We're taking advantage of this oversold market to buy more of this high-quality stock

Published Wed, May 4 202211:41 AM EDT

We are buying 25 shares of Danaher (DHR) at roughly $249.03 each. Following the trade, the portfolio will own 550 shares of Danaher, increasing its weighting in the portfolio to 4.43% from 4.23%. We are looking to put some money to work Wednesday, in stocks of quality companies that have been hit hard this year. This trade is more of a call about being tactically bullish in an oversold market than an attempt at gaming the market reaction to today's Federal Open Market Committee (FOMC) decision and the expected 50-basis-point increase to interest rates. How oversold is the market? Even though the S & P 500 closed higher Monday and Tuesday (after Friday's plunge nearly 1,000-point plunge), the S & P Oscillator moved slightly deeper into oversold territory. The Oscillator started the week at minus 5.76%, and after Tuesday's up session it stood at minus 5.93%. More negative means more oversold. 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 oversold and positioned for a rally. What the Oscillator does best is call turns in the market. With the Oscillator at minus 5.93%, we think sentiment is too negative and the market has become oversold to the point where we must hold our nose and do some buying. Of course, the market can still go lower from here and the Oscillator can get more oversold. It's never perfect. However, an oversold market usually acts as a good wake up call that says it is time to become more opportunistic about stocks. Again, we recommend the Club take advantage of the oversold condition by gradually putting some money to work in high-quality companies. The stock we are adding to this morning to improve our cost basis is medical diagnostics and health technology company Danaher. We've been wrong about Danaher to date, as shares have fallen more than 20% this year on general price-to-earnings multiple compression due to rising rates, a slowdown in China because of lockdowns, and a general perception that this was purely a "Covid-19" stock because of its testing business and also vaccine and therapeutic manufacturing. Although our long-term thesis has not played out the way we expected it to due to short-term dynamics and we bought shares too aggressively on its initial decline, we are willing to own DHR through this stretch of broader market uncertainty because of this company's many strengths. We continue to believe Danaher's exposure to secular growth markets within life sciences like bioprocessing and its medical instrument business are favorable in an economy that the Fed needs to slow down due to combat inflation. Danaher's management team is also one of the best in the industry. Whether it be through acquisitions or spinning off parts of the business they consider noncore, management is always looking for strategic actions to create long-term value for shareholders. Lastly, the valuation looks more and more attractive as the stock price comes in. Shares now trade at roughly 24 times earnings, which is the cheapest it has been in years. Outside the Covid-driven crash, Danaher hasn't traded at a forward multiple this low since before it announced the acquisition of General Electric's Life Sciences business, which was an absolute home run of a deal and instantly changed its growth outlook. We acknowledge that the market is going to do what it wants to do in the short term due to a hawkish Fed and interest rates, and take down the stock prices of high-quality and profitable companies like Danaher. But as long-term investors, we are willing to stomach this pain and pick up shares on weakness because sell-offs in companies like Danaher don't come around too often. (Jim Cramer's Charitable Trust is long 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 on CNBC's Halftime Report.

Scott Mlyn | CNBC