95 billion acquisition of Carrier ‘s security business, but we loved the deal for its high margin, recurring revenue characteristics at an attractive price of 13 times earnings. We also thought it was a smart play on the reindustrialization boom underway in the U.S. Honeywell was a laggard in 2023, with shares down roughly 5% year-to-date, but we think the setup for the next few years will be better as its aerospace business continues to thrive and the struggling parts of its business — like warehouse automation and building products — trough and finally turn a corner. PANW YTD mountain Palo Alto Networks year-to-date performance. We are increasing our price target on Palo Alto Networks to $320 a share, up from $300. The move comes after raising our price target earlier in the month to $300, from $280. That decision proved too conservative, as the market continued to favor cybersecurity leaders. We see no reason to change our bullish views on Palo Alto Networks because cybersecurity is one of the most important areas of investment in the IT space. It’s become a secular theme due to the rising threat from bad cyber actors. WFC YTD mountain Wells Fargo year-to-date performance. We’re raising our price target on Wells Fargo to $54 a share, up from $50. Wells Fargo made a new 52-week high Friday, with bank stocks significantly benefiting from the Federal Reserve’s dovish pivot Wednesday. What the market is betting on is that lower interest rates rejuvenate loan activity and ease pressure on commercial real estate, of which Wells Fargo has notable exposure. But even after the move, the stock still looks cheap at around 10 times earnings, along with a dividend yield of 2.8%. (Jim Cramer’s Charitable Trust is long AVGO, COST, HON, PANW, WFC. See here for a full list of the stocks.) As a subscriber 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 trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A Broadcom chip in an Apple iPhone.
Brent Lewin | Bloomberg | Getty Images
The Club on Friday is changing the rating and price target on one of our favorite semiconductor stocks, while updating the price targets on four other names in the portfolio to reflect recent earnings, new internal developments and broader economic forces.
People shop in a Manhattan store on July 27, 2023 in New York City.
Spencer Platt | Getty Images News | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Streak shattered The Dow Jones Industrial Average finally ran out of steam and closed the day in the red, ending its 13-day winning streak. Other major U.S. indexes had a losing day as well. Asia-Pacific markets traded mixed Friday. China’s Shanghai Composite advanced 1.38%. Meanwhile, Japan’s Nikkei 225 briefly fell 2% after the Bank of Japan’s meeting, but recovered in afternoon trading.
‘Greater flexibility’ for the BoJ The Bank of Japan pledged to “conduct yield curve control with greater flexibility,” even as the bank said it would keep 10-year Japan government bonds within a range of “plus and minus 0.5 percentage points.” The BOJ also kept its short-term interest rate target at -0.1%. The Japanese yen rose to around 138.68 to the U.S. dollar, while yields for the 10-year JGB hit their highest level since September 2014.
What recession? The U.S. economy’s showing no signs of stopping. Gross domestic product grew at an annualized 2.4% rate in the second quarter, according to the Commerce Department. That’s higher than the 2% estimate from Dow Jones and the first quarter’s 2% growth. In other good news, the personal consumption price index rose 2.6% in the second quarter, down from 4.1% in the first.
Intel’s unexpected profit Intel returned to profit in the second quarter after two straight quarters of losses, even as revenue fell year-on-year around 15% to $12.9 billion. That’s because its gross margin was nearly 40% on an adjusted basis. Intel’s forecast for its third-quarter earnings was higher than analyst expectations. In sum, investors appeared pleased, pushing shares up more than 7% in extended trading.
[PRO] Better than tech stocks Tech stocks may have driven most of the gains in the stock market, but there are funds that have performed better than them. CNBC Pro’s Weizhen Tan combed Morningstar data and found 11 funds with five-year annualized returns higher than that of the S&P 500 Equal Weight Information Technology index.
Alas! It was exciting while it lasted, but the Dow Jones Industrial Average fell 0.67%, snapping its 13-day winning streak. We’ll have to wait longer — maybe for another century! — to see if it can tie the 14-day record it hit 126 years ago in 1897. (And perhaps in time to come market analysts will bemoan Honeywell, which sank 5.7% on worse-than-expected revenue and was the worst performer in the Dow.)
Other major indexes on Wall Street didn’t fare so well, either. The S&P 500 slipped 0.64% and the Nasdaq Composite lost 0.55% — even Meta’s 4.4% jump couldn’t offset a broader decline in the tech-heavy index.
One thing that isn’t losing momentum, however, is the U.S. economy. Second-quarter GDP growth handily beat analysts’ expectations, and it has consumers to thank. Consumer spending increased 1.6%. That doesn’t sound much, but when you consider how it makes up 68% of all economic activity during the second quarter, a small bump can have an outsized effect.
The U.S. economy hasn’t contracted since the second quarter of 2022. Other positive economic data released yesterday: Durable goods orders rose 4.7%, more than three times the estimate, and weekly jobless claims fell 7,000 to bring it below estimates. All those statistics make predictions of an imminent recession seem increasingly doubtful.
Of course, the strength of the economy makes it likelier that the Federal Reserve might hike rates again at its September meeting. This sentiment was reflected in the 2-year Treasury yield — typically the most sensitive to short-term interest rates — which jumped more than 10 basis points to 4.931% after the release of GDP data.
Still, DoubleLine Capital CEO Jeffrey Gundlach told CNBC that “the Fed should really be happy” with the current inflation rate, suggesting rates are as high as they should go. The personal consumer expenditures price index, the Fed’s favorite inflation gauge, comes out later today, and will give a sense if we’re indeed at the end of the hiking cycle — giving the Dow another shot at making history.
People shop in a Manhattan store on July 27, 2023 in New York City.
Spencer Platt | Getty Images News | Getty Images
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Streak shattered The Dow Jones Industrial Average finally ran out of steam and closed the day in the red, ending its 13-day winning streak. Other major U.S. indexes had a losing day as well. Europe’s Stoxx 600 index advanced 1.35%, juiced by a 4.2% jump in media stocks and a 4.1% rise in the technology sector.
What recession? The U.S. economy’s showing no signs of stopping. Gross domestic product grew at an annualized 2.4% rate in the second quarter, according to the Commerce Department. That’s higher than the 2% estimate from Dow Jones and the first quarter’s 2% growth. In other good news, the personal consumption price index rose 2.6% in the second quarter, down from 4.1% in the first.
Intel’s unexpected profit Intel returned to profit in the second quarter after two straight quarters of losses, even as revenue fell year-on-year around 15% to $12.9 billion. That’s because its gross margin was nearly 40% on an adjusted basis. Intel’s forecast for its third-quarter earnings was higher than analyst expectations. In sum, investors appeared pleased, pushing shares up more than 7% in extended trading.
New bank rules Banks with more than $100 billion in assets may need to set aside more money against possible losses by July 2028. U.S. regulators announced a set of proposed changes to regulations for the banking industry Thursday. And in response to Silicon Valley Bank’s failure, regulators want more banks to include unrealized losses in their capital ratios under the new rules.
Another much-anticipated hike The European Central Bank on Thursday raised interest rates by 25 basis points, bringing its main rate to 3.75%. The move was widely anticipated, but market watchers aren’t sure if the ECB will pause or continue hiking at its September meeting. Like Federal Reserve Chair Jerome Powell yesterday, ECB President Christine Lagarde left the ECB’s upcoming decision open.
[PRO] Reasonably priced stocks Stock markets have undeniably been rallying, but most of the growth has been driven by Big Tech shares that are trading at expensive valuations, that is, at multiple times their projected earnings. In light of this, Goldman Sachs looked for stocks at a “reasonable” price that are still projected to experience healthy growth.
Alas! It was exciting while it lasted, but the Dow Jones Industrial Average fell 0.67%, snapping its 13-day winning streak. We’ll have to wait longer — maybe for another century! — to see if it can tie the 14-day record it hit 126 years ago in 1897. (And perhaps in time to come market analysts will bemoan Honeywell, which sank 5.7% on worse-than-expected revenue and was the worst performer in the Dow.)
Other major indexes on Wall Street didn’t fare so well, either. The S&P 500 slipped 0.64% and the Nasdaq Composite lost 0.55% — even Meta’s 4.4% jump couldn’t offset a broader decline in the tech-heavy index.
One thing that isn’t losing momentum, however, is the U.S. economy. Second-quarter GDP growth handily beat analysts’ expectations, and it has consumers to thank. Consumer spending increased 1.6%. That doesn’t sound much, but when you consider how it makes up 68% of all economic activity during the second quarter, a small bump can have an outsized effect.
The U.S. economy hasn’t contracted since the second quarter of 2022. Other positive economic data released yesterday: Durable goods orders rose 4.7%, more than three times the estimate, and weekly jobless claims fell 7,000 to bring it below estimates. All those statistics make predictions of an imminent recession seem increasingly doubtful.
Of course, the strength of the economy makes it likelier that the Federal Reserve might hike rates again at its September meeting. This sentiment was reflected in the 2-year Treasury yield — typically the most sensitive to short-term interest rates — which jumped more than 10 basis points to 4.931% after the release of GDP data.
Still, DoubleLine Capital CEO Jeffrey Gundlach told CNBC that “the Fed should really be happy” with the current inflation rate, suggesting rates are as high as they should go. The personal consumer expenditures price index, the Fed’s favorite inflation gauge, comes out later today, and will give a sense if we’re indeed at the end of the hiking cycle — giving the Dow another shot at making history.
Honeywell International (HON) CEO Darius Adamczyk remains optimistic in his outlook for the global economy in 2023 and the company’s prospects heading into what’s expected to be an economic downturn. That’s in line with the Club’s belief that companies, like Honeywell, that make things for a profit stand to benefit in the year ahead. “There are going to be pockets of strength like our aerospace business” and energy segment, Adamczyk said Tuesday in an interview with CNBC from the World Economic Forum in Davos, Switzerland. However, he added, “some short-cycle businesses that are going to struggle.” Honeywell is a diversified industrial giant, focusing on crucial areas of the economy. Its products include airplane engines, industrial chemicals and carbon-capture technology to name a few. Adamczyk indicated that some of the major challenges last year will likely continue in 2023. “There are some indicators that the worst of inflation are starting to tip over, but we have to remember the Fed and other central banks have to have a fairly aggressive policy to make sure that inflation is under control.” Speaking with CNBC in early December , Adamczyk said he’s not “overly pessimistic on 2023,” adding he doesn’t believe the economy will be a “disaster.” Climate change spending According to Adamczyk, spending on initiatives to combat the effects of climate change should hold up, even if there’s a recession. “I have not seen a correlation between a tougher economy and divestiture from a path to sustainability.” The top executive said that more than 60% of Honeywell’s overall business is comprised of climate-related solutions. “All these businesses have made pledges to be carbon neutral.” He added that “it’s going to take multiple years,” suggesting Honeywell’s energy technologies will be in demand despite a tougher economic period. China reopening The reopening of China after its strict zero Covid policy is a positive for the global economy, Adamczyk said, calling China one of the world’s “core international destinations.” He sees “tremendous pent-up demand” among businesses and consumers alike in the world’s second-largest economy. The loosening of pandemic restrictions there, particularly as they pertain to travel, is expected to bolster aerospace demand. That would be a positive for Honeywell’s aerospace services, which make up about a third of Honeywell’s revenue. Adamczyk anticipates the first quarter to be “a little rocky as the country opens up” — but over time, he’s excited by the prospect. The Club’s take We were pleased to hear optimism from Adamczyk Tuesday amid the heap of pessimism in the market. Honeywell has been able to deliver despite a challenging macroeconomic backdrop riddled with supply constraints, decades-high inflation and rising interest rates. Going forward, its aviation business is well-positioned to benefit from the recovery of China’s economy, while its sustainability technology solutions appear recession resistant. Despite Tuesday’s decline, shares of Honeywell has gained more than 18% in the past three months compared to the S & P 500 ‘s more than 7% advance. Honeywell is set to release fourth-quarter financial results on Feb. 2. (Jim Cramer’s Charitable Trust is long HON. See here for a full list of the stocks.) As a subscriber 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 trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Darius Adamczyk, Honeywell Chairman & CEO, speaking on Squawk Box at the WEF in Davos Switzerland on Jan. 17, 2023.
Adam Galica | CNBC
Honeywell International (HON) CEO Darius Adamczyk remains optimistic in his outlook for the global economy in 2023 and the company’s prospects heading into what’s expected to be an economic downturn. That’s in line with the Club’s belief that companies, like Honeywell, that make things for a profit stand to benefit in the year ahead.
China’s latest move to roll back its zero-Covid policy by scrapping quarantine restrictions for international travelers is the last leg of recovery we’ve been waiting for to help bolster Club holdings that have been weighed down by three years of stringent pandemic rules. Club names with significant China exposure were trading higher on the news Tuesday. Casino giant Wynn Resorts (WYNN) climbed more than 5%, cosmetics firm Estee Lauder (EL) rose more than 3% and industrial giant Honeywell (HON) ticked up 0.54% in midday trading. Wynn’s 2 properties in the special administrative region of Macao, China, had generated roughly 70% of the company’s total revenue pre-Covid-19. Estee Lauder relies on China for more than a third of total sales. And Honeywell, whose diverse range of industrial products include airplane cockpits and engines, is a significant supplier to what had been one of the fastest-growing passenger air markets in the world. Both Wynn and Estee Lauder are down more than 30% year-to-date, while Honeywell has risen more than 3% this year. Chinese authorities have dramatically scaled back draconian Covid restrictions over the past month that all but shut down the world’s second-largest economy since the onset of the pandemic in early 2020. On Monday, Beijing said international travelers will no longer need to quarantine upon arrival in the mainland from Jan. 8. That comes days after Macao lifted quarantine restrictions for visitors. The Club take China’s latest move to reopen its economy should be a catalyst for multiple Club holdings. While there are concerns that 2023 will be a down year for corporate earnings at large, companies with significant operations in China will likely have a different story to tell. For Estee Lauder, a leader in luxury skin care, makeup and fragrances, China represents a key driver of growth. The lifting of quarantine restrictions should lead to more duty-free airport sales for the cosmetics giant, especially in the touristy Hainan region, known as the Hawaii of China. Estee Lauder, like Club holding Starbucks (SBUX), is also poised to benefit from China abandoning strict lockdowns to combat Covid outbreaks, allowing more consumers to regularly shop in person. Relaxed quarantine restrictions should also boost the aerospace industry, which still hasn’t fully recovered from the pandemic. An uptick in international flights would be a tailwind to Honeywell, whose aerospace segment is one of its higher revenue- and margin performers. Wynn, meanwhile, is a large beneficiary of China’s reopening news given its outsized exposure to the country through its Macao casinos. This should allow Wynn to improve its earnings and execute on growth in the region. (Jim Cramer’s Charitable Trust is long EL, WYNN, HON, SBUX. See here for a full list of the stocks.) As a subscriber 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 trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
People use their smartphones to take photographs outside The Wynn Macau casino resort, operated by Wynn Resorts Ltd., in Macao, China, on Tuesday, Jan. 30, 2018.
Billy H.C. Kwok | Bloomberg | Getty Images
China’s latest move to roll back its zero-Covid policy by scrapping quarantine restrictions for international travelers is the last leg of recovery we’ve been waiting for to help bolster Club holdings that have been weighed down by three years of stringent pandemic rules.
