We're adding to our position in 2 stocks undergoing transformations
We are making two trades shortly after the opening bell. We are buying 200 shares of Cisco Systems at roughly $67.74. Following the trade, Jim Cramer’s Charitable Trust will own 1,000 shares of CSCO, increasing its weighting to 1.85% from 1.50% We are buying 50 shares of Honeywell at roughly $224.75. Following the trade, Cramer’s Charitable Trust will own 350 shares of HON, increasing its weighting to 2.12% from 1.82%. Shares of Cisco Systems are down more than 1% in premarket trading Monday after analysts at Evercore ISI downgraded their rating on the stock to a hold-equivalent from outperform. The downgrade was due to valuation, with the stock 6% below Evercore’s $72 price target – not because of negative fundamentals. Evercore finds the AI story compelling, given large technology customers, known as the hyperscalers, are adopting Cisco’s Silicon One networking solution and enterprise spending on AI. However, the analysts argued the stock won’t get credit as an AI winner unless the company discloses its AI-related revenue. Remember, Cisco disclosed last quarter it received over $1 billion in AI orders, but it’s unclear when those will translate into revenue. We disagree with this downgrade and are taking advantage of this weakness to slowly scale deeper into this new position. There’s a lot of momentum in Cisco’s business, with share gains happening on both the hyperscale and enterprise sides. At around 17 times forward earnings, the stock isn’t expensive, and that valuation doesn’t fully appreciate Cisco’s AI tailwinds and shift toward subscription revenue. Additionally, with our trading restrictions clear, we are making good on our plan to buy some shares of Honeywell. The stock fell 5% last week despite the company reporting better-than-expected second-quarter results, while also raising its full-year outlook for sales, organic sales growth, and adjusted earnings per share. Normally, a stock would get rewarded for this – especially one that has lagged year to date – but it got dinged because of some headwinds impacting its commercial aerospace business and some energy project delays. We are buyers of this weakness because those issues are temporary and should improve in the second half of the year. More broadly, Honeywell isn’t getting enough credit for its breakup into three companies. While there are many moving parts to the story, as management has aggressively changed the company’s makeup through numerous acquisitions, these changes are for the better. (Jim Cramer’s Charitable Trust is long CSCO and HON. 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.
