We’re adding to an oil stock and see 3 other names as good buys in a down market
We’re buying 150 shares of Halliburton (HAL) at roughly $35.73 each. Following Friday’s trade, Jim Cramer’s Charitable Trust will own 2,375 shares of HAL, increasing its weighting in the portfolio to about 3.04% from about 2.85%. Markets are once again in selloff mode Friday, dropping for the third straight session, as investors continue to worry about how high the Federal Reserve plans to increase interest rates and for how long they will keep rates elevated amid signs of weakening economic activity. While there’s been some encouraging progress in the battle against inflation as seen in the November consumer price index (CPI), the monthly employment report, specifically the wage growth number, may very well have become more important than CPI going forward due to the Fed’s focus on the labor market. Against this backdrop, we’re viewing a market that has undergone a lot of damage over a short period, pushing it closer and closer to being oversold. We weren’t there yet according to the S & P Oscillator, which was at minus 3.54% on Thursday. We think Friday’s broader market declines should push this technical reading into oversold territory. Due to our discipline and trust in the Oscillator, that means the time has come to start holding our noses and doing a little buying. With our portfolio cash position plentiful at roughly 12%, we believe we have plenty of dry powder that can slowly be put to work as prices come down. So with that, we are viewing some of the recent declines in the energy sector favorably, which is why we are upgrading our Halliburton back to a 1 rating and repurchasing 150 of the 300 shares we recently sold $37.60 each. We consider ourselves investors, not traders, but we were able to side-step a quick 5% decline with that sale and we want to add back to our position Friday afternoon due to our constructive stance on oil itself, exploration and production (E & P) companies, and oilfield services firms like Halliburton . We believe there’s a need for more oil drilling globally to reverse years of structural underinvestment. Halliburton is currently going through a period where an extremely tight equipment market has given the company tremendous pricing power. Halliburton also aggressively reduced its cost structure during the height of the Covid pandemic, meaning it will have a ton of operating leverage as revenues improve. On Friday, we got the news we’ve been waiting for: The Biden administration announced plans to refill the nation’s Strategic Petroleum Reserve (SPR). The administration’s first crude buy may only be 3 million of the 180 million barrels it released this year, but you got to start somewhere. The SPR decision did little to move the needle in a down day for West Texas Intermediate crude prices. WTI is the American oil benchmark. We may only be adding to one position Friday afternoon, but part of the reason why is that we are restricted from trading many stocks in the portfolio. If we were free to trade anything Friday, we would be adding small to more stocks, like E & P company Pioneer Natural Resources (PXD), which around $215-per-share is where management typically starts deploying its share repurchase program. Additionally, we would be adding to our newest name, Emerson Electric (EMR). During our December “Monthly Meeting” for Club members Thursday, we outlined all the positives of management’s portfolio — reshuffling out of slower-growing lower-margin non-core assets and into fast-growing higher-margin opportunities in intelligent automation technology and software. While it has been a good year already for EMR shareholders with the stock up nearly 3%, we believe the stock can outperform again next year. Part of our reason why is that the stock still screens attractive relative to another automation pure play, Rockwell Automation (ROK). Analysts at Bank of America pointed this out earlier in the week when they named Emerson Electric one of their favorite plays for 2023. Emerson is similarly scaled to Rockwell with about $3 billion more revenues estimated for next year; it has slightly higher estimated EBITDA (earnings before interest, taxes, depreciation, and amortization) margins at 26% versus 23%; and yet EMR trades at a discount of a few turns to ROK on an EBITDA basis. We think that valuation gap will narrow as EMR continues its portfolio transformation journey and puts to work $8 billion of capital into accretive Finally, we’re scanning the recent declines in the market for opportunities in stocks that we have been waiting and waiting for their prices to come down. One of those is Humana (HUM), and we are upgrading the stock to our 1 rating. We think this decline is an opportunity for those who have been waiting to start a position. When we first started buying shares of this health insurance company in mid-April, we said the company was working hard to fix its Medicare Advantage (MA) offering and recapture some of its lost market share. We’ve seen some really good signs on that front — at the beginning of this month, Humana announced that “based on annual enrollment period activity to date,” it was increasing its guidance for MA enrollment growth from 325,000 to 400,000 members to “at least 500,000” members. This was big news because the revised guidance represents net membership growth of at least 10.9%, which puts the company back on track toward growth above the industry rate. We also like Humana as a consistent double-digit percentage earnings per share grower no matter what happens in the economy. (Jim Cramer’s Charitable Trust is long HAL, PXD, EMR and HUM. 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.
