We're using this rally to make a few trades in the portfolio: one sale, two buys

Published Tue, Oct 18 20229:24 AM EDTUpdated Tue, Oct 18 20229:48 AM EDT

We're buying 20 shares of Danaher (DHR) at roughly $263.99 and 40 shares of Estee Lauder (EL) at roughly $217.05. In addition, we are selling 350 shares of Marvell Technology (MRVL) at roughly $39.25. Following Tuesday's trades, the Trust will own 530 shares of DHR, increasing its weighting in the portfolio to 5.11% from 4.92%. It will also own 170 shares of EL, increasing its weighting in the portfolio to 1.34% from 1.03%. Lastly, it will own 1050 shares of MRVL, decreasing its weighting in the portfolio to about 1.50% from 1.97%. Marvell Technology We are trimming our position in Marvell right into Tuesday's market rally. This move is consistent with our thinking from last Monday : We have concerns about the impact U.S. export controls will have on the semiconductor industry. The havoc these controls (and potentially more) are having on the industry means earnings estimates for 2023 are too high and will need to come down. Our sale today into strength will decrease our risk against these and future measures. To the point that the future earnings numbers are too high, we don't think Marvell will be immune even though it has the least exposure to consumer end markets of its peers. Analysts at Deutsche Bank lowered their Marvell calendar year 2023 revenue estimate by 3% and earnings per share estimate by 4% on macro concerns and cut its price target to $55 from $65. This all being said, we are hesitant to fully leave the group because that puts us at risk of selling when the semiconductor decline is already two-thirds through. The dilemma we face: What if a lot of the bad news and future earnings cuts are already priced in? This trim will lock in a gain of about 60% on stock purchased in late 2019. But we acknowledge we have purchased shares this year at higher prices. Estee Lauder We are taking some of that MRVL cash to add to our newest position Estee Lauder . 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. The stock has fallen about 42% since our sale, mostly due to price-to-earnings multiple compression — as a result of rising rates — but also due to uncertainty in China, which historically represents about one-third of company sales. Estee Lauder operates in more than 150 countries and territories, but a lot of growth comes from China, thanks to rising income levels and beauty products gaining in popularity. But the region has been a problem for it because of the rigid stance on Covid and the on-again, off-again lockdowns. Although the China recovery timeline remains uncertain and uneven, we think it is a transitory issue because the government can't keep shutting down without crushing its economy. The outlook for more developed regions like in the Americas and Europe is also quite strong, led by growth in skin care and the continued recovery in makeup, which got hit during the pandemic because people stopped going to work and stayed at home. Before the pandemic, Estee Lauder's main sales channel was 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 direct-to-consumer channels like e-commerce. This shift has allowed Estee Lauder to recapture some lost market share and improve its operating margin outlook. Over the last three years, Estee Lauder has expanded its operating margins by 220 basis points. Danaher We'll use the remaining MRVL funds to add to our Danaher position. The company is scheduled to report earnings this Thursday morning, and while it is not like us to buy any stock so close to the print, we continue to believe Danaher's current price fails to reflect the good news it announced last month. On Sept. 14, management said its third-quarter 2022 core revenue growth is expected to be above its prior guidance range, driven by more than $500 million of Cepheid respiratory revenue than what was anticipated. Additionally, core revenue growth from the base business is expected to be in the high single-digit range. We thought this was great news because it showed the business is still growing despite all the macroeconomic uncertainty. The same day, Danaher announced it plans to separate its Environmental & Applied Solutions (EAS) segment to create an independent, publicly traded company. We believe this will be a value-creating transaction. The remaining Danaher should see its price-to-earnings multiple expand from current levels because it is shedding a slower-growing, lower-margin asset. The new Danaher will be even less cyclical with a higher percentage of recurring revenues. Meanwhile, EAS is a high-quality asset in its own right; an industry leader organically growing at a mid-single-digit clip with solid margins and strong free cash flow generation. Shares of Danaher are down roughly 7% since making these two positive announcements. (Jim Cramer's Charitable Trust is long DHR, EL, MRVL. 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.

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