How we're thinking about our Club stock exposure to China following Covid protests

Published Mon, Nov 28 20223:04 PM EST

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

Global stocks slumped Monday on growing concerns about intensifying protests across China over the communist government's strict Covid policies. Wall Street was not immune: The Dow Jones Industrial Average , the S & P 500 and the Nasdaq all dropped more than 1% to start the new week. The Club stocks most tied to China were having a mixed session, with no clear signs on whether the demonstrations will have any impact on Beijing's approach to the pandemic. While this level of civil unrest in China is notable and rare at this scale, the protests there should not be hitting the broad U.S. stock market this much. We see the impact, thus far, on much of Corporate America — and the bulk of our portfolio — to be negligible and concentrated in specific companies with operations in China and those with businesses that could be negatively affected by any indirect fallout from instability in the world's second-biggest economy. Club holdings Estee Lauder (EL), Starbucks (SBUX) and Wynn Resorts (WYNN) have sizable presences in China, which until recently had been showing signs of easing Covid protocols, not tightening them. On Monday, Estee Lauder and Starbucks were lower. Wynn bucked the downward trend and rose about 4.5% after a JPMorgan upgrade and tentative license renewals in the Asian gambling hub of Macao — a special administrative region of China where the company has major casinos. While those companies are directly affected by China's fortunes, there are also some indirect implications for the Club's energy stocks, even though most don't do business there. That's because of their link to crude prices. While crude bounced off its session lows and turned positive Monday, it was down significantly earlier in the day on demand fears stemming from the China lockdowns. We looked at Monday's dip in Devon Energy (DVN), which stayed lower even as crude turned higher, as a buying opportunity and picked up some additional shares . Our big-picture view on China remains that Beijing's insistence on enforcing its zero Covid policy is untenable forever. We can't predict for sure when Chinese President Xi Jinping will embrace a full-scale pivot toward a more accommodating approach to the virus — or how these protests will affect his thinking — but we do believe there will be further relaxation on the horizon. Such a development would provide huge lifts to stocks like Wynn Resorts, so we're willing to be patient with our investment in China-exposed stocks. On days like Monday, when the overall market seems to be taking its cues from happenings in China, we think it's important to remember that plenty of our companies remain above the fray such as drugmaker Eli Lilly (LLY) as well as beer, wine and spirits giant Constellation Brands (STZ). Yes, China's economy is No. 2 behind the U.S., and it's a key link in the global supply chain. However, for many companies, we think other factors are of greater importance to their trajectory. With that in mind, we wanted to reexamine how much revenue each of our 32 Club holdings generates in China. All sales percentages are based on FactSet data over the past 12 months, and the list goes in alphabetical order by stock ticker. Apple (AAPL) — Revenue from China : 17.7% (China is the iPhone maker's second-largest market, lagging just the U.S. at 37.5% of sales.) Advanced Micro Devices (AMD) — Revenue from China : 24.3% Amazon (AMZN) — Revenue from China : 3.8% Bausch Health (BHC) — Revenue from China : 5.7% Costco (COST) — Revenue from China : 6.8% Salesforce (CRM) — Revenue from China : 5.4% Cisco Systems (CSCO) — Revenue from China: 3.4% Coterra Energy (CTRA) — Revenue from China: 0% Danaher (DHR) — Revenue from China: 13.2% (China is Danaher's second-biggest market, trailing only the U.S. at 39.5% of sales.) Disney (DIS) — Revenue from China: 4.8% Devon Energy (DVN) — Revenue from China: 0% Estee Lauder (EL) — Revenue from China: 29.7% (China is the cosmetic giant's largest sales market, followed by the U.S. at 19.8%, per FactSet.) Ford Motor (F) — Revenue from China: 4.6% Alphabet (GOOGL) — Revenue from China: 3.8% Halliburton (HAL) — Revenue from China: 1.6% Honeywell International (HON) — Revenue from China: 4.2% Humana (HUM) — Revenue from China: 0% Johnson & Johnson (JNJ) — Revenue from China: 3.1% Eli Lilly (LLY) — Revenue from China: 5.7% Linde (LIN) — Revenue from China: 8.1% Meta Platforms (META): Revenue from China: 2.6% Morgan Stanley (MS) — Revenue from China: 2.6% Microsoft (MSFT) — Revenue from China: 12.4% Nvidia (NVDA) — Revenue from China: 25.8% — keep in mind: Nvidia's revenue is not attributed to the country in which the consumer buys a product that contains one of the company's semiconductors. "Revenue by geographic region is allocated to individual countries based on the location to which the products are initially billed even if the revenue is attributable to end customers in a different location," the company wrote in its annual report. Procter & Gamble (PG) — Revenue from China: 13.7% (China is P & G's second-largest sales market, with the U.S. accounting for 45.5% of revenue). Pioneer Natural Resources (PXD) — Revenue from China: 0% Qualcomm (QCOM) — Revenue from China: 62.4% — similar to Nvidia, Qualcomm's geographic sales are not attributed to the end market where products containing one of Qualcomm's chips are sold to consumers. Starbucks (SBUX) — Revenue from China: 9.1% (China is the coffee chain's second-largest market, behind the U.S.) Constellation Brands (STZ) — Revenue from China: 0% TJX Companies (TJX) — Revenue from China: 0% Wells Fargo (WFC) — Revenue from China: 0% Wynn Resorts (WYNN) — Revenue from China: 40.1% — keep in mind: Wynn's operations at its two Macao properties have been severely disrupted by China's "zero Covid" policy in recent years, lowering their percentage of companywide revenue. In 2019, prior to the pandemic, nearly 70% of Wynn's revenue was generated in Macao, a Chinese special administrative region. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) 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.

People hold white sheets of paper and flowers in a row as police check their IDs during a protest over coronavirus disease (COVID-19) restrictions in mainland China, during a commemoration of the victims of a fire in Urumqi, in Hong Kong, China November 28, 2022.

Tyrone Siu | Reuters