We sought to be discerning with our Club portfolio and, eventually, opportunistic in stocks that we felt unreasonably sank.
Wall Street mounted a relief rally Tuesday, following three straight sessions dominated by the woes of now-collapsed Silicon Valley Bank. Confronted with the ensuing spike in market volatility, we sought to be discerning with our Club portfolio and, eventually, opportunistic in stocks that we felt unreasonably sank. The S & P 500 climbed roughly 1% in afternoon Tuesday trading, clawing back only some of its 3.4% decline between Thursday and Monday’s close. Regional bank stocks — pummeled in recent days on SVB contagion fears — led the rebound. Some saw double-digit percentage gains like First Republic Bank (FRC), up around 30% Tuesday after cratering 73% in the previous three trading days. Tuesday’s market bounce could also prove short-lived, particularly if the Federal Deposit Insurance Corporation (FDIC) cannot find a firm to buy Silicon Valley Bank. But when emotion rules the day on Wall Street, and broadly drives stocks down, favorable situations for diligent investors can arise. Here’s a recap of this week’s trades and how we view the market landscape. We spent Monday morning looking for things to buy in what our trusted S & P Oscillator signaled was an oversold market. As Jim often says, no one ever made a dime by panicking ; it’s not an investment strategy. Neither is indiscriminately buying every stock in our portfolio in a situation like this. Around noon ET, we alerted members, keeping with Jim’s Sunday night commentary , that we were putting some of our large cash position to work and buying Estee Lauder (EL) and Pioneer Natural Resources (PXD). In the three sessions Thursday through Monday, both stocks underperformed the S & P 500 as they fell 5.4% and 4.4%, respectively. But our conviction in both companies didn’t dry up. If anything, in the case of Pioneer, the oil-and-gas producer’s robust annual dividend yield of roughly 11% increased in attractiveness following the recent slide in bond yields. Estee Lauder and Pioneer were both taking part of Tuesday’s rally, climbing more than 2% and 1%. Monday evening, we recommended further patience on Wells Fargo (WFC), citing elevated uncertainty around the banking sector. By contrast, we felt a bit more confident in Morgan Stanley (MS) because it’s a different kind of financial firm. It’s less reliant on deposits and loans as it pivots toward asset management, which provides stability to earnings and decreases its reliance on volatile investment banking revenues. Wells Fargo rose about 3.5% Tuesday, while Morgan Stanley gained roughly 2% CAT YTD mountain Caterpillar (CAT) YTD performance Before Tuesday’s market open, we announced another purchase of a beaten-down stock, adding to our position in Caterpillar (CAT). The manufacturing giant was one of the worst-performing Club names over the past three sessions, sinking nearly 10% as of Monday’s close. Only Wells Fargo, down 12.4%, and Halliburton (HAL), down 10.2%, saw bigger declines over that stretch. While some analyst downgrades have soured sentiment around Caterpillar lately, our investment case rests on the multiyear cycle of infrastructure investments. This allows us to see through some of the near-term concerns and use the stock’s weakness to bolster our position in this new Club holding, which joined the portfolio in January. Caterpillar fell modestly Tuesday. PANW YTD mountain Palo Alto Networks (PANW) YTD performance The banking collapses, which included crypto-focused Signature Bank as well as SVB, also created a window to buy more Palo Alto Networks (PANW) on Monday afternoon. Shares of the cybersecurity firm, which recently became eligible for the S & P 500, actually held up fairly well in recent days, declining about 1.3% between Thursday and Monday’s close. However, the regulatory takeovers of SVB and Signature opened up two spots in the S & P 500, sweetening the case for adding to Palo Alto on Monday. Although we knew at the time that one slot is going to medical-device maker Insulet (PODD), we learned later learned Monday night that agriculture firm Bunge (BG) got the other. Palo Alto didn’t get either nod, but we think it’s only a matter of time before its added to the index. Following last month’s blowout earnings report, Palo Alto Networks became GAAP (generally accepted accounting principles) profitable over the past 12 months, making it eligible to join the widely tracked equity index. Knowing stocks usually pop upon their inclusion to the S & P 500 because funds that track the index need to buy shares, we thought it made sense Monday to add to our Palo Alto holdings. It’s still a relatively new name for us, joining the portfolio in mid-February. Since we always scale into new positions, we had room to own more shares. The stock dropped modestly Tuesday. Bottom line In moments of volatility and crisis, investors need to be thoughtful and patient in order to find the best opportunities. That’s what we tried to do during the stressful environment in recent days, looking for high-quality companies unfairly dragged down. In the case of Palo Alto, we had a chance to get ahead of what would have been a material development for the stock. While S & P 500 constituency wasn’t in the cards this time, we will continue to add to our position into weakness. To be clear, while sentiment improved Tuesday, we cannot definitively say we’re out of the woods with the SVB fallout. Regulators have fortunately done a great deal to shore up confidence in the U.S. financial system. However, no buyer for what remains of Silicon Valley Bank has been found yet. When negative headlines slam the whole market, Jim frequently quips, “What does [this] have to do with the price-to-earnings multiple of Bristol-Myers ?” (Not a Club name but one mentioned by Jim sometimes.) We extended that sort of thinking to the portfolio in recent days. What does SVB’s collapse have to do with Estee Lauder’s business continuing to recover in China as the world’s second-largest economy reopens after zero Covid lockdowns? The answer is pretty much nothing. (Jim Cramer’s Charitable Trust is long EL, PXD, WFC, MS, HAL, PANW. 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. 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People queue up outside the headquarters of Silicon Valley Bank to withdraw their funds on March 13, 2023 in Santa Clara, California.
Liu Guanguan | China News Service | Getty Images
Wall Street mounted a relief rally Tuesday, following three straight sessions dominated by the woes of now-collapsed Silicon Valley Bank. Confronted with the ensuing spike in market volatility, we sought to be discerning with our Club portfolio and, eventually, opportunistic in stocks that we felt unreasonably sank.
