Cramer's Investing Club: We're buying more of this payments giant, watching another energy name

Published Fri, Jan 21 20222:43 PM ESTUpdated Mon, Jan 24 20227:31 AM EST

We are buying 100 shares of PayPal (PYPL) at roughly $165.05. Following the trade, the Charitable Trust will own 775 shares of PayPal. This buy will increase PYPL's weight in the portfolio from about 2.82% to 3.22%. The market is sliding this afternoon, so we are making our next buy to get closer to finishing out the week "cash-neutral." In other words, we want to put the cash we raised Tuesday morning back in the market. We are net-buyers and not net-sellers of the market here because we are in oversold territory, meaning it is time to put cash to work no matter how painful it may feel. Of course, the market can continue to get more oversold from here before a bounce, but that is also why we continue to keep some cash on the sidelines for protection and optionality. We have waited a long time to buy PayPal into this poor start to the year, and we think the time has come to step in and buy small, with the stock now down about 12% from our most-recent buy in November. The sell-off here has made this once stretched valuation come down significantly, with shares now trading at roughly 32x FactSet consensus 2022 earnings and just 25.5x 2023 earnings estimates. PayPal has goals to deliver 20% earnings growth per year over the medium term, so this above-market growth justifies a premium multiple in the marketplace. Watching oil Elsewhere, we have batted around a lot of potential new ideas over the past couple of days. But one name in the energy sector that is not in the portfolio that we want to hone in on — if the oil decline extends for a few days — is Devon Energy (DVN) . You have heard us mention a few times that Devon Energy has the largest dividend yield in the S & P 500. We've received some questions about this, and we are happy to clear up any misunderstandings. What you must remember is that Devon currently pays a fixed-plus variable dividend. It's a very unique strategy, and it's all part of management's cash-return business model that aims to maximize and prioritize the return of increasing amounts of cash to shareholders. Devon's fixed dividend is currently $0.11 per share a quarter or $0.44 per share annually, and it is based on a target payout of up to 10% of the company's operating cash flow. But on top of this dividend, Devon pays a variable dividend that changes quarter to quarter. The variable dividend is calculated every quarter and can be up to 50% of the excess free cash flow in the quarter. Think of it as a bonus based on how the company performed, but instead of it being reinvested back in the company, the cash goes directly into the pockets of shareholders. Devon doesn't need the cash because of its strong balance sheet and disciplined capital program. To give you a sense of how big Devon's dividend payments have gotten in the current energy environment, the company announced in November that its third-quarter fixed-plus variable dividend was $0.84 per share. If we annualize this figure (multiply it by 4), what we get is an annual dividend payment of $3.36 per share, which means the yield at the current stock price is 7%. Of course, a variable dividend payment means it could change quarter to quarter. However, oil prices have only climbed higher since November, suggesting Devon is generating even more excess free cash flow than before. (Jim Cramer's Charitable Trust is long PYPL. 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.

A sign is posted outside of the PayPal headquarters in San Jose, California.

Justin Sullivan | Getty Images

We are buying 100 shares of PayPal (PYPL) at roughly $165.05. Following the trade, the Charitable Trust will own 775 shares of PayPal. This buy will increase PYPL's weight in the portfolio from about 2.82% to 3.22%.

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