Salesforce, Caterpillar and Disney are in the news. Here's our take on the headlines

Published Mon, Mar 27 20231:52 PM EDTUpdated Mon, Mar 27 20233:33 PM EDT

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

Salesforce (CRM) chalked up a win after well-respected activist investor Elliott Management scrapped its nomination candidates for the Club holding's board. Meanwhile, analysts who cover Caterpillar (CAT) put out fresh research that cuts against our own thinking, and layoffs will soon begin at Disney (DIS). Here's a rundown of the news and our Club take on each development. Elliott retreats on board battle CRM 1Y mountain Salesforce's 12-month stock performance. The news: Elliott Management on Monday withdrew its slate of director nominations for Salesforce's board, reversing course after CEO Marc Benioff revealed plans to accelerate the enterprise software maker's profitability growth and delivered strong full-year guidance earlier this month . In a joint statement with Salesforce, Elliott managing partner Jesse Cohn said he's "deeply impressed" with the company's plans to deliver profitable growth and responsibly return capital to shareholders through stock buybacks. Benioff said he appreciated Cohn's "mindful and constructive ideas." The Salesforce co-founder echoed the we-can-learn-from-everybody philosophy he laid out on March 1 in an interview with Jim Cramer. Elliott is one of the five activist investors to build a position in Salesforce in recent months, pushing the company to close its profitability gap with its mature software peers. The Club's take: Elliott's peace agreement is another sign Benioff is winning this activist tussle with an ambitious multi-year strategy to expand margins while growing revenues. The company more than delivered with its fiscal 2023 fourth-quarter results March 1 and its fiscal 2024 guidance of 27% adjusted operating margin, well ahead of Wall Street's expectations. Against this backdrop, it's not entirely shocking that Elliott has pulled its nominations and both sides are striking a congenial tone. Salesforce shares, which rose modestly Monday, has surged more than 44% this year, the third-best performing Club stock behind Nvidia (NVDA) and Meta Platforms (META). (It's worth noting that all three stocks logged terrible performances in 2022.) In addition to a broader rotation back into tech stocks in 2023, investors have enthusiastically responded to Salesforce's profitability initiatives. The Club continues to believe Benioff is the right person to lead the company he helped start more than 20 years ago. Jim said Monday that Benioff, whom he considers a friend, is energized to bring in new customers. "Salesforce still has a lot of room to grow," Jim added. Baird turns bearish on CAT CAT 1Y mountain Caterpillar's 12-month stock performance. The news: Caterpillar's business may suffer if tighter credit conditions contribute to a meaningful slowdown in U.S. nonresidential construction in 2024, Baird analysts told clients in a downgrade Monday. The firm now has an underperform, or sell, rating on CAT shares and a $185 price target, implying a nearly 15% drop from where the stock closed Friday. Previously, Baird had a neutral rating and $230 price target on Caterpillar, which joined the Club's portfolio in January. However, analysts are now worried Caterpillar shares "are nearing a cyclical pivot point." Baird also expressed concerns about inventories at Caterpillar dealers, which rose by $2.4 billion in 2022. The company doesn't expect a significant change to dealer inventories at year-end 2023, which worries the analysts. That's because, they argue, Caterpillar's stock performance has in the past tracked the amount that dealer stocking contributes to overall revenue growth. Baird also worries about CAT's ability to keep growing margins as equipment supply improves. In the fourth quarter of 2022, Caterpillar's adjusted operating profit margin of 17% was an all-time record high. The Club's take: Our decision to invest in Caterpillar is rooted in the heap of government infrastructure spending that's going to be spread across the U.S. in the coming years. Our belief in that multi-year infrastructure trend, which should boost demand for Caterpillar's machinery, allows the Club to look through any near-term headwinds. Investors can reap rewards from patience. "It's very hard to get in and out of CAT," Jim said Monday. "I wanted to be early on CAT just because, I think, that when you get that money that's going to come from the federal government that's going to go to infrastructure, CAT is a natural [beneficiary]." Disney to start layoffs DIS 1Y mountain Disney's 12-month stock performance. The news: Layoffs will begin this week at Disney, CEO Bob Iger told employees in a memo obtained by CNBC . The previously announced job cuts are expected to total 7,000 and, according to Iger's memo, will occur in three phases over the coming months. The layoffs will impact workers across the company's three divisions — Disney Entertainment, which includes most streaming operations; Parks, Experiences and Products; and ESPN. The headcount reductions are part of a broader $5.5 billion cost-cutting plan that management hopes will boost profitability in the coming years. The Club's take: Iger appears to be delivering on part of his expense-reduction plan, which is necessary for Disney to strengthen its earnings power. It may take some time to immediately flow through to the bottom line. But as shareholders, we're generally encouraged by news that Disney is taking action to reduce costs. Going forward, we'll be closely watching the profitability of Disney's streaming unit, an important part of the company's strategy but one that's been a money-losing endeavor for the past few years. So far, it seems Iger is on the right track in his return to the helm, and he's keeping us optimistic on Disney's future. (Jim Cramer's Charitable Trust is long CRM, CAT and DIS . 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.

Marc Benioff, chairman and chief executive officer of Salesforce.com speaks during the grand opening ceremonies for the Salesforce Tower in San Francisco on May 22, 2018.

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