After you receive this post, we will be selling 25 shares of Estee Lauder (EL) at roughly $229.88 per share. In addition, we will be selling 50 shares of Union Pacific (UNP) at roughly $240.99 per share. Lastly, we will be buying 25 shares of PayPal (PYPL) at roughly $248.10. Following the trades, the Charitable Trust will own 125 shares of Estee Lauder, representing 0.73% of the portfolio, 400 shares of Union Pacific, representing 2.44% of the portfolio, and 600 shares of PayPal, representing 3.77% of the portfolio.
As a reminder, we will always wait 45 minutes after we publish a trade alert before executing the trade. By waiting, we presume that Investing Club members will receive a better price in the market than what we do.
With the Dow Jones Industrial Average and the S&P 500 pushing to fresh record highs, we are reshuffling some of the positions held in the Charitable Trust. We will be trimming two stocks that are trading near their respective highs while adding to a position that is trading nearly 20% from its July high and roughly 7% below levels from last Tuesday.
Trimming Estee Lauder:
Shares of Estee Lauder have put together three strong sessions in a row, rallying from $304 to $330 as investors have had more time to digest some of the causes of last week’s mini pullback. Despite the positive action in the broader market, EL fell last Tuesday and Wednesday in what we believe was related to the beauty results from Proctor & Gamble and disappointing long-term sales growth guidance from Ulta at its Investor Day.
We were not nimble enough to buy the EL dip at $304 and now that shares have bounced back quickly to $330, we see this as a level to lock in more gains in our small position. Through this trim, we will realize a solid gain of about 13% on stock purchased in May 2021.
Trimming Union Pacific:
Shares of UNP have had a strong run month-to-date, up over 20% in October after shares bottomed out in the second half of September following cautious commentary at the Morgan Stanley 9th Annual Industrials Conference, found their footing and began to regain ground into last week’s better-than-expected earnings release.
However, while the print was positive, management did formally downwardly revise their productivity and operating ratio guidance. We highlighted the risks for negative guidance revisions in our trade alert prior to the release, calling out the risk to volume growth targets as a result of the ongoing chip shortage and congestion at ports.
Our decision to trim was based on the simple fact that UNP has a history of trading lower on earnings releases. That said, we also noted in our alert that “if we are wrong about the UNP quarter and shares end up trading higher from here, we’ll still have plenty of shares remaining in the Trust to enjoy the upside.”
So, though we did trim ahead of this next leg higher, we aren’t going to beat ourselves up on a winner. With shares up again today, marking the eighth up day in nine sessions, we find it prudent to lock in some additional gains and raise cash ahead of what is set to be one of the biggest weeks of earnings season with over 25% of the S&P 500 market cap set to report.
Despite today's action, we make no changes to our longer-term investment thesis. We continue to believe that Union Pacific has the pricing powers to offset inflation, and management is executing on all factors within their control while effectively navigating the challenging supply chain environment we temporarily find ourselves in.
Through this trim, we will realize a solid gain of about 12% on stock purchased in March 2021.
Buying more PayPal :
Regarding our decision to step in and acquire shares of PYPL, our thinking is largely in line with last week’s update detailing “We would be buyers of PayPal on this dip” - the dip being the result of reports that PayPal was contemplating a $39 billion acquisition of Pinterest. In the alert, we theorized on what the next news update could be: either the affirmative – that PayPal would be making a move to acquire Pinterest and then proceeded to lay out why we thought it could make sense, or in the negative, that PayPal would not be making a bid for interest, in which case we felt the move to bid up PINS and short PYPL would be unwound.
This morning we learned that it would be the latter with PayPal putting out a press release stating, “PayPal stated that it is not pursuing an acquisition of Pinterest at this time.” While the resulting price action is as expected (PYPL trading higher and PINS trading lower), shares remain well off the $270 level they were trading out prior to the report.
Why didn’t PYPL immediately go back to $270?
There may be some overhang resulting from investor speculation as to what “at this time” might mean exactly – i.e., what is PayPal’s current appetite for M&A given that the rumors pointed to a $39 billion deal which would be nearly 10x the size of the company's largest acquisition to date (Honey at $4 billion).
Still, we think the stock can work its way back in time, making the current level attractive ahead of what should be a strong 2022. Growth next year should reaccelerate with the help of the soon-to-be-completed eBay migration and the introduction of new revenue streams related to the recently updated PayPal app, which now includes additional online shopping tools and banking services.
The CNBC Investing Club is now the official home to my Charitable Trust. It’s the place where you can see every move we make for the portfolio and get my market insight before anyone else. The Charitable Trust and my writings are no longer affiliated with Action Alerts Plus in any way.
As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Typically, Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If the trade alert is sent pre-market, Jim waits 5 minutes after the market opens before executing the trade. If the trade alert is issued with less than 45 minutes in the trading day, Jim executes the trade 5 minutes before the market closes. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade.
(Jim Cramer's Charitable Trust is long PYPL, EL, UNP.)
