We're making two more buys in this volatile and very oversold market

Published Mon, Sep 26 20223:03 PM EDT

We're buying 25 shares of Salesforce (CRM) at roughly $147.28 each and 25 shares of Honeywell (HON) at roughly $170.28. Following Monday's trades, Jim's Charitable Trust will own 400 shares of CRM, increasing its weighting in the portfolio to 2.18% from 2.04%, and 650 shares of HON, increasing its weighting to 4.11% from 3.96%. In a very oversold market, according to our trusted S & P Oscillator , we've making two more small buys Monday afternoon. In the morning, we bought some more Amazon (AMZN). The Oscillator reached an extreme oversold reading of minus 10.66% after last week's sharp declines. The last time it broke below minus 10% was on June 16, a bottom that gave way to a strong summer rally that well and truly ended at the beginning of September, a month which has definitely lived up to its reputation as being the worst of the year for stocks. As a reminder, any time the Oscillator moves below minus 4%, it signals oversold conditions in the market, which could mean it's due for a bounce. However, the Oscillator (and the market) could, of course, go even lower from here, especially as equities take their cue from the bond market. The selloff in Treasurys — and the increase in yields — has created major headaches for stocks. Price-to-earnings multiples compress as interest rates rise and the safe 4% yield on the 2-Year Treasury creates genuine competition for investment dollars. We need to see Treasury yields stabilize for the market to stabilize. But with the Oscillator this oversold, we are sticking to our discipline of adding small and looking for high-quality, profitable companies with great balance sheets as their stock prices decline to bargain levels. We started Monday off by adding some Amazon and said during the "Morning Meeting" for Club members that we would pick at something else if the markets turned lower. With Monday's gains in the S & P 500 erased and the index headed for new 2022 lows, we're nibbling on shares of Salesforce. Shares of this enterprise software company are trading right around its 52-week low despite the positive updates that were announced last week at its annual Dreamforce conference. At management's analyst day, we were pleased to see a reiteration of their $50 billion revenue target for the fiscal year 2026 despite an additional $2 billion of foreign exchange headwinds. This was good news as it suggested the company's long-term organic growth trend was on track, but it wasn't the most important. We think the most important new item was Salesforce's management raising its operating margin target to at least 25% in the fiscal year 2026. This is exactly what we wanted to see because it shows a commitment to profitable growth. And with a first-ever share repurchase program now in place, we think management has become serious about managing its dilution. These two data points taken together represent a major pivot in how Salesforce has operated previously. It's also a necessary one because gone are the days of growth at any price. It may take some time and proof of execution on management's end, but we believe Salesforce will ultimately be rewarded for this. We are also buying some more Honeywell. Nothing has changed in our thesis since we added to our position two weeks ago . Honeywell is a multi-industry company with about 65% of sales focused on late cycle end markets like commercial aviation, defense, oil and natural gas, as well as nonresidential construction. We think these end markets are less likely to have material earnings revision risks as economic growth slows down. Aerospace is still in a post-Covid recovery mode with flight hours increasing and international travel picking up steam. Oil and natural gas is an industry that continues to see investment spending given elevated prices and the imbalance of supply and demand. Honeywell's non-residential construction business, through its Honeywell Building Technologies segment, is a consistent low single digit grower as more and more places look to modernize to "healthy buildings." It's also a very profitable company with an excellent balance sheet and capacity for buybacks. Through the first half of 2022, Honeywell went through about $2.4 billion of the $4 billion it expects to repurchase this year. (Jim Cramer's Charitable Trust is long CRM, HON and AMZN. 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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Traders work on the floor of the New York Stock Exchange (NYSE) in New York, September 26, 2022.

Brendan McDermid | Reuters