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Home » Why we’re downgrading a top-performing stock — plus, the latest fuel for Costco’s rally
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Why we’re downgrading a top-performing stock — plus, the latest fuel for Costco’s rally

Press RoomBy Press RoomAugust 27, 2024
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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. Market check : The S & P 500 was seesawing around gains and losses for most of the session but has been slowing creeping higher in afternoon trading. Still, it’s been a split session with some giveback of Monday’s broadening out rotation into small caps and other beneficiaries of interest rate cuts. Technology and financials are the top-performing sectors Tuesday, while energy fell alongside the price of oil and natural gas. A pair of Wall Street banks cut their 2025 forecast for Brent crude, with Goldman Sachs lowering its estimated average price to $77 a barrel from $82 and Morgan Stanley estimating a range of $75 to $78 a barrel. For perspective, Brent, the international oil benchmark, broke slightly below $80 a barrel in Tuesday trading. We haven’t been big oil bulls this year, which is why we only have one small energy position in the portfolio. Shares of Club holding Coterra Energy are down about 6% year to date, underperforming others in the group. This weakness has nothing to do about the company’s execution, which has been excellent. Instead, it’s all about its high natural gas exposure. The stock can’t seem to catch a bid despite many analysts championing it. On Tuesday, Roth MKM upgraded Coterra to a buy with a $29 price target. According to FactSet, 80% of the analysts covering Coterra rate its stock a buy or buy-equivalent rating. Lilly downgrade: Yes, as we said in the Morning Meeting , we want to take some profits in Eli Lilly when we are not restricted. Part of this is due to portfolio management reasons. We’ve been letting the stock run for almost a full year; our previous sale was at $591 in September 2023. The stock has rallied about 62% since that sale, fueled by optimism around its GLP-1 weight loss and diabetes drugs. Shares have also strongly rebounded since we upgraded our rating to a buy-equivalent 1 in July in the mid- $800s when the stock fell on concerns about competition in the fast-growing GLP-1 class. When management reported blockbuster second-quarter result s a few weeks ago, we thought they did an excellent job explaining how hard it would be for Lilly to lose its leadership. Now that the market is more aligned with our longstanding view, we think it’s prudent to take some profits. Lastly, Eli Lilly is closing in on a $1 trillion valuation. We’ve long said the company was on the path to joining the elusive $1 trillion club, and our concern is that it could be a sell-the-news event if and when it crosses the mark. We’ve seen situations like that unfold before – fellow Club holding Nvidia ‘s top in June came right after it passed Microsoft to become the world’s most valuable public company. Undisciplined investors chased the headline and sellers rushed in. Over the long term, Lilly can still go higher because of its GLP-1 execution and strong pipeline of future drugs, but we must not allow ourselves to get too greedy. Value wins: In Monday’s Homestretch , we argued that the incredible reaction Costco receives whenever it opens up a new warehouse shows how the company has plenty of room to continue putting up new stores around the world. Costco made another new all-time high Tuesday, but this time the stock is reacting to a bullish note by Oppenheimer. In it, analysts explained how the wholesaler has made improvements to the quality of the so-called “treasure hunt” experience through building up a big non-foods business. Some of the products the analysts highlighted from its recent store check were gold bars, laptops, discounted gift cards to services like UberEats, and Nike apparel. The treasure hunt experience is what the consumer wants right now, and it is something that cannot be replicated online, which also explains why a retailer like portfolio name TJX Companies is thriving in this environment. Like Costco, TJX shares hit a new all time high in the session. Up next : SentinelOne reports after the bell, and we’ll be looking to see if this cybersecurity company was able to pick up market share following the CrowdStrike outage last month. Calvin Klein owner PVH Corp and Nordstrom also report. Before the bell Wednesday, we’ll see earnings from several other apparel and retail stocks. Abercrombie & Fitch , Chewy , Kohl’s , Bath & Body Works and Foot Locker are all scheduled to report. J.M. Smucker is set to release its earnings, too. Of course, Nvidia’s after-the-bell report is Wednesday’s biggest event, even if we wish there wasn’t so much hype . (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.

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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