Here's our internal debate about what to do with stocks making all-time highs

Published Fri, Jun 16 20233:54 PM EDTUpdated Fri, Jun 16 20234:00 PM EDT

The S & P 500 is heading for its best week since March. The broad-market index and the tech-heavy Nasdaq both closed Thursday at their highest levels since April 2022. Along the way, many of Club stocks have recently hit new 52-week highs, with some of those milestones taking us back to multiyear highs — or in some cases, all-time highs. While debating whether that means we should be booking more profits, we're wary of trimming winners too aggressively. After all, if all you do is sell your winners then in the end, you're going to be stuck with a portfolio full of losers. To help ground this thinking and ensure we aren't being greedy, it's always helpful to consider where stocks stand in terms of their valuation and growth opportunities. Jim Cramer started the week with his Sunday column , talking about weighing his own-it, don't-trade-it mantra on Club stock Nvidia (NVDA), which has nearly tripled year to date, against the desire to book profits to lock in gains. If you're sitting on a big position with huge paper profits, Jim said you can do both, take some off the table because you have to do some selling to put money in the bank. He kept that theme going during this week's Monthly Meeting, where he reiterated that concept . As discussed previously , we like to use a stock's forward price-to-earnings (P/E) multiple, which can offer up a sense of how expensive or cheap it is based on the next 12 months' earnings estimates and what investors have historically paid. However, this approach fails to account for growth expectations. To adjust for that, we look at the forward PEG by taking the P/E multiple and dividing it by the forward growth rate. The PEG can help us determine if any multiple contraction or expansion has been overdone or if it's a reflection of revised growth expectations. Here's an analysis looking at both metrics to provide a glimpse into what we're considering internally as we discuss how to approach the incredible market rally we've seen in recent weeks. In some cases, we have already made our trims — in others, we have yet to make a decision. All of the following stocks hit all-time price highs Friday, except for Meta Platforms (META), which was a multiyear high. (Even with an over 135% year-to-date gain, Meta still needs to gain more than 30% to get back to its September 2021 all-time high of $384.33 per share. Apple P/E next 12 months (NTM) ratio: 29x 5 year Average P/E (NTM): 22.7x PEG (NTM) ratio: 2.9x 5 year average PEG (NTM) Ratio: 1.9x Apple 's (AAPL) valuation has gotten stretched in recent weeks, even when factoring in growth expectations. We were reminded of this again this week when UBS downgraded Apple to hold. That said, we consider this an own-it, don't-trade-it name because of the quality of its ecosystem and management team, along with the incredibly shareholder-friendly commitment to be net-cash-neutral over time, meaning excess cash will continue to be returned to shareholders. AAPL YTD mountain Apple YTD performance As a result, we maintain the view that trading in and out of this name just isn't worth the risk of selling and missing the opportunity to get back in. Rather than trying to be nimble here, we simply keep our core position on and tend to trim only when the weighting in our portfolio becomes too excessive. We run a diversified portfolio and don't want any one position to have too much of an influence. This strategy has rewarded us for years and we see no reason to change it up now. Eli Lilly P/E (NTM) ratio: 44.5x 5 year Average P/E (NTM): 26.1x PEG (NTM) ratio: 1.9x 5 year average PEG (NTM) Ratio: 1.8x Anyone looking at Eli Lilly's earnings multiple probably thinks owning shares up here would be crazy, after all, it's trading at a roughly 70% premium to its 5-year historical valuation. However, those people are failing to consider that Mounjaro could be one of the best-selling drugs of all time and that we may finally, after years of disappointments, be looking at a viable Alzheimer's drug in the form of donanemab. LLY YTD mountain Eli Lilly YTD performance Regarding Mounjaro, which is core to our Lilly thesis, we're now seeing possible use cases even beyond the approved type-2 diabetes indication and obesity, which is expected to soon clear regulator scrutiny. Credit Suisse analysts said this week, "Users continue to report various forms of addiction reduction benefits, which represents a large untapped opportunity." Addictions that may be explored for Mounjaro to treat include "anorexia/bulimia, smoking, drinking, gambling, shopping," they noted. Looking at the forward PEG ratio, which incorporates investor expectations for future growth, Lilly shares may not be as expensive as they seem at first glance. Eli Lilly also has one of the cleanest growth profiles within large-cap pharma due to its minimal loss of exclusivity risk. We recently trimmed shares at about the $437 level about 4% below Friday's all-time high. Meta Platforms P/E (NTM) ratio: 21.4x 5 year Average P/E (NTM): 21.2x PEG (NTM) ratio: 1.6x 5 year average PEG (NTM) Ratio: 2.2x Meta has been on an incredible run. However, the stock is not only trading around its 5-year average forward P/E multiple, it's actually trading at a discount when we consider the growth investors expect to see in the years ahead. This growth stands to come from a combination of cost savings initiatives, increased efficiency, and the implementation of artificial intelligence across its platforms. META YTD mountain Meta Platforms YTD performance The introduction of Apple's Vision Pro mixed-reality headset and the interest it will no doubt garner from app developers also stands to help Meta's Quest line of cheaper virtual-reality headsets, something we spoke to previously . We recently trimmed shares at $265 or about 7% below Friday's multiyear high. Microsoft P/E (NTM) ratio: 31.7x 5 year Average P/E (NTM): 27.7x PEG (NTM) ratio: 2.5x 5 year average PEG (NTM) ratio: 2.1x Microsoft's run has seen its earnings-based valuation (P/E) expand, even when adjusting for growth (PEG). That said, we're clearly in a market environment in which investors are willing to pay a premium for artificial intelligence enablers and Microsoft's Azure cloud platform along with its investment in Open AI, the start-up behind ChatGPT, put it at the heart of this theme. MSFT YTD mountain Microsoft YTD performance Nvidia P/E (NTM) ratio: 51.1x 5 year Average P/E (NTM): 39.4x PEG (NTM) ratio: 2x 5 year average PEG (NTM): 2.5x Given its recent run, one might think that Nvidia has gotten absurdly expensive. However, this is one of those rare times when an upward earnings revision is so great that the stock can rally and the valuation doesn't expand compared to where it was prior to the move. Sure, shares appear expensive as far their P/E is concerned but when adjusting for growth expectations (PEG) — thanks to the accelerated computing need that rapid adoption and efforts to implement generative AI have resulted in — what we find is that Nvidia's current valuation isn't all that unusual. NVDA YTD mountain Nvidia YTD performance Nvidia has a history of beating estimates and ending up cheaper in hindsight. With little competition to be found anywhere and Nvidia pretty much being the enabler to the enablers of AI, it's our other own-it, don't-trade-it name. However, we're always mindful that we have two disciplines at work — the case to take something off the table after a huge move to preserve the gain and the doctrine of owning Nvidia and not trading it. It's something we wrote about in more detail earlier this week . Palo Alto Networks P/E (NTM) ratio: 49.8x 5 year Average P/E (NTM): 47.2x PEG (NTM) ratio: 1.6x 5 year average PEG (NTM): 2x Here too, we see that while the P/E multiple is a bit elevated, the stock is actually trading at a discount to history when factoring in forward growth expectations in the PEG ratio. This expectation for higher growth makes sense when we consider that more of our daily lives are moving into the digital sphere, corporate and government data is the currency of the day, and cyber attacks by bad actors are becoming more and more advanced by the minute. Just Thursday , several U.S. federal government agencies said they were hit by a global hacking campaign. PANW YTD mountain Palo Alto Networks YTD performance With corporate IT budgets being scrutinized for areas to save, companies have begun to consolidate around those security names that can provide all-encompassing solutions — rather than a single product for a unique use case. Palo Alto Networks is proving to be that platform. We previously sold shares at nearly $221, more than 9% below Friday's all-time high. (Jim Cramer's Charitable Trust is long AAPL, LLY, META, MSFT, NVDA, 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.

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The S&P 500 is heading for its best week since March. The broad-market index and the tech-heavy Nasdaq both closed Thursday at their highest levels since April 2022.

Along the way, many of Club stocks have recently hit new 52-week highs, with some of those milestones taking us back to multiyear highs — or in some cases, all-time highs.