(This article was sent first to members of the CNBC Investing Club with Jim Cramer. To get the real-time updates in your inbox, subscribe here.)
There may be a lot of negativity in the market Monday with prices lower across the board, but we are staying the course for the Charitable Trust and opportunistically looking for stocks to buy in select areas.
If you take a step back, the uncertainties facing the market right are not different from what the economy has overcome in the past. We've gone through stretches like this before, and the difficulty of predicting when it will happen is a big reason why we always maintain a well-balanced, diversified portfolio for the Charitable Trust and keep some cash on the sidelines.
A selloff like this can be rough, and it never feels good as it is happening. The constant selling tests our patience. But if you take a more medium-term view of things, what you will find is that there are plenty of stocks of great companies that have been wrongly punished and brought down by the sell everything mentality.
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In our Investing Club note this morning, we suggested members be picky and selective with their buys. Below are some groups and ideas that are on holiday shopping list.
Healthcare is a group we continue to emphasize. They are defensive and can grow earnings even in an economic slowdown. Also, drug stocks are winners from the potential blocking of the Build Back Better plan because one of the provisions would have allowed the government to negotiate directly with pharmaceutical companies on the price of certain drugs.
- In the portfolio, we like Abbvie (ABBV) for its huge dividend yield and think the market has underappreciated its ability to replace Humira sales, but it is a bit harder to chase this one after the significant outperformance in the past month.
- We like Eli Lilly (LLY) at the current price more. The stock has fallen about 6% from its post-Investor Meeting high, and we continue to favor this pharma name for its volume-driven growth, blockbuster-rich pipeline, and continual operating margin expansion.
- Or how about a company with a breakup catalyst like Bausch Health (BHC)? We said earlier it looks very attractive on a sum of the parts basis.
We still see value in the banks because they are cheap on earnings, have solid dividends, aggressive share repurchase programs, and tend to outperform when the Fed raises rates.
- Our favorites are Wells Fargo (WFC) and Morgan Stanley (MS). Wells Fargo is more of a restructuring story because of its cost-cutting initiatives and the asset cap, but it's also a great way to play higher interest rates. Morgan Stanley is not interest-rate sensitive. Instead, Morgan Stanley's business model emphasizes fee-based and recurring revenue streams. Investors are willing to pay more for fee-based and recurring revenue streams because they are predictable and easy to forecast. As fee-based and recurring revenue streams become the majority of Morgan Stanley's total revenues, we think the market will reward MS by applying a higher price-to-earnings multiple on the stock.
We think investors should not sleep on mega tech, the FANG stocks — Meta Platforms (FB), formerly Facebook, Amazon (AMZN), Netflix (NFLX), and Google parent, Alphabet (GOOGL) — plus Apple (AAPL) and Microsoft (MSFT). All of these companies offer investors growth at a very reasonable price and provide exposure to some of the best secular growth trends in tech but are far cheaper than the cohort of tech stocks that earn nothing and will remain volatile as the Fed tightens and tapers.
- During uncertain times, investors love buying this group because of their indestructible balance sheets and strong management teams. You want to start buying them far sooner than you would suspect. And by the way, isn't Amazon's online marketplace the biggest winner from the omicron surge ahead of the holidays?
Oil may be getting crushed, but Chevron's (CVX) 4.78% dividend yield should help the stock find support with interest rates as low as they are. And as we have explained in the past, Chevron has the cash flow to cover the dividend even at lower oil prices because of their cost and capital discipline.
Last but certainly not least is Costco (COST), our favorite consumer staple stock. This retailer is a winner in a Covid- or no-Covid world and is indifferent to what is going on with the broader economy because everyone loves low prices.
- And, don't forget about the two catalysts investors should have their eye on in 2022. One is the potential for a special cash dividend. The timeline lines up because Costco's balance sheet is flushed with cash and the company has paid out a special dividend four times in the past eight years.
- Second, we think it may be only a matter of time before management hikes the price of its membership. Historically Costco increases the cost of a membership every five years, and it will be five years next summer. With Costco's loyalty rates as strong as they are (91.6% renewal rate in the U.S. and Canada, 89% worldwide), Costco can probably increase its membership fee with little resistance. Remember, fee income is pure profit.
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. 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. See here for the investing disclaimer.
(Jim Cramer's Charitable Trust is long ABBV, LLY, BHC, WFC, MS, FB, AMZN, GOOGL, APPL, MSFT, CVX and COST.)