We're taking profits on a drugmaker, raising price target and adding to a cybersecurity stock

Published Mon, May 1 20238:51 AM EDTUpdated Mon, May 1 20239:02 AM EDT

Shortly after the opening bell, we will be selling 50 shares of Eli Lilly (LLY) at roughly $399 each and buying 50 shares of Palo Alto Networks (PAWN) at roughly $181 each. Following Monday's trades, Jim Cramer's Charitable Trust will own 200 shares of LLY, decreasing its weighting in the portfolio to 2.96% from 3.67% and 300 shares of PANW, increasing its weigh to 2.03% from 1.69%. Eli Lilly has been on an absolute tear lately, rallying about 28% from its lows on March 7 to new all-time highs above $400 per share this past Friday. The recent leg higher in shares of this drugmaker came around its first-quarter earnings report Thursday when it delivered a beat on revenue and raised its full-year outlook partly due to strength in the underlying business. Off the strength of the quarter, we are increasing our price target to $430 from $380. LLY YTD mountain Eli Lilly YTD Lilly has been a big position for the Investing Club since we started buying it in late 2021, and the stock's continued outperformance has pushed its weighting to about 3.7% in the portfolio. We expect more gains ahead, with Lilly looking on track to gain Food and Drug Administration (FDA) approval for Mounjaro to treat obesity later this year. The company has been ramping up manufacturing capacity ahead of the decision. In its first-quarter results, Lilly also provided positive obesity-trial data for Mounjaro, which has gotten off to a roaring start as a type-2 diabetes treatment. However, there's one upcoming potential catalyst event we believe is best to be prudent about. During this quarter, Lilly will provide the results of its Phase 3 Trailblazer-ALZ 2 trial that evaluates donanemab for the treatment of early Alzheimer's. This terrible disease has been a tough one to crack , making it very hard to predict what the data will show and how the market will react. We remain optimistic that the quality of Lilly's data will be at least on par with rival Leqembi, which was developed by Japan's Eisai and U.S.-based Biogen (BIIB). Earlier this year, Leqembi was granted accelerated approval by the FDA. Results showing donenemab's efficacy at least matches Leqembi would likely spark a nice rally for the Club holding's shares. However, accelerated approval for donenemab is likely off the table now. That's one reason why we continue to hold a nice-sized position in the pharma giant even after this sale. But to protect against a potential disappointment, which is certainly a possibility, it is prudent to trim shares after this new all-time and reallocate that cash into stocks of other quality companies that have been beaten up recently. This sale will lock in a great gain of more than 53% on LLY stock purchased in November 2021. PANW YTD mountain Palo Alto Networks YTD About half of the funds raised from this Lilly sale will go into building up our position in Palo Alto Networks . Shares of this leader in cybersecurity are coming off a rough week where shares fell more than 5% on concerns about the weak outlooks from smaller industry names like Tenable and Cloudflare . Their shortfalls took down the entire group. One trend that continues to hurt is longer sales cycles, which is a way of saying that new deals are taking longer to close due to economic uncertainty. On the Tenable call, CEO Amit Yoran said the regional banking crisis in late March "exacerbated" this issue and caused more deals to get pushed out, especially from companies in the banking and financial services sector. But here is our problem with reading too much into the conference calls of Tenable and Cloudfare and extrapolating that to Palo Alto. While it is highly likely that deal uncertainty increased out of the regional banking crisis, Palo Alto Networks is in a special class within the industry because it is taking share from the little guys. We are in a period right now where many cybersecurity customers are consolidating their spending around the industry's largest players. As a market leader in thirteen categories within security, Palo Alto is a winner from what is happening in the market. And with a management team committed to profitable growth and accelerating leverage in the business, we think Palo Alto Networks will continue to surprise to the upside. Lastly as a reminder, our plan for the other half of the cash proceeds is to buy Caterpillar as soon as our trading restrictions allow. Caterpillar shares initially were hit hard Thursday despite posting a huge earnings beat with its first-quarter report but were able to pare its losses throughout the trading session. And thanks to a Friday rally, shares ultimately finished the week higher than where they stood on the eve of the earnings print. Still, the stock has been very disappointing this year. While the market seems very concerned that right now is as good as it will get for Caterpillar with its pricing, margins, and its backlog and it can only get worse from here, we think what is being missed is the multiple-year benefit from all that infrastructure spending, which is only just getting started. (Jim Cramer's Charitable Trust is long LLY, PANW. 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.

Jim Cramer at the NYSE, June 30, 2022.

Virginia Sherwood | CNBC