Updates on 3 Bullpen stocks that broke through the meme and retail buzz this week

Published Fri, Aug 19 202211:19 AM EDT

Retail earnings and meme stocks — hello Bed Bath & Beyond — dominated much of the market coverage this week. But some companies from other sectors managed to get some attention, including three currently sitting in our Bullpen: Starbucks (SBUX), Estee Lauder (EL) and Palo Alto Networks (PANW). Before we run through what happened and our updates on these stocks, a quick reminder that the Bullpen is a collection of stocks identified by the Club team as having the potential to join Jim's Charitable Trust, whose holdings serve as our portfolio. These are companies we view as high quality and will monitor outside the current portfolio. More importantly, there's no guarantee when, or if, we'll initiate a purchase; we're analyzing and looking for opportunities to buy these stocks. Before initiating a position, we are typically waiting for either certain events to unfold — both company-specific and macro-oriented — or a more attractive entry point. The current makeup of the portfolio may also delay an initiation in order to keep it diversified. Starbucks The news: Analysts at Cowen raised their price target on shares to $104 from $94 on Thursday, ahead of the company's investor meeting on Sept. 13. In their view, the event could prove a positive catalyst should management name a new CEO and provide an update on the their longer-term operating margin target. (Howard Schultz is currently running the show on an interim basis though the first quarter of 2023.) The Club take: We continue to like the stock and if the opportunity arises may look to initiate the name ahead of the company's Investor Day event in September. As Jim noted during Thursday's "Morning Meeting," we ideally want a level below where it went into the Bullpen (something below the $86-per-share level) in a market that no longer reads as overbought according to the S & P Short Range Oscillator . Estee Lauder The news: Estee Lauder reported fiscal fourth-quarter earnings on Thursday. The results did come in ahead of analyst estimates: earnings of 42 cents per share versus expectations of 32 cents on the back of sales $3.56 billion versus $3.43 billion expected. However, forward guidance for both the current quarter and full-fiscal year 2023, were far below expectations. The Club take: On the company's earnings call, management said its skin care business — which made up 55% of total sales in fiscal year 2022 — was the most impacted by the China's Covid policies. Restrictions not only reduced foot traffic in stores but also hampered distribution capacity. But China is reopening and the team remains optimistic about the longer-term opportunity in the region. In the short term, it's a concern. After all, our investment in Wynn Resorts (WYNN) has taken a hit on longer-than-expected lockdowns in Macau. We believe that shares of Estee Lauder will eventually go higher. While we have no plans for the stock currently, investors should consider owning it if they have faith that lockdown restrictions in China will ease, since that will bring the beauty company's stock up. We have owned EL for the portfolio in the past, exiting our former position in December 2021 after a nice run the stock. Palo Alto Networks The news: Analysts at Morgan Stanley published an industry note discussing the defensibility of cybersecurity. However, they expect security to be less of a "rising tide" in the future "and continue to lean more towards mission-critical platforms with [free cash flow] support." They see PANW as their "top pick" as it best fits their criteria for broad offerings, secular growth tailwinds and an expectation for 30% free cash flow growth. The Club take: Data is the currency of the day — and as a result, protecting that data is of the utmost importance. This makes cybersecurity revenues some of the most resilient when it comes to IT budgets and Palo Alto is the leader in the space. While management is doing an excellent job at balancing top line growth with profitability and cash generation, at roughly 51 times forward adjusted earnings estimates, the stock is far from cheap. So, while we love the business, we have to let the stock come down to levels that are a bit easier to stomach. (Jim Cramer's Charitable Trust is long WYNN. See here for a full list of the stocks in the portfolio.) 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.

An employee hands a bag to a customer at the drive-thru of a Starbucks coffee shop in Hercules, California, on Thursday, July 28, 2022.

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