We're adding to our position in this cosmetics giant

Published Thu, Oct 20 20221:39 PM EDT

We are buying 40 shares of Estee Lauder (EL) at roughly $202.18 a share. Following the trade, the Trust will own 210 shares of EL, increasing its weighting in the portfolio to 1.59% from 1.29%. In today's "Morning Meeting," we mentioned we would make our next purchase in Estee Lauder if the stock fell closer to $205 a share. With shares below that level in afternoon trading, we are making another small buy as part of our strategy to slowly scale into this position on weakness. Shares of this cosmetics giant have lagged in recent weeks for two reasons. Firstly, the rise in U.S. Treasury yields continues to pressure all stocks and especially those with premium valuations. Estee Lauder isn't a cheap stock with a multiple of roughly 27.5-times the next twelve months' earnings, but we've been more than comfortable with this valuation. That's primarily because the multiple has completely reset back to the levels it traded at prior to the Covid-19 pandemic. At the same time, Estee Lauder is expected to deliver earnings growth above its usual trend in the coming years, as the parts of the business hit hardest by the pandemic recover. The second reason for the current stock weakness is that analysts have been tweaking their earnings estimates lower amid ongoing challenges in China, a region that represents about one-third of Estee Lauder's revenues and the bulk of its growth. China has yet to reverse its so-called zero-Covid policy, limiting business in the country and adding to pressure on the stock. Still, we continue to think that Beijing's strict Covid stance is transitory, as the government can't maintain further lockdowns without severely damaging the economy in the long term. Beyond what's happening in China, Estee Lauder is a stellar company that pivoted quickly when the pandemic hit, building out more 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. Lastly, we received another incrementally positive piece of news about the health of the beauty industry today when French cosmetics maker L'Oreal reported better-than-expected quarterly results, noting that "consumers' appetite for beauty products is intact." Given this backdrop, we will continue to add to our Estee Lauder position using wide scales, a strategy we referenced in our explainer on how to buy a pullback. (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.