Investing Club: Why Cramer is selling shares of Amazon on its 20-for-1 stock split

Published Thu, Mar 10 20229:00 AM ESTUpdated Thu, Mar 10 20229:30 AM EST

We're selling seven shares of Amazon (AMZN) at roughly $2,888 each. Additionally, we're buying 50 shares of Danaher (DHR) at roughly $264 each. Following Thursday's trades, the portfolio will own 40 shares of Amazon and 500 shares of Danaher. Amazon's weighting will decrease to about 2.97% from 3.47%, while Danaher's weighting will increase to about 3.51% from 3.17%. We are taking advantage of Amazon's 20-for-1 split and $10 billion buyback announcement after the closing bell Wednesday. While we continue to like Amazon's long-term prospects and look forward to expenses easing as we work through the year, the news is largely immaterial from a fundamental standpoint — splits, though helpful in making shares more accessible and impactful on the options front for speculators and those wishing to hedge positions, do not create value. So, when a company adds over $60 billion in market cap overnight in the premarket on such news, we must take advantage. While the doubling of the buyback was nice to see, we must keep it in context and acknowledge that $10 billion is a drop in the bucket considering Amazon's more than $1.4 trillion market cap. We'll raise some money here on Amazon and downgrade shares to a 2 rating — designated for stocks we would wait for a pullback on before buying. While share splits may have enticed buyers a year ago, we're in a completely different type of market and near-term pops such as this on immaterial news — as far as business fundamentals are concerned — will have a hard time sustaining. With this sale, we will have done three things: Raise cash to help fund a portion of our Danaher purchase Lock in a roughly 95% gain on Amazon shares purchased in February of 2018 Provide ourselves room to buyback shares on weakness We know that while a repurchase below our sales levels — but above our overall basis — would technically raise our cost basis, such a move would in reality suck cash out of the market. We'll reallocate those funds — and a bit more — into Danaher, a name that remains under pressure despite a strong earnings print and solid forward guidance. As a reminder, not only were Danaher's results strong, but on a full year basis, Danaher notched its 30 th consecutive year of exceeding a 100% cash conversion on net income. That type of high quality earnings profile is exactly what we want during volatile times, in a market not only on edge due to geopolitical tensions but inflation and monetary tightening worries as well. The other thing markets want in uncertain times? Recurring revenues and Danaher has it, with roughly 75% of sales coming from consumables that must be replaced. Though this Danaher purchase is slightly above our last buy level on Tuesday, we're seeing solid support around the $260 level and want to take advantage of the weakness as shares remain about 13% below our overall cost basis and buys here will help us lower that. Lastly, we want to call out that while Danaher shares are certainly up from 2019 at current levels, thanks to strong execution and earnings growth, they're actually the cheapest they have been since early 2019 on a price-to-earnings basis outside of the Covid-low in March of 2020. That's supportive of the view that sellers have simply gotten to negative and shares have overshot to the downside. So, we're selling one name, Amazon, that's up on a largely immaterial announcement, as far as fundamentals are concerned, and buying another, Danaher, that's down on no news, effectively reallocating funds from a name that has instantly gotten more expensive on earnings to one that has gotten as cheap as it has been in years on earnings. (Jim Cramer's Charitable Trust is long AMZN and DHR. 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.

Jim Cramer

Scott Mlyn | CNBC