Investing Club: With management's credibility in doubt, we're exiting our position in this stock

Published Wed, Mar 16 20229:00 AM EDT

We are exiting our position in NortonLifeLock (NLOK), selling 2,300 shares at roughly $28.98. Following the trade, the Charitable Trust will no longer own shares of NortonLifeLock. This sale will decrease NLOK's weight in the portfolio to zero from about 1.84%. We will lock in a great average gain of about 30% on shares purchased in September 2020 to November 2021. Shares of NortonLifeLock are expected to open sharply lower Wednesday after the company pushed back the timeline of when it expects to close its acquisition of Avast. Management said early this morning that the U.K. Competition and Markets Authority (CMA) intends to refer the merger to a Phase 2 investigation if the company does not offer Phase 1 remedies. A Phase 2 review could last up to 24 weeks, explaining why NortonLifeLock management now expects the transaction to close in mid-to-late 2022. Today's news is surprising because other regulators have already approved the transaction. The U.S. Department of Justice, Germany, and Spain have reviewed and cleared the transaction, and it is only the U.K. that is holding it up. This announcement is also a major disappointment that puts management's credibility in question. When the deal was first announced in August 2021, management initially set a mid-2022 closing date, a reasonable expectation. Then out of the blue in early February, management moved up its expected closing date to Feb. 24. We cheered this news because we were big believers that this deal would accelerate the timeline of when NLOK will deliver earnings-per-share of $3. Two weeks later, management shockingly updated its expected closing date to April 4, saying because the company needed more time to receive the necessary approvals. Even though we were not happy with this news, we were willing to give management the benefit of the doubt. At the same time, we knew that we needed to trim our position the next time the stock traded near its 52-week high, as we did earlier in the month in our article here . Enter this morning: After management pushed out the expected transaction closing timeline for the second time, we cannot give management a pass on this, and we must question their credibility. And as we painfully have learned over the past six months through positions like PayPal (PYPL), a stock is a sell when management's credibility is put into question, even as we continue to believe in the merits of the transaction. We will not make this mistake again. We also believe NLOK should be sold because it would not surprise us to see the stock trade in a holding pattern until it is near to the transaction closing date. It's a show-me story now. And with shares outperforming this year, up roughly 7% (factoring in today's expected decline) compared to the roughly 9% drop in the S & P 500, we refuse to let these gains go away. (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.

Jim Cramer

Scott Mlyn | CNBC