We're exploiting today's market bounce with 5 trades to strengthen our portfolio

Published Fri, May 27 20221:36 PM EDTUpdated Fri, May 27 20221:45 PM EDT

We are buying 150 shares of Cisco Systems (CSCO) at roughly $45.33, 50 shares of Disney (DIS) at roughly $108.20, and 40 shares of Procter & Gamble (PG) at roughly $147.53. In addition, we are exiting our position in PayPal (PYPL), selling 250 shares at roughly $84.80, and selling 250 shares of Wynn Resorts (WYNN) at roughly $64.99. Following the trades, the Charitable Trust will own: 1,505 shares of Cisco, increasing its weighting to 2.27% from 2.05% 1,175 shares of Disney, increasing its weighting to 4.22% from 4.05% 680 shares of Procter & Gamble, increasing its weighting to 3.30% from 3.16% 500 shares of Wynn Resorts, decreasing its weighting in the portfolio to about 1.09% from 1.63% Finally, the Charitable Trust will no longer hold a position in PayPal. The broader markets are looking to cap off the week on a much-needed higher note. Driving the rally today was an in-line core personal consumption price index reading, which showed inflation has cooled slightly from peak levels. And, of course, seasonality was a factor as the charts indicated by Larry Williams last Friday suggested a strong rebound was in play. While it is great to see green almost uniformly across our screens, we do not want to lose sight of our main objective of high-grading the portfolio. With a lot of the down-and-out stocks bouncing back strongly today, we think today's rally represents a solid opportunity to pare back and move on from stock positions that do not fit the profile of what we want to own in this environment. Our high-grading philosophy is simple: We want to buy stocks of high-quality companies that make stuff and do things for a profit, return cash to shareholders through dividends and buybacks, and trade at reasonable valuations. Funding our buys will be sales of stocks that do not fit our profile, and yes that means taking some pain and tough losses along the way. For today, we are picking up shares of Cisco Systems, which has a very solid dividend yield of 3.35%, trades at a low price to earnings multiple of about 13 times and has a $17.6 billion share repurchase program waiting to be deployed. Shares of Cisco Systems were hit hard last week after the company lowered its full-year outlook due to the lockdowns in China preventing the company from sourcing enough critical components to ship out products. We are mindful of how there is no easy fix in the supply chain, and it could take a quarter to straight out. But we think the stock is attractive in the wake of last week's selloff because there has been zero disruption on demand. Cisco's product orders were strong last quarter, up 8% year over year, after having three straight quarters with 30% or higher growth, and the backlog sits at record levels. As for Disney and P & G, these two additional buys follow the same line of thinking we expressed on Monday when we added to our position . We also want to point out that on the Costco conference call last night, management said they have not seen signs of the consumer trading down to private label brands, and that's good thing for Procter. On Wynn Resorts, this is a reopening play that has been plagued by travel restrictions in Macao, a Chinese special administrative region. Even though Wynn's properties in Las Vegas and Boston have performed at a very high level, the company's earnings recovery has been unable to regain any meaningful traction due to the constant two-step forward, one-step back Covid-related travel restrictions in China. Due to our low visibility into when China will move past its zero-Covid policy, we'd rather have this capital invested in more profitable, higher-quality companies with less international risk and more capital returns. Now having said that, there is some hope that Shanghai is making progress on ending Covid lockdowns. To hedge against the stock rallying further as China's reopening takes shape, we believe the prudent course of action is to sell some shares into this strength and then wait to see if the stock moves up another leg on restriction-easing optimism. We'll realize a tough loss of about 48% on this sale. As for PayPal, we are exiting the position into today's strength with shares up about 5% to around $84 per share at the time this was first written. While it is never easy to realize a loss of 52% on our remaining shares, we believe it is necessary to move on and reallocate these funds elsewhere because consumer behavior has quickly changed from buying goods to services and this could weigh on e-commerce trends for multiple quarters. (Jim Cramer's Charitable Trust is long CSCO, DIS, PG, WYNN. 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

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