We're upgrading our rating on an industrial stock and plan to buy more
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. Stocks are sharply higher on Thursday , with the S & P 500 headed for its first positive session since Monday. The broad-based index was flat for most of the afternoon, but stocks ripped at 1:28 p.m. ET after President Donald Trump announced on Truth Social that he called off strikes and bombings against Iran that were scheduled for this evening. Despite the market’s gains, there was sluggish action across the Magnificent 7. Perhaps, this is the last round of investors selling liquid mega-cap tech positions to fund their SpaceX purchases. Honeywell shares rose after hosting an investor day for its Technologies business (formerly known as Automation). It’s one of the final key checkpoints before it separates the Aerospace business on June 29 in a 1-for-2 share spin-off. We’ve seen some analysts call Honeywell a show-me story, and we don’t necessarily disagree. The company has undergone significant portfolio reshaping over the past few years, shedding slower-growth, lower-margin businesses while making acquisitions designed to accelerate growth and improve the quality of earnings. For example, the company divested its PPE business last May and is expected to close the sales of its Warehouse & Workflow Solutions and Productivity Solutions and Services businesses later this year. At the same time, it has closed six deals since 2023 (with one more pending) to boost growth. We like the direction the company is headed, with management outlining three-year financial targets of 4% to 6% organic sales growth, steady annual margin expansion, and achieving $6 in earnings per share, representing 10%-plus annual adjusted EPS growth. More importantly, the valuation is attractive. Honeywell shares (Aerospace + Technologies) currently trade at about 19.5 times consensus 2026 adjusted EPS estimates, according to FactSet. When Aero is spun, we expect the business to command a multiple much higher than that. For example, peer stock RTX trades at around 26 times 2026 estimates. That leaves Technologies: The multiple for this business is debatable, but we’d point to a similar company, Emerson Electric , trading at about 20.6 times calendar year 2026 EPS estimates, according to FactSet. Rockwell Automation fetches an even higher multiple than that. Our expectation is that Honeywell should trade somewhere in the Emerson neighborhood, meaning that Honeywell’s multiple today is too low because it still has Aerospace. With spin purgatory nearing an end, we are upgrading our rating back to 1 and plan to buy back at least the 30 shares we sold in late May at about $231 . We are restricted from purchasing shares today, but a trade could come on Monday at the earliest. There’s a strong rebound in the trucking and freight stocks after pulling back on Wednesday on concerns about Amazon expanding its less-than-truckload (LTL) services to all businesses. Analysts at Barclays wrote late Wednesday that they see limited risks for existing national carriers. One strong reason is that Amazon’s retail competitors probably won’t use this. That’s not unusual. Along similar lines, Walmart has avoided using Amazon Web Services for its cloud computing for obvious competitive reasons. Barclays also noted Amazon is taking an asset-light approach that won’t have the same capabilities to compete with traditional networks. The Amazon headline risk may never go away for this group, but it’s good to remember points like these the next time a sell-off like this happens. Adobe and Lennar report after the closing bell on Thursday. There are more major earnings on Friday, but the SpaceX IPO dominates market mindshare. On the data side, we’ll see the University of Michigan sentiment report and inflation expectations. (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 . 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.
