Markets

We're Buying More of a New Club Stock; Recommending Trimming Another

Scott Mlyn | CNBC

(This article was sent first to members of the CNBC Investing Club with Jim Cramer. To get the real-time updates in your inbox, subscribe here.)

After you receive this email, we will be buying 75 shares of Danaher (DHR) at roughly $308.47. Following the trade, the Charitable Trust will own 250 shares of Danaher. This buy will increase DHR's weight in the portfolio from about 1.26% to about 1.80%. 

We're adding to our position in Danaher again this afternoon as we continue to gradually scale deeper into our newest name at incrementally lower prices. We are not fretting over the fact that DHR has been down ever since we first bought it Monday. We welcome this weakness because we like it when high quality companies go on sale. Our investment timeframe is long-term and usually goes out to 6 to 12 months at a minimum, providing us with plenty of time to scale into a position and average down to a great price.

For more information about why we think Danaher is fantastic earnings compounder and a high quality company in the life sciences and diagnostics industry, please see Monday's article.

Update on Nucor

Separately, we want to point out the strong action in Nucor (NUE). Nucor is one of the top performers in the S&P 500 on Wednesday, and shares are already up about 8% to start the year. One reason why Nucor has had such a hot start to 2022 is that investors continue to rotate out of high price-to-sales multiple technology stocks to buy low price-to-earnings multiple, cyclically oriented companies that "make things and do stuff" for a profit.

What's been so impressive about this rebound in Nucor is that the stock was virtually left for dead at one point last month. As you may recall, the stock fell more than 8% to $108 per share on Dec. 15, after management provided earnings guidance for the fourth quarter. At the time, we defended Nucor on the selloff, indicating that we would be buyers if we did not already own it. We thought the punishment didn't fit the crime because the earnings update wasn't all that bad (it was a miss vs. estimates, but it still represented sequential growth). We are in the camp that the industry will go through a higher for longer steel pricing environment. Many analysts estimate that earnings will fall off a cliff over the next two years, even though the recovery in auto production and new investments in oil and gas should boost demand.

But after this hot start to the year, we think Nucor shares have moved a little too much too fast, especially with the Federal Reserve getting more hawkish about stamping out inflation. For these reasons, we would sell 150 shares of our 750 share position today for a great profit if we were not restricted from trading NUE.

As a reminder, we are restricted from trading any stock that Jim mentions on TV for three full days. On Monday's "Mad Money," Nucor was highlighted as a 2021 S&P top performer and a dividend aristocrat, which means it is an S&P 500 company that has increased its dividend in each of the past 25 years. Investors may gravitate towards some of the better dividend aristocrat names this year because many offer a higher dividend yield relative to the 10-Year Treasury yield, and the consistently rising payouts are a way to stay ahead of inflation.

A long-track record of shareholder-friendly capital allocation policies is one reason why we have an investment in Nucor. Last month, Nucor announced the increase of its regular quarterly cash dividend by 23% (representing the 49th consecutive year of dividend increases) and a new $4 billion share repurchase program.

Although we cannot make the trade for the Charitable Trust, our restrictions will never prevent us from telling the Investing Club what we would buy or sell and when we would do it. We'll never let our restrictions limit what the Investing Club can do. 

The CNBC Investing Club is now the official home to my Charitable Trust. It's the place where you can see every move we make for the portfolio and get my market insight before anyone else. The Charitable Trust and my writings are no longer affiliated with Action Alerts Plus in any way.

 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. See here for the investing disclaimer.

 (Jim Cramer's Charitable Trust is long DHR, NUE.)

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