Our top performer in Tuesday’s sell-off is an unexpected stock. Here’s why it is rallying
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Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. Markets: Friday’s strength didn’t follow through into the new week, with the S & P 500 falling nearly 2% Tuesday in the first session of September, which historically is a tougher month for stocks. Semiconductor stocks and other names seen as beneficiaries of rising electricity demand due to artificial intelligence are feeling the bulk of the pressure Tuesday as the market continues to digests last week’s key AI earnings reports from Club holding Nvidia , Dell Technologies and Marvell Technology . The ISM New Orders Index released Tuesday morning also may be providing some clues after it contracted in August for the fifth consecutive month to 44.6%. Electrical equipment was one of 11 industries reporting a decline in new orders in August, potentially explaining the sell-off in Club holding Eaton and others in that group. It’s worth noting, though, that computer and electronic products was one of four to report growth. Fresh details on Constellation: Shares of Modelo importer Constellation Brands bucked the broader market decline Tuesday and were actually on pace for one of their best days of the year. Ahead of a presentation at the Barclays Global Consumer Staples conference, Constellation Brands lowered its enterprise sales forecast for fiscal year 2025 and said it will take $1.5 billion to $2.5 billion goodwill impairment charge on its long-troubled wine and spirits business. But crucially, it also raised the low end of its comparable earnings per share range by 10 cents when excluding the impairment. Speaking at the event, management attributed the softer topline trends to macroeconomic reasons, such as an uptick in the unemployment rate among Hispanic consumers, which represents over half its total volume. Executives also cautioned about some “consumer wariness” close to the election. Even though the overall alcohol category is weak, management emphasized that its beer business anchored by Modelo and Corona is positioned to gain share. The results back it up: Management said Tuesday its beer business remained the top dollar share gainer in the category, with a 1.3 percentage point increase in fiscal 2025 to date. CFO Garth Hankinson also reminded investors that Constellation’s capital needs will materially drop in the years ahead as it harvests the gains from its beer capacity expansion plans — something we’ve pointed out in recent months to explain why we’ve stayed patient with the stock. “I think one of the things that’s underappreciated about the Constellation story right now is that inflection point in free cash flow generation as the [capital expenditure] requirements to support the growth of our Mexican beer business start to subside,” Hankinson explained. Once the investment cycle eases, the company’s free cash flow growth should material expand, leading to bigger buybacks and dividends. In a note to clients last month, Jefferies estimated that Constellation’s free cash flow will double from fiscal year 2025 to fiscal year 2029. In any case, consider us surprised that Constellation Brands is one of the better performing stocks in the S & P 500 on Tuesday despite the forecast for softer topline growth and impairment news. Some of this rally may be due to a powerful move out of stocks sensitive to economic growth into defensives like consumer staples on concerns about the economy. But the other part is what we’ll call a “buy the confession” reaction since analysts have been tweaking numbers lower in recent weeks. Some analysts went as far as anticipating that Constellation will guide to the lower end of its full-year earnings forecast — in fact, the opposite happened with management actually raising the low end of the range on stronger beer margins. Now that the “bad news” that the market saw coming is out of the way, buyers are coming back in. It’s a much-welcomed sight for this laggard. Up next: After the closing bell Tuesday we’ll hear earnings from three enterprise software companies: Zscaler, Asana, and PageDuty. Before the bell Wednesday there’s earnings from DICK’s Sporting Goods, Dollar Tree, and Hormel. There’s also a slew of economic data with JOLTS job opening, Factory Orders, and Durable Goods Orders scheduled for Wednesday. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) 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 . 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Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street.
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