adminWe’ve got our July Monthly Meeting this Wednesday and are preparing an exciting update of something we talked about at our annual gathering back in February . Join us live at noon ET. In the meantime, we received some terrific feedback from members after revealing in late May five stocks we would buy right here, right now. With the U.S. markets continuing to hit new records almost daily, including a the Dow Jones Industrial Average touching a new high above 40,000 on Friday, I wanted to do it again. And as much as I wanted to save these names for Wednesday’s meeting, we already have a packed agenda, so I’m doing it here in my Sunday column. So which stocks would I buy right now? Here are five that are currently calling to me and saying it’s a good level to start — along three problem stocks with potential to keep an eye on. Advanced Micro Devices The first is an old name that on Monday we’re taking out of the Bullpen and putting back into the portfolio: Advanced Micro Devices . We owned this chipmaker for ages and made some terrific money on it before we exited our position in August 2023. We kept our Nvidia position and added Broadcom for its exposure to the fast-growing artificial intelligence market. But when we look at what can still be bought after last week’s vicious rotation out of Big Tech to other parts of the stock market, we keep coming back to AMD. Why AMD? We finally have some good news to say about personal computers. The great refresh is occurring and it abnormally benefits AMD as it has run the table against Intel for PC dominance. Intel can’t stop bragging and, frankly, I find it repulsive. The semiconductor chip business is about facts, not about sentiment. AMD has taken amazing market share but it hasn’t meant all that much. Until now, when we have a whole new reason to buy. AMD has been working hand in glove with Microsoft and HP on the AI tool Copilot and I like what I see — a robust quarter that no one is looking for. But that’s not all that has changed. AMD has a very good AI product, the MI300X GPU. It’s done well but it isn’t competitive with Nvidia because it doesn’t have the training software that would make it a contender. I won’t get too technical, but will instead say that this is the first time I have thought of AMD as a company that can be in the same league as Nvidia. Unfortunately for AMD, Nvidia is always one step ahead and AMD has nothing for Nvidia’s Blackwell platform. But the fact is this: AMD has a product that companies will sample and it comes in underneath Nvidia’s price. I am wary of people thinking I am wavering on Nvidia. I am not. I am simply saying that AMD was often boasting about how it could catch up with Nvidia, and this new effort is a meaningful change. Analysts will soon use it to promote the stock. I want you to get ahead of that. And while we expect Monday may not be a good day for tech stocks — remember it is only day three of the rotation — you have to buy AMD before the tide turns back to tech. AMD can “work” here in a way that most tech names can’t. Wells Fargo First, let me say that I didn’t like how Wells Fargo the company performed when it reported quarterly earnings Friday. But I really didn’t like how Wells Fargo the stock performed, which is the opportunity. I expect that we get some downgrades or tepid buy reiterations. Not more than that. It was not a Charlie Scharf quarter. There was a surprise repricing of interest returns to clients that cost $300 million. There was sloppy expense control. Net interest income (NII) was not as good as expected. The tone of the call was one of resignation. But all that said the underlying business has momentum . Not different. The interest charge is now behind the bank and we know the net interest income is now taken away. Commercial real estate, while soft, continues to be under control as do credit card losses, the latter really important because Wells is expanding it nicely. So why bother to buy? Two reasons: Wells Fargo told a story about the country slowing down and with it the loan business headed lower. That’s going to make Wells the bank that people buy when rates come down. CEO Charlie Scharf has certainly staked that out. Secondly, Charlie is building out both investment banking, mostly by taking some very important people from other firms, notably Doug Braunstein and Fernando Rivas from JPMorgan . These are bankable hires who come with established clients. Either man could have run JPMorgan if CEO Jamie Dimon had retired. He didn’t and we see the hazards. Good people leave. These days they will go to Wells Fargo. The build out is happening at a time when there’s not much business. But that can change with lower rates and I like what can happen for Wells when it comes to the lucrative portion of investment banking. Charlie’s making his move when a huge amount of competition has dried up. It’s smart. But it is costly. As is his build out of the credit card business, which is a counter to all of this focus on net interest income, which bores me because I care more about what a bank can do itself to grow without relying on rates — and credit cards and investment banking are the ways to go. I have been waiting for Charlie to play offense but this bank was so horrendous when it came to playing fast and loose that everything has been delayed. The changes still are not done. They keep a lid on how much stock Scharf can buy. He said the buyback will slow going forward. But let’s put that in perspective. Three years ago Wells had 4 billion shares. Now it has 3.5 billion. That’s a significant reduction. You are also getting a dividend boost to 40 cents from 35 cents. That’s not bad, especially because the stock sells at just 11 times earnings. Charlie has to perform over the next couple of quarters. He knows it. There will be heat. But I like it more than any other bank after Friday’s decline and we did sell a huge chunk of our position before the quarter, fearing a disappointment. I thought it might be in commercial real estate. I didn’t see NII estimate reductions and the change in payouts to customers happening. Given the stock decline nobody else did either. Best Buy The other day I bumped into a Club member at one of my wife’s Fosforo Mezcal events and he wanted to know why we were buying a brick-and-mortar entertainment store with all of these long leases and not a lot of reputational integrity. I said that Best Buy was much more than just a brick-and-mortar company and that its integrity was high. More importantly, like AMD, Best Buy is where people will try out a new AI PC. I know I have to get one. I have beaten the heck out of my current machine. I have no idea how souped up a new PC is but, it will beat this one I bought when the pandemic started. Best Buy has been allocated 40% of the new products so it will be synonymous with AI PCs and I like that. At a time of highly elevated P/Es, it sells at 14 times earnings, even after the quick run it has gone on after a recent upgrade. While there are some high-profile buys on the stock, almost nobody is squawking about sales. I like that. Plenty of time ahead for numbers to go higher. Costco You are not going to get many high-quality companies that have that kind of PC. I think that, obviously, Costco is a much higher-quality company overall. But even after its recent decline — down about 5% over the past five sessions — the stock sells at 52 times earnings, more than twice the market’s multiple. As always, Costco remains a buy. But the numbers here could be explosive for the big box retailer if the new PCs take off. Another catalyst for Costco: On Wednesday, the company announced its long-awaited membership fee increase — the first since 2017. It will go into effect on Sept. 1 in the U.S. and Canada. The annual cost of the Gold Star card will go up by $5 to $65, while the higher-tier Executive plan will increase by $10 per year to $130. The company said about 52 million memberships, more than half of which are Executive, will be affected. DuPont I am totally mystified why people don’t care more about the three companies CEO Ed Breen is creating from Dupont : Water treatment, electrics and the old DuPont, which includes health care and safety as well as Tyvek for housing and Kevlar for military use. Many portfolio managers are too young to remember when Breen in 2002 took over as CEO of Tyco, the conglomerate put together by the disgraced Dennis Kozlowski, and spent the next decade breaking it into three pieces. (Kozlowski was convicted in June 2005 of stealing hundreds of millions of dollars from Tyco, among other crimes). In 2007, Breen split off Tyco’s health-care business to create Covidien, which was purchased in 2015 by Medtronic for a hefty price tag of $43 billion. Tyco Electronics also became an independent company, changing its name to TE Connectivity in 2011, which now has a market cap of $47 billion. The third piece, the old Tyco, was purchased by Johnson Controls in 2016 for $16.5 billion, a decent premium. That’s $105 billion when you add those pieces up. Tyco was worth $20 billion when he stepped in as CEO. Now because Breen does not have to worry about the balance sheet of Dupont, as he had to with Tyco, I suspect the breakup will create a lot more value than most people think. I also don’t expect the split to happen as the Street expects because the electronics business, linked to handsets, is going to ignite this year with the new iPhone. In addition, the water business is a very attractive takeover target for Xylem or Pentair — both of which need to grow. The fact that all of Dupont is worth just $33 billion when I expect that the pieces will trade at well in excess of that when they are publicly traded is just absurd. Because of the split up, you can safely buy some tomorrow and then get bigger, much bigger as it gets lower. GE Healthcare, Wynn and Starbucks Finally there are three companies that are down on their luck, all for different reasons: GE Healthcare , Wynn and Starbucks . First, GE Healthcare showed us a subpar quarter and a lack of sophistication about how to handle Wall Street. Here is a solid company with good growth that will accelerate as generative AI is rolled out. The MRIs it makes are great profit centers for whoever buys them, like RadNet , or many different hospital systems. GE, Philips and Siemens dominate the category. GE was so poorly run for so many years that it lost its lead on price and on quality. It also has a big bet on China, with 14% of its business there. China’s a loser, plain and simple, a declining country with a pathetic growth path, a communist country spending a lot on military in order to take us on with a population that reminds me of East Germany before the Wall fell. Yet much of the Street, along with GE Healthcare CEO Peter Arduini, genuinely believe that China is still a growth business or that it will rebound soon. They are hopeless optimists. I was extremely disappointed at the last quarter. The company needs to demonstrate that it isn’t being left behind by the competition. Management needs to own up that China’s not coming back and do something about it. They have heard me loud and clear about this. Will they do something? I think they will. Wynn is ridiculous. The company is worth $9 billion. Put on the debt and is has an enterprise value of $18 billion. The heavily indebted Caesars has an enterprise value of $33 billion. Wynn has $7 billion in revenue and Caesars has $11 billion. Makes no sense. What’s wrong? Caesars is domestic. Wynn’s business is half Macau, which means China, which means pathetic and horrible and worth far less. That’s how this stock can go down endlessly. I am not sure what Wynn can do to bring out more valuation. The stock more than reflects the worst of China. But I don’t know when China gets better. But if this company were to split in two, it would trade much higher. As it is, Las Vegas Sands should just buy it. That could happen in a Trump regime but not in a Biden one. Wynn’s stock is problematic. It traded at $140 before Covid. How could it be just $85 a share now? Because of the heavy China discount. I just wish this company was run by someone who understood that. Finally, you want management that doesn’t understand? Check out Starbucks. Here is a senior growth company that yields 3% and sells for 20 times earnings. Its last quarter was one of the worst misses I have ever seen. Maybe it was a wake-up call. At least my interview with the CEO was most definitely a wake-up call. Can Laxman Narasimhan survive as CEO if he delivers an incredibly horrible quarter again? The board is united behind him and former CEO Howard Schultz is not a factor. There has to be an activist armed with a hefty position to oust him and I haven’t seen that kind of telltale activity in the stock. Starbucks has a lot of whammies. There’s the China problem. In 2023 it was only 10% of its business but Starbucks intended to put up thousands of stores to meet demand. But it is too expensive. And China is a disaster area. It is too expensive here, too, and the company has miserable throughput. Management keeps coming up with hard-to-make drinks that take forever and is clueless about it. In fact, management thinks it doing great and has a plan, a rather chimerical plan, to fix things. Plus, the sentiment worldwide about Starbucks is that it supports Israel because it is a Jewish company and therefore is an international pariah. The company has no plan for this. If it says Israel is in the wrong it alienates all who support Israel. If it says Israel is right, it alienates a pro-Palestinian faction worldwide. So it says nothing, hoping the whole issue dies down. The war has to die down for that to happen but it has shown no sign of waning. It’s just become less noisy. Interestingly enough, the company has not done much to dismiss the charge that it is a Zionist-backing company. It is not a Zionist-backing company, it is not a “Jewish” company, although it did have a Jewish founder and CEO. But all of this is maddening. The company doesn’t want to explain that it is not even in Israel and does not have any ties with the government. Is all of that “in” the price of the stock at $74? No. But a lot of it is. Laxman heard me and I think he’s concerned and frantic, which I like. I don’t know if he knows enough about food though to make things happen. Narasimhan worked at McKinsey for 19 years advising companies in this space. I won’t hold that against him. He was at PepsiCo , where he did a good job, but he was also at Reckitt Benckiser, where I think he did just okay. No, I do not think that Schultz has the power to change anything at the company. I think the board, run by Mellody Hobson, loves the new CEO. None of this is good. But each one of these issues can be dealt with, and if the war in Gaza become less top of mind there can be a recovery at the stores hard hit by what amounts to an Arab boycott not unlike the boycott of Jewish businesses started in another country in 1933. Starbucks, Wynn and GE Healthcare are all good companies. They are all down on their luck and I’m down on their management. The one that is most likely to improve first would be GE Healthcare because management needs to tell a non-AI forward story about what can go right. They have no real credibility any more on AI. There’s been no sign of them doing anything with it. Wynn could be a comer if it gets bought. Starbucks needs to put together a good quarter and it can go higher. But can it? Three problematic companies. Three that I would love to say that you can just buy tomorrow. But I sense that we will have to wait until the quarter to see. I want to know which one drops this week. As these go lower they don’t necessarily get cheaper. But I believe we could look back and see that at least one of these was trading at its lows. (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.
We’ve got our July Monthly Meeting this Wednesday and are preparing an exciting update of something we talked about at our annual gathering back in February. Join us live at noon ET.
In the meantime, we received some terrific feedback from members after revealing in late May five stocks we would buy right here, right now. With the U.S. markets continuing to hit new records almost daily, including a the Dow Jones Industrial Average touching a new high above 40,000 on Friday, I wanted to do it again. And as much as I wanted to save these names for Wednesday’s meeting, we already have a packed agenda, so I’m doing it here in my Sunday column.
So which stocks would I buy right now? Here are five that are currently calling to me and saying it’s a good level to start — along three problem stocks with potential to keep an eye on.
Read the full article here
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