Cramer's Investing Club: We're adding to one portfolio stock, watching another former name

Published Tue, Jan 18 20221:33 PM EST

We will be buying 50 shares of Danaher (DHR) at roughly $286.09. Following the trade, the Charitable Trust will own 400 shares of Danaher. This buy will increase DHR's weight in the portfolio from about 2.43% to roughly 2.77%. Now that we have made a few sales in stocks that have nicely outperformed year to date and locked in those big gains, we are taking a hard, yet opportunistic look at Tuesday's market selloff and searching for stocks of high quality — profitable companies that have fallen more than 10% from their highs. Buying More Danaher We'll be the first ones to tell you that we are disappointed with how Danaher has traded since we initiated this position at the start of the year, and that our buys so far have been ill-timed. But we still have plenty of room in this position to continue to gradually scale in and take advantage of a decline that's now nearly 15% from its recent high. If you only focused on the stock price, you would not know that this is a company that is performing at an exceptionally high level right now. Just last week, management pre-announced positive fourth-quarter earnings and discussed the results at the JPMorgan Healthcare Conference. Danaher raised its revenue growth outlook to the high-teens to low-20s in percentage terms, well above the consensus estimate on FactSet that implied about 16% revenue growth in the quarter. In addition to the strong near-term trends, management raised its long-term growth outlook to reflect the strength of Cytiva in Life Sciences and the momentum at Cepheid, which is much more than a Covid play. Look, we are not going to try to argue against how the demand for Covid tests has boosted Cepheid sales. We can see that in the results. However, what we think investors should not lose sight of is how the pandemic has accelerated the decentralization of health care to settings closer to the patient at the point of care. This has created a growth catalyst for the molecular diagnostic industry at large, but Cepheid is best positioned to be the winner because it has the largest installed base and most extensive menu in all of molecular diagnostics. Lastly, it's always important to point out that Danaher is a long-term earnings compounder due to its history of operating margin expansion on top of the consistent year after year revenue growth. With the fundamentals still pointing strong despite the stock's rough start to the year, Danaher is the type of high-quality company that we think will bounce back as the market regains its footing. Monitoring Estee Lauder We also want to call the club's attention to the recent price action Estee Lauder (EL). Shares of this beauty company have fallen roughly 14% since we exited our position in mid-December at around $363 per share. Part of the decline may be explained by the impact the omicron variant has had on travel activity and sales in duty-free stores (a big market for Estee Lauder). However, Estee Lauder's premium price-to-earnings multiple has not helped either as rising interest rates have forced a rotation into cheaper, lower multiple stocks. When we closed the position near the end of last year, we said we would continue to monitor EL for pullbacks to levels that offered a better risk reward. As much as we believe this beauty company is exceptionally run as well as a leader and market share gainer in its category, we still must be sensitive to price. With EL trading at a big discount to where we just sold it, of course, we are tempted to buy those shares back. This is a quality on sale situation. Also, now that we have freed up some room in the portfolio through the exit of DuPont near its 52-week high, we see adding EL as a way to "upgrade" the portfolio into better companies with brighter outlooks. Ways to upgrade one's portfolio is something every portfolio manager should be thinking about when volatility strikes like it has this year. As tempting as it may be Tuesday to pull the trigger, we are thinking of waiting to below the $300 level, which is where we bought it in May 2021 after the stock sold off hard on earnings. (Jim Cramer's Charitable Trust is long DHR. See here for 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.

Jim Cramer

Scott Mlyn | CNBC