The rapid run-up in stocks prompts us to exit one position and to trim another

Published Tue, Apr 4 20238:31 AM EDT

Shortly after the opening bell, we will be exiting our position in Devon Energy (DVN), selling 500 shares at roughly $53.71. In addition, we are selling 100 shares of Procter & Gamble (PG) at roughly $149.14. Following the trades, Jim Cramer's Charitable Trust will no longer hold a position in Devon and will own 715 shares of PG, lowering its weighting in the portfolio to 4.05% from 4.59%. Now that our trading restrictions have cleared, we are selling the rest of our Devon Energy position into its recent strength. This sale is consistent with our 3 rating and what we outlined in our article Monday — the surprise OPEC+ output announcement and the quick pop in oil stocks provides a good opportunity to lighten up on some exposure to the sector. Last month we laid out a few reasons why our plan was to part with Devon Energy but keep Pioneer Natural Resources (PXD) and Coterra Energy (CTRA). For starters, Devon's recent earnings report was the most disappointing of the bunch. Its capital efficiency got hit by the double whammy of a higher-than-expected capital expenditure outlook and lower-than-estimated production. The capex outlook for Pioneer, our other oil producer, was also higher than expected, but so was its production outlook. In terms of capital returns, we've been buying more PXD instead of DVN lately because the former offers a larger dividend yield. As of Monday's closing price, PXD's yield is about 10.4% while DVN offers 6.7%. As for Coterra, this half-oil, half-natural gas producer ran into similar issues as Devon in terms of capital efficiency for 2023. But one thing we liked that Coterra has done that others have not is shift its capital return focus to share repurchases instead of paying out a variable dividend. When management made this announcement in February, it made a lot of sense to us based on how much the stock had fallen from last year's highs. And with natural gas prices trading near a low for this year, we think Coterra has more relative upside to it if the commodity was to rally. We're also trimming our position in Procter & Gamble and downgrading our rating to a 2. After a rough start to 2023, which saw PG trade below $140 for most of February and into the beginning of March, shares have been on the up and up the past couple of weeks, thanks to a couple of analysts upgrading their rating to buy and to the sharp decline in interest rates. Interest rates matter for a stock like Procter because it, along with many other consumer staple companies and utilities, is often characterized as "bond proxies" due to its stable earnings and dividend growth. Here's a quick and dirty explainer: Generally speaking, when interest rates rise, bonds become a more attractive place to put investment dollars relative to the proxies, causing the latter to fall; and when rates decline, the proxies' dividend yields become more attractive relative to bonds, bringing in new investment dollars which cause their stock prices to rise. But this trim isn't about the future direction of interest rates. Instead, we are lightening up on this big position because we've been battling it all year, adding opportunistically at lower prices, and it finally has made its move back to $150, which is about where it started the year. Although we are making a sale today, we continue to like the PG's setup for the rest of 2023 because we expect it will maintain its pricing power even though its commodity costs are finally coming down. That will result in margin expansion and a solid uplift in earnings per share. Lastly, these sales are being made in discipline to the S & P 500 Short Range Oscillator , which with its 6.42% reading is indicating an overbought market. Whenever the market is overbought, it's a sign stocks have made a big run in a short period of time and could be due for a rest. It is a wake-up call for us to book some sales and not be too greedy because a pullback could be lurking. And after putting roughly $55,000 in the market at lower prices when it was oversold between March 10 and March 20, our trim of Cisco (CSCO) on Monday and these two sales today will help replenish our cash position. From these sales, we will realize a small loss of about 5% on the PG shares we purchased in April 2022. With our exit of Devon Energy, we'll realize an average loss of about 7.7% on our last remaining shares. We may have lost some money (not including dividends) on our last handful of shares, but overall Devon has been a nice win for the portfolio dating back to when we started buying in January 2022. If you include the 800 shares we sold last year at an average price of $67.93, we made 44% on our Devon position and that figure does not include the big dividend payments we received each quarter. (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.

Dust blows around a crude oil pump jack and flare burning excess gas at a drill pad in the Permian Basin in Loving County, Texas, November 25, 2019.

Angus Mordant | Reuters