We're increasing our exposure to an old economy stock at the expense of tech

Published Tue, Feb 14 202312:12 PM EST

We're buying 50 more shares of Caterpillar (CAT) at roughly $242.28 each and selling 100 shares of Qualcomm (QCOM) at roughly $130.46 each. Following Tuesday's trades, Jim Cramer's Charitable Trust will own 210 shares of CAT, increasing its weighting in the portfolio to about 1.71% from 1.3% and 275 shares of QCOM, decreasing its weighting to about 1.21% from 1.65%. Adding to Capterpillar Shares of machinery giant Caterpillar have underperformed over the past two days after Baird downgraded its rating Monday to neutral. Analysts there say they believe the stock is "nearing a cyclical pivot point" after its recent outperformance. Baird pointed out four fundamental factors that tend to drive CAT's relative performance: dealer stocking, the backlog, the spread between price and costs and how it drives future margin expectations, as well as dealer retail sales. Analysts at Baird became more bearish on CAT because it believes the price/cost spread and backlog will peak in the first quarter, tailwinds to revenue growth from dealer stocking will be less pronounced this year, and dealer retail sales will need to "accelerate significantly" this year or else excess inventory could build, leading to production cuts in 2024. CAT 1Y mountain Caterpillar (CAT) 1-year performance We never like to see a long-term bull like Baird turn negative, but one of the main pushbacks we have about this call is the peak in the backlog. Our investment case is predicated on Caterpillar enjoying multiple years of strong demand thanks to the Infrastructure Investment and Jobs Act, which provides $110 billion of new funds for roads, bridges, and other major projects that all require machinery from companies like Caterpillar to complete. In addition, the Inflation Reduction Act and the CHIPS and Science Act will give away hundreds of billions to boost U.S. manufacturing. Since these new projects haven't even started yet, we think the pace of new orders will support the company's backlog, which increased by $1.6 billion from the third quarter of 2022 to the fourth quarter. With infrastructure spending expected to provide multiple years of demand growth for CAT, we think it's unlikely that CAT will be required to cut production in 2024 to prevent excess inventory from building up. A faster than anticipated rebound in the Chinese economy also represents another potential tailwind to Caterpillar's backlog. Trimming Qualcomm QCOM 1Y mountain Qualcomm (QCOM) 1-year performance To fund this purchase, we are once again trimming our position in semiconductor company Qualcomm . We've been downbeat on Qualcomm after the company delivered softer-than-anticipated guidance on Feb. 2 and warned that handset chip inventories were taking longer than expected to flush out due to weak smartphone demand. But that was only one part of the problem. Due to the slowdown in the economy, Qualcomm flagged on its earnings call that it has started to see waning demand in some of its growth markets like internet of things (IoT) and Industrials. If excess inventory starts to build in these two markets, we find it harder to believe Qualcomm will get credit for being a diversified growth semiconductor anytime soon. With shares outperforming so far this year — up 18% despite these uncertainties — we are trimming our position again, realizing a loss of about 12% on stock purchased in March 2022. (Jim Cramer's Charitable Trust is long CAT, QCOM. 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.

Traders work during the opening bell at the New York Stock Exchange (NYSE) on Wall Street in New York City on August 16, 2022.

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