We're trimming one of our tech stocks to protect against further supply chain issues

Published Tue, Aug 2 202212:13 PM EDT

We're selling 205 shares of Cisco Systems (CSCO) at roughly $45.39 each. Following Tuesday's trade, Jim Cramer's Charitable Trust will own 1,300 shares of CSCO, decreasing its weighting in the portfolio to 2.01% from 2.32%. We're trimming our position in Cisco and downgrading our rating to 2 from a 1 , following the strong earnings report Monday night from Arista Networks (ANET). Arista reported a significant upside surprise with quarterly revenue of $1.05 billion, beating the consensus of about $980 million and above the company's original guide of $950 million to $1 billion. Some of this upside was driven by better-than-expected product revenues, which increased 56% year over year to $886 million. Arista cited strength from its Cloud Titans, which is what they call mega-cap tech companies like Microsoft (MSFT) and Meta Platforms (META), who invest heavily in their cloud networks. On one hand, we could look at the ANET quarter and say that what is good for one computer networking provider is good for the entire group, meaning Cisco Systems could be in a position to report an upside surprise when it reports on Aug. 17. On the other hand, however, our concern is that Arista is taking an increasing amount of share from Cisco, with one big reason being it has a more flexible supply chain. You may recall that when Cisco last reported earnings in May , management cited a $300 million headwind to revenues related to the Covid lockdowns in China. Our trim Tuesday afternoon will protect against the possibility that Cisco's supply chain challenges improved at a slower than anticipated pace. We'll realize a loss of about 14% on stock purchased in June 2021. In addition to the reasons above, we continue to respect the overbought reading of the S & P Oscillator , which was 8.1% after Monday's session, and it's another reason we're making another small sale. As a reminder, any time the Oscillator moves above 4%, the market is technically said to be overbought, which means it could be due for a pullback. Of course, the Oscillator could become more overbought from here, and stocks can always move higher. But at a minimum, we think an overbought Oscillator serves as a reminder that stocks have had a great run and we shouldn't be greedy. (Jim Cramer's Charitable Trust is long CSCO, MSFT and META. 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.

Chuck Robbins, CEO, Cisco Systems, speaking at the World Economic Forum, Davos, Switzerland, January 21, 2020.