We're calling up a Bullpen stock, buying it for the Trust. It's one we owned in the past

Published Tue, Sep 27 20221:22 PM EDTUpdated Wed, Nov 16 20223:06 PM EST

We're initiating a position in Estee Lauder (EL), buying 75 shares at roughly $224.37 each. Following Tuesday's trade, Jim's Charitable Trust will own 75 shares of EL, representing 0.63% of the portfolio. After not chasing Tuesday's higher open on Wall Street, we're putting some cash to work in the afternoon in a Club Bullpen stock that we have owned in the Trust in the past. The Estee Lauder buy comes as the market has come down from its high of the session and the S & P Oscillator remains deeply in oversold territory. The S & P Oscillator is a technical indicator that has guided us through oversold and overbought conditions in the market countless times over the years. Following Monday's selloff, the S & P Oscillator reached an oversold reading of minus 13.81%. Any time the Oscillator moves below minus 4%, it signals oversold conditions in the market, which could mean it's due for a bounce. At minus 13.81%, the Oscillator is at an extreme oversold condition. In fact, you have to go all the way back to the March 2020 Covid pandemic crash to find a time when the Oscillator was this low. Before that, it was late December 2018. Both points in time turned out to be a pretty good time to be buying stocks. Of course, the market can continue to fall from here and the Oscillator could become even more oversold. What needs to happen for the market to bounce is a stabilization in the yields on the 2-year Treasury and the 10-year Treasury. However, recent history suggests it's more rewarding to be opportunistic and hold your nose and do a little buying when the Oscillator is this oversold. Out of respect to our investment discipline, we are putting some money to work. We are calling up Estee Lauder from our Bullpen watch list. We previously owned a position in this beauty company but sold the last of our shares in mid-December at around $365 per share near the all-time high for an average gain of 22%. The stock has fallen about 38% since our sale, mostly due to price-to-earnings multiple compression — as a result of rising rates — and also the lack of a full earnings comeback in China, where Covid policies have held back sales of travel retail. China historically represents about a third of the company's total sales, and it's the main growth engine. But an unclear timeline of when business in the region will recover has hurt the stock. But now we are seeing more and more signs that China may finally start to ease its Covid travel restrictions — most notably with the Macao announcement over the weekend, clearing mainland tours to the gambling hub come November. That would be for the first time in nearly three years. With the China outlook starting to improve, we think Estee Lauder's stock price has come down too much and the time is right to get back in the name. We're not the only ones that recognize that now may be a good time to buy EL. Last week, analysts at Goldman Sachs upgraded their EL rating to a buy from hold. "Uncertainty around the duration of China's zero-Covid policy and the associated impact on EL's business remains high, but this now appears adequately reflected in the stock following its de-rating (e.g., its consensus NTM P/E has fallen from 46X at the end of 2021 to 31X now). Furthermore, this uncertainty is around a dynamic that we believe will prove transitory and history has taught us that stock price weakness related to transitory events are typically buying opportunities, especially when they overshadow an otherwise improving outlook," Goldman analysts said. That de-rating Goldman talked in technical terms means: The consensus next twelve month price to earnings multiple has fallen from 46 times at the end of 2021 to 31 times now. Goldman later added, "We see a pathway for robust organic sales growth acceleration ahead for the company before it settles into what should remain a robust high-single-digit long term growth rate. And this growth comes on categories where its margins should remain durably higher than history." On a stock valuation basis, Estee Lauder isn't cheap at about 30x the next 12-month earnings, but the multiple is now back at its pre-pandemic levels despite the company's stronger positioning. Prior to Covid, Estee Lauder's main sales channel were department stores, which have become less popular with consumers over the years. When the pandemic hit and department stores temporarily closed their doors, Estee Lauder pivoted quickly and built out direct-to-consumer channels like e-commerce. This shift has allowed Estee Lauder to recapture some lost market share and improve its margin outlook. We are initiating our EL position with a price target of $275 per share, about 22% higher than current levels, representing roughly 36.5x fiscal year 2023 earnings estimates of $7.51, which represents growth from the $7.24 the company earned in fiscal year 2022. That's the company's most recently completed year. (Jim Cramer's Charitable Trust is long EL. 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.

A sales assistant arranges lipsticks at an Estee Lauder store.

Qilai Shen | Bloomberg | Getty Images