Investing Club: Here are some price target, stock ratings changes concerning nine portfolio names

Published Mon, Mar 21 20223:15 PM EDTUpdated Mon, Mar 21 20223:26 PM EDT

We're making several housekeeping updates in the portfolio, starting with increasing four stocks' price targets and decreasing another. Abbvie (ABBV): We're increasing our price target to $165 , reflecting roughly 11.5x estimated 2022 earnings per share and about 13.5x estimated EPS in 2023, the trough year when the company's best-selling drug Humira loses its patent protection in the United States. We're willing to give Abbvie this higher multiple due to increased conviction in the growth of Rinvoq and Skyrizi. Management believes the combined peak sales of these two drugs will be bigger than Humira's peak of $15 billion. Chevron (CVX): We're increasing our price target to $175 , reflecting about 13x estimated 2022 EPS. This new target reflects higher oil prices and the positive Investor Day updates. Our two takeaways from the event earlier this month were that management increased its annual share buyback range to $5 billion to $10 billion per year (up from $3 billion to $5 billion per year), and that if Brent crude's nominal prices average $75 over five years, management could increase the dividend at higher rates and buy back more than 25% of their shares outstanding. Nucor (NUE): We're increasing our price target to $150 , reflecting roughly 7.5x estimated 2022 EPS. This multiple represents a slight expansion from its trailing 12 month multiple, but we continue to believe earnings will come in higher than expected due to ongoing strong demand for steel and an aggressive share repurchase program. Devon Energy (DVN): We're increasing our price target to $65, essentially the same 10x earnings multiple we initially put on the stock but on much higher estimates because the price of oil has surged. We want to note that a $65 share price equates to an implied dividend yield of 6.15% if the fixed variable dividend sustains at the current price. American Eagle Outfitters (AEO): We're decreasing our price target to $24, reflecting roughly 12x estimated 2022 earnings per share. It's much more conservative than JPMorgan's price target of $32, which reflects 5.6x AEO's fiscal 2023 estimated EBITDA — earnings before interest, taxes, depreciation, and amortization. The multiple JPMorgan is using is in line with the company's pre-pandemic five-year average. Despite the company's underlying improvements to margins, we find it necessary to be ultra-conservative right now due to the supply chain headwinds from higher freight costs that the retailer is facing. We're also adjusting our ratings on five different stocks, including upgrades on Apple and Meta. Apple (AAPL): We're sticking with quality, upgrading our rating to a 1 , meaning we would be buyers right here with the stock down about 8% year to date and 10% off its all-time high. While we have no immediate catalyst, Apple is, without question, one of the best run companies on the planet, and it's a stock that should be owned, and not traded in our view. We think a pullback of 10% in a highly profitable company that consistently buys back a ton of shares represents a solid entry point for investors. Meta Platforms (FB): We believe the time has come to upgrade our rating to a 1 on the company formerly known as Facebook. Even after last week's rally, shares screen very cheap at roughly 9.5x forward enterprise value to EBITDA, or roughly 17x earnings per share. At these levels, the market fully understands the headwinds related to the Apple privacy changes and the monetization transition to Reels. But it still discounts management's ability to successfully overcome these issues. While the aggressive investment in the metaverse, the Reality Labs side of the business, remains a point of debate and perhaps there was too much enthusiasm in the project last year, we remain believers in the vision. In addition to the two upgrades, we're downgrading to three stocks in the portfolio to a 2 rating , meaning we would be buyers on a pullback. The three names are American Eagle Outfitters, PayPal (PYPL), and Wynn Resorts (WYNN). We have acknowledged our mistakes on these three many times in our writings and videos. We never care about where stocks come from; our focus is always on where they will go next. As we look at the market and the rest of the portfolio, we believe there are better opportunities to put new money to work. We can no longer put good money after bad. The margins at American Eagle Outfitters have been squeezed due to elevated freight costs, PayPal's growth has been challenged by the eBay transition and slowing e-commerce trends, and Wynn Resorts simply needs Macao to reopen for good and predicting China's Covid policy has been too difficult of a task. We aren't giving up on these troubled stocks at their current prices, but we would rather see Club members circle the wagons around the highest of quality names when the market gets volatile. In other words, be selective on market declines and put fresh capital to work in companies with strong profit outlooks, pristine balance sheets, and consistently return cash to shareholders through dividends and buybacks. (Jim Cramer's Charitable Trust is long all of these stocks. See here for a full list.) 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.

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Lucas Jackson | Reuters