These 4 Investing Club stocks are in the news — here's our take on what's happening

Published Tue, Sep 20 20223:06 PM EDTUpdated Tue, Sep 20 20223:15 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

In a busy week of events for Club holdings, a handful of other names in Jim Cramer's Charitable Trust made the news Tuesday. Here are the headlines and what they mean for our investment theses. Apple The news: Evercore ISI analysts offered more indications that consumers want the Pro model of Apple 's (AAPL) iPhone 14 — a relatively encouraging trend we highlighted last week that appears to be the consensus view now. Further support came Monday, when closely followed Apple analyst Ming-Chi Kuo reported the company asked manufacturing giant Foxconn to "switch production lines of the iPhone 14 to iPhone 14 Pro models." Evercore, which relied on survey results for its iPhone 14 conclusions, also raised its price target by $5 to $190 per share and kept its outperform rating. "Demand for high-end models is notably higher vs. prior years. Pro Max demand is at 33% (vs. 14% LY)," the analyst wrote, using LY as an abbreviation for last year's iPhone 13. "Aggregate, Pro mix increased from an average of 41% to 56%, reflecting the benefit from Apple's efforts to concentrate upgrades in the Pro Models. The result is the average selling price of the iPhone 14 is probably around $940, the analysts concluded, compared with around $852 last year. Consequently, Evercore now estimates iPhone revenue of $90 billion in the September quarter, compared to Wall Street estimates around $88 billion. "Our FY23 iPhone revenue estimate is up by $7B to $214B, an increase of 3.5% vs. our prior estimate. Our FY23 revenue/EPS estimates now stand at $418B/$6.71, which are 1.3%/5.3% above consensus," Evercore said. Club take: An increase in the average iPhone selling price is definitely good for shareholders, especially considering that, in the U.S., Apple kept prices unchanged from last year despite the inflationary pressures across the supply chain. As the strength of Pro models becomes an established view, the question shifts to what's happening with demand for the base iPhone models. Could it be that consumers worn down by inflation are not looking to upgrade to the iPhone 14 in the same numbers they did for last year's iPhone 13, and the smaller segment of prospective customers happen to be targeting the Pro models at a higher rate than before? This would be a lukewarm scenario, as smaller unit sales overall would probably diminish the benefit provided by higher average selling prices. Alternatively, is overall demand for the iPhone this year pretty much the same as in 2021, meaning Apple is seeing similar sales volumes at higher prices? This would be great for shareholders. Demand for higher-end products tends to be more resilient to inflationary pressures compared to lower-end goods. However, it's hard to know whether that win-win scenario — or something close to it — is playing out. We continue to believe Apple is a core stock to own for the long term, not a position to trade in and out of. We pay close attention to the day-to-day developments surrounding the company, as we want to ensure our long-term thesis isn't called into question. Nothing we've seen involving the iPhone 14 does that. It's a very difficult macroeconomic environment to be launching new smartphones in, and the fact the more expensive Pro models are being well-received speaks to Apple's strong brand loyalty. Plus, it's worth adding, Evercore's survey found more consumers' intent to buy an Apple Watch and Airpods were at an all-time high. That's another good sign that supports our confidence in Apple over long haul. Humana The news: Morgan Stanley upgraded Club name Humana (HUM) to buy from hold. The Wall Street firm cited a proprietary analysis of "benefit richness" that suggests Humana's 2023 plan positions the health insurer as the No. 1 ranked retail Medicare Advantage prescription drug plan. After Humana was struggling to add members to Medicare Advantage earlier this year, the health insurer vowed to address growth the plan, which is the main driver of Humana's business. In its fiscal second-quarter earnings, Humana's MA business delivered a 13% increase in its retail segment to $20.95 billion. Morgan Stanley's research note says strong MA membership growth sets it up well to reach its $37 earnings per share by 2025. RBC Capital sees upside for Humana, too. "With marketing leading home health, primary care, and PBM positions, the company continues to invest to capitalize on the growing [value-based care] opportunity," RBC Capital wrote. The firm also raised its price target by $3 to $544 per share and reiterated its outperform rating. These positive Wall Street calls come after Humana raised its profit outlook for full year 2022 as part of the investor day it held last week. HUM hit a 52-week high on Tuesday, topping $514 per share. Club take: This upgrade by Morgan Stanley is in line with our original thesis that Humana's investment in its Medicare Advantage plan would improve its competitiveness in the marketplace and lead to an acceleration in membership growth in 2023. But what's incrementally positive to our view is the work by the analysts that suggests Humana's changes are structural enhancements, which could set the company up for multiple years of above-industry growth. In addition to these positive fundamental trends, we continue to like Humana for its minimal sensitivity to interest rates, economic growth, and the strong U.S. dollar. Microsoft The news: Microsoft (MSFT) announced on Tuesday an increase to its dividend by 9.7% to $0.68 from $0.62 per share, which represents an annualized dividend payout of $2.72. The dividend is payable on Dec. 8 to shareholders of record on Nov. 17. Microsoft paid out $18.14 billion in dividends in its fiscal year ended June 30, up from $16.52 billion in the prior year, according to its annual report. From an overall cash standpoint, Microsoft is one of the largest dividend payers in the U.S. Club take : We don't own Microsoft for its dividend, and the new implied yield of 1% can't compete with the 2-year Treasury as it approaches 4%. But you have to appreciate a company that has the wherewithal to increase cash returns in an uncertain macro environment like Microsoft is doing. This ability is a credit to its mission-critical business applications, cash flow generation power, and investment-grade balance sheet. Pioneer Natural Resources The news: Analysts at KeyBanc Capital Markets started coverage of Pioneer Natural Resources (PXD) with a buy rating and a 12-month price target of $290 per share. Among the reasons they like the stock: a "rigorous capital return framework" that includes its base-plus-variable dividend model. "The Company paid back $24/share in base and variable dividends over the last year, and we model a slight increase over the next four quarters. The decision to unwind most of its 2022 hedges in 4Q21 has proven to be lucrative, providing unbridled exposure to resurgent commodity prices," the analysts wrote. They expect to "see more investors gravitating to Pioneer's income model" as "healthy quarterly dividends stack up," they added. With oil companies seeing "generationally high profit margins," Pioneer's low-to-mid single digit production growth plan also is a "refreshing differentiator" compared with peers, the analysts wrote. Well productivity is a potential concern for KeyBanc analysts, contending "many other large Midland Basin operators are not seeing this degradation." However, the analysts note, Pioneer's well productivity is "among the best in the Midland Basin" despite the downturn since 2018. Club take: We have a 2 rating on shares of Pioneer, meaning we'd be buyers on a pullback. A 1 rating is our buy-it-here designation. In late August, we made three sales of Pioneer stock, 80 shares in total, at levels above where the stock traded Tuesday. The reason for those sales was our commitment to discipline — we didn't want our energy hedge to become too large in the portfolio, so we took some profits. We still believe in owning energy as a way to hedge against inflation, and the massive dividend payouts of companies like Pioneer, Devon Energy (DVN) and Coterra Energy (CTRA) make the investment case even more attractive. We are in agreement with KeyBanc on that. We also made the point last week that our energy stocks can keep generating tons of cash with crude around $80 per barrel, and we liked that KeyBanc offered a similar assessment in its note Tuesday. "Going forward, we see a low-cost oil manufacturing machine with limited production growth (0-5% annually) and robust cash returns that can generate $15-$25 per share annual dividends in an $80/b WTI environment, justifying our OW rating and $290 PT," they analysts wrote. (Jim Cramer's Charitable Trust is long MSFT, PXD, AAPL, HUM, DVN, HAL and CTRA. 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. 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Satya Nadella, chief executive officer of Microsoft Corp.

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In a busy week of events for Club holdings, a handful of other names in Jim Cramer's Charitable Trust made the news Tuesday. Here are the headlines and what they mean for our investment theses.