We're using more cash to buy the dip in a health insurance stock we think can turn around long term

Published Mon, May 2 20223:06 PM EDTUpdated Mon, May 2 20223:26 PM EDT

We're buying 20 shares of Humana (HUM) at roughly $426.96 each. Following Monday's trade, the portfolio will own 230 shares of Humana, increasing its weighting to about 3.28% from 3%. In our first trade of the morning , we said to keep some powder dry for later in the day on the belief that Monday would be a long, volatile day. With stocks hitting their lows of the session (but subsequently clawing back those losses), we are back scanning the market and looking for positions to add to into weakness. We want to put our still hefty cash position to work because the S & P Oscillator has moved firmly into oversold territory. As we have explained before , the S & P Oscillator is an indicator that helps understand when the market has either become overbought and potentially due for a pullback, or too oversold and positioned for a bounce. What the Oscillator does best is call turns in the market. At minus 5.76% as of last Friday and potentially even lower after the close Monday, an oversold market means we must view stocks of high quality companies with an opportunistic lens and buy, no matter how painful it may feel. We're adding again to our position in the health insurer Humana. Just last week Humana reported a strong earnings beat and raised its full year outlook . We also felt more confident in Humana's ability to accelerate Medicare Advantage growth next year after learning that slightly more than half the expected savings from the company's $1 billion value creation plan are in the "design and execute" phase. As a reminder, management is expected to use these savings to fund growth and invest in their Medicare Advantage business by offering more benefits at competitive pricing. Plus, the company gets 100% of its business within the United States, so we think it is wrong for the stock to sell off on any type of macro-related issue. Lastly, we believe the stock trades at a very reasonable earnings multiple relative to its growth rate. Shares currently trade at roughly 17x forward earnings on expected growth of 19% this year and 12% in 2023, according to estimates on FactSet. If management can show it can accelerate growth in its MA business without impacting margins, we think it is likely that the stock will trade at a slightly higher multiple. (Jim Cramer's Charitable Trust is long HUM. 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.

The Humana headquarters office stands in Louisville, Kentucky.

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