We’re downgrading a red-hot tech stock — plus, our reason for not bailing on Estee Lauder
Every weekday the CNBC Investing Club with Jim Cramer holds a “Morning Meeting” livestream at 10:20 a.m. ET. Here’s a recap of Friday’s key moments. Stocks ticked higher in the final session of a strong week, as the S & P 500 and Nasdaq Composite look to extend their six-day winning streaks. The fuel for this robust stretch of performance has been encouraging economic releases, including cooler inflation reports and better-than-expected initial jobless claims. While some weak housing construction data came out Friday morning, this “doesn’t change the narrative of the week, which has been favorable economic data for the bulls,” said Jeff Marks, the Club’s portfolio director. Despite the recent stock rally, the S & P Short Range Oscillator, our trusted momentum indicator, is still not near overbought territory, which could mean this uptrend has more legs. We’re downgrading Palo Alto Networks to a 2 rating — meaning we’d wait for a pullback to buy more — due to the stock’s huge move higher since the recent market bottom Aug. 2. That’s the same day we added to our position in the cybersecurity provider . Marks said if the Club wasn’t restricted Friday, we’d trim some shares. “As much as we like Palo Alto for the long-term…the issue is it’s become a trading stock unable to really break out toward its highs from earlier in the year,” Marks said. Analyst commentary has been a little mixed ahead of the company’s earnings report Monday night. While a number of firms have upped their price targets in recent days, Evercore ISI said in a note late Thursday it’s more cautious into earnings. Later Friday, we’ll have in-depth look at what to expect in the report. Bank of America downgraded Estee Lauder to a hold-equivalent rating from buy due to weaker-than-expected performance in China, a key market for cosmetics maker that accounts for roughly a third of its sales. China’s sluggish economic recovery has been a major drag on the company. Analysts admitted they were wrong to upgrade Estee Lauder in March — just as we were in mid-April. We downgraded the stock on July 1 and trimmed our position later that month to fund opportunities in better companies. We’re prepared to see suboptimal results when Estee Lauder reports earnings Monday. But the reason we’re not exiting entirely at this moment is uncertainty around what’s been priced into the stock at these depressed levels. The fact Estee Lauder shares were only fractionally lower after BofA’s downgrade shows it’s not a revelatory call. The beauty company needs “the Starbucks fix,” Marks said, referring to how a leadership change at the troubled coffee giant this week improved the sentiment on the stock. (Jim Cramer’s Charitable Trust is long PANW and EL. 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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