During the “Morning Meeting” on Friday, we opened our inbox and found a good question raised by a member of the Investment Club. Starbucks — like Halliburton — has been doing really well lately. The club cut some Halliburton on Thursday. Why not cut Starbucks too? I have a double-digit percentage gain from my stock accumulation over the past five months. Looks like I should get some off the table. I would appreciate your perspective on what I see as a similar situation, but two different stocks. -Clay In our video, we debated whether it was time to take profits and pledged to come back with a definitive answer. Our answer is yes, we would make a very small cut — 50 shares of our 750 shares in Starbucks (SBUX) — if we weren’t restricted from trading. We’ll also lower our rating to 2, meaning we’ll wait for a drop before buying. As Clay pointed out, Starbucks has been quite productive lately. The first leg was due to the Bullish Investment Day event that we focused on our August investment thesis around . At the event, Starbucks management outlined an extensive reinvention plan to improve efficiency at its stores and an ambitious growth strategy. The second leg of recent protests has been fueled by China easing its once strict Covid-related restrictions much faster than anyone expected six months ago. It’s 180 degrees different from the fears in October when SBUX collapsed over fears that China would extend its Covid-free policy much longer after Chinese President Xi Jinping tightened his grip on power. This speculation weighed heavily on stocks that day as China was a major growth opportunity for the coffee retailer. Starbucks is targeting to open 3,000 new stores in China by fiscal 2025, meaning one new store every nine hours for the next few years. While there are a lot of concerns about China, we keep an eye on the ball and add our position to that weakness in the stock. Since that purchase, Starbucks is up about 22% compared to the S&P 500’s 1% gain. Starbucks 1-Year SBUX Mountain Starbucks (SBUX) 1-Year Performance There’s a lot to be optimistic about the future of Starbucks, but more good news is starting to be priced in. monthly income. That’s a fourfold increase from when we started buying in August at about $85 a share. The higher coefficient is justified by the improved profit outlook and China’s growth plans, but it also increases the risk around execution. Out of common caution and discipline after a big run, we’ll take some stocks off the table the next time we’re unrestricted. We will also increase our price target up to $120 as we still believe there is more incentive here in the long run as China returns and we see the benefits of investing in it. stores in the United States. In addition, we believe it is prudent to sell a few shares when the market is overbought. After Thursday’s positive session for stocks, the market pushed even deeper into overbought territory, according to the S&P Oscillator. The value of this technical indicator increased from plus 6.46% to plus 9.46%. As a reminder, any value above 4% means that the market is technically in overbought territory and a pullback is likely. It is a sign that buyers may have exhausted their strength and any negative news could trigger selling, like what we saw on Friday morning when the market panicked. because the bank income is really not bad at all. It is rare for an Oscillator to achieve such a high value. The last time it happened was in November 2020. We went back and looked at how the market performed over the time it took to address the overbought then. The results were unexpected. There was a drop of about 2% in the following five sessions. But in the days it took for the overbought condition to completely disappear, the Dow Jones Industrial Average actually edged slightly higher. The action is similar to the previous one in June 2020. Of course, the market back then is in a bull market driven by the Federal Reserve’s zero-interest rate policy to support the economy is struggling due to Covid shutdown. Today, rates are much higher, and it’s hard to know exactly where earnings will head in 2023, especially for the tech sector. Ultimately, earnings are what drive stock prices. .DJI 5Y Dow 5 years However, our interpretation of the S&P Oscillator and the recent stock market rally is that things could get tough over the next few days, possibly. Next few weeks. But we don’t want to be too negative with charts looking favorable, signs that inflation is finally starting to ease, and that the Fed no longer needs to be as aggressive as it was thought a few months ago. The bottom line Again, earnings will be the most important driver of stocks over the next few weeks and we’ll need to see them hold up. But with the Fed winning its war on inflation, we will be looking for downsides and weakness to add to the position of profitable companies trading at price-to-earnings valuations. reasonable entry. Some of the Bullpen names we are scrutinizing are Deere (DE) and Caterpillar (CAT). We would love to see their prices drop. Another potential name is BlackRock (BLK) and we’ll follow up next week with an official Bullpen post about the investment management company. BlackRock on Friday beat estimates with fourth-quarter earnings and revenue. (Jim Cramer’s Charitable Trust is a long-term SBUX, HAL. See here for a complete list of stocks.) As a subscriber to the CNBC Investment Club with Jim Cramer, you’ll receive trading alerts before you can. Jim makes the transaction. Jim waits 45 minutes after sending the trading notice before buying or selling shares in his charity’s portfolio. If Jim had talked about a stock on CNBC, he would have waited 72 hours after issuing a trading warning before taking a trade. INFORMATION ABOUT THE ABOVE INVESTMENT CLUB IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, PLUS OUR DISCLAIMER. NO Fiduciary Obligations OR OBLIGATIONS EXIST, OR BE CREATE, BECAUSE OF YOUR RECEIVING ANY INFORMATION PROVIDED IN RELATED TO THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS GUARANTEED.
A Starbucks store inside the Tom Bradley terminal at LAX airport in Los Angeles, California.
Lucy Nicholson | Reuters
In “Morning Meeting” Friday, We opened our inbox and found a good question asked by a member of the Investment Club.
Starbucks — like Halliburton — has been doing really well lately. The club cut some Halliburton on Thursday. Why not cut Starbucks too? I have a double-digit percentage gain from my stock accumulation over the past five months. Looks like I should get some off the table. I would appreciate your perspective on what I see as a similar situation, but two different stocks.
-Clay
