Although it wasn’t a perfect earnings season for our industry-focused portfolio companies, we feel pretty good about the outlook for the rest of the year. The stock prices of two of the five stocks closed at all-time highs on Friday, and we believe the remaining stocks hold promise for patient investors. 1. Eaton Electric’s power management company, Eaton, posted higher profits and revenue in the fourth quarter. As part of the February 1 release, management also announced strong outlook for 2024. This sets Eaton apart from its peers, which have conservative outlooks for this year. Eaton continues to build a strong backlog. Eaton’s stock set a record during its post-earnings rally and hasn’t looked back since. It closed at a new all-time high of $277.52 on Friday. ETN YTD Mountain Eaton (ETC) Year-to-date Performance On the closing date, we increased our club price target on Eaton from $255 to $290 per share. Eaton is arguably one of the biggest winners in the nation’s reindustrialization and electrification trends. We believe this wave will act as a catalyst and push up stock prices in the long run. There are very few details about Eaton at this point, but we’re hoping for a pullback so he can further improve his position. It entered Eaton in November at $226.79 per share. Two weeks later, I was able to purchase more for $225.26. However, I felt I needed to add more and violated my cost criteria with my December purchase. But I’m glad we did. Since then, the stock has increased nearly 18%. 2. Linde Linde reported double-digit profit growth and excellent outlook on February 6th. The industrial gases and engineering company achieved record operating margins, revenue and return on equity throughout 2023. Linde shares soared 3.7% on earnings day and closed at yet another all-time high on Friday. LIN YTD Mountain Linde (LIN) Year-to-date Performance It was an overall strong quarter for Linde, and we expect that momentum to continue. The company is exposed to clean energy and decarbonization trends, and its pricing power makes for an even brighter outlook for the rest of the year. 3. Stanley Black & Decker Stanley Black & Decker announced mixed quarterly results on February 1st. Although sales were lower than expected, adjusted EPS was higher than expected. The quarter’s strong free cash flow generation and adjusted gross margin of 29.8% highlight that Stanley Black & Decker’s turnaround plan is making better than expected progress. Shares fell 4% following the announcement and have remained somewhat flat since then. For Stanley Black & Decker, we are very pleased with the turnaround progress as it is a big part of our investment thesis. The company’s annual dividend yield is a solid 3.7%, so your patience is worth it. Looking ahead, we believe a potential low interest rate environment in 2024 will help drive demand for Stanley Black & Decker. We bought more shares on Wednesday. SWK YTD Mountain Stanley Black & Decker (SWK) Year-to-date Performance Lower interest rates should improve activity in the housing sector. Home builders and do-it-yourself consumers will increasingly look to the company’s products. If there is another over-the-top pullback, I would consider buying additional shares. In response to the results, Jim Cramer said, “We intend to take some action against Stanley Black & Decker.” “There aren’t many stocks that will influence the Fed’s eventual rate cut. For anyone interested in seeing the Fed cut rates, this would be number one.” Since then, the path to a Fed rate cut has become a bit more uncertain, and this week Two major inflation reports were released that exceeded expectations and disrupted the trend of price easing. Jim has been arguing for weeks that the Fed shouldn’t cut interest rates anytime soon, citing the risk that a strong economy could reignite inflation. One month’s worth of inflation data does not form a trend. We will be keeping an eye on the following price pressure indicators in the coming weeks. For now, market odds on the Fed’s first rate cut have shifted to June. 4. DuPont DuPont beat its quarterly profit on Feb. 6 after lowering its estimates weeks before earnings. The stock price rose 7.7% on the day. Adjusted earnings per share (EPS) decreased 2% year over year to 87 cents. However, the economic downturn in China and inventory reductions weighed on performance. However, although fourth-quarter sales fell 6.6% to $2.99 billion, below expectations, investors continued to buy up the stock on the same day and beyond. Over the past nine trading sessions, DuPont has declined on just one day. Still, the stock price has still not returned to the level it was in before management’s Jan. 24 announcement, which sent DuPont stock down 14%, its biggest single-day drop in 15 years. DD YTD Mountain DuPont de Nemours (DD) Year to Date Performance DuPont set the bar low for results and quickly jumped over it. We liked the announcement of a $2 billion share buyback and a 6% dividend increase this quarter. Management’s comments regarding strong order growth were also encouraging. Indeed, we lowered DuPont’s club price target to $78 per share from his $85 per share on the day of the announcement. But we said at the time that we would hold the stock. A few weeks later, on Wednesday, we decided that things were looking up for us, so we bought another 70 shares of DuPont stock. 5. Honeywell Honeywell announced a mixed quarter on February 1st. Earnings, margins and cash flow were slightly higher than expected. However, the revenue did not meet the target. Sales at the company’s aerospace division, its largest division, were mostly below expectations, but profits exceeded expectations. Even though the quarter wasn’t great, I bought more shares after the weak earnings day. HON YTD Mountain Honeywell International (HON) Year-to-date Performance We believe that Honeywell’s strong cash flow generation and near-beating-than-expected segment profits could lead to stock price improvement going forward. Management’s call to revive the company’s short-cycle business is critical, as this part of the portfolio tends to have higher margins. The stock price has been flat since the drop on earnings day. (Jim Cramer’s charitable trusts are long: LIN, DD, HON, SWK, ETN. See here for a complete list of stocks.) Jim Cramer’s subscribers to his CNBC Investment Club As a trader, you will receive trade alerts before Jim makes a trade. trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in a charitable trust’s portfolio. If Jim talks about a stock on his CNBC TV, he will wait 72 hours before executing the trade after issuing a trade alert. The above investment club information is subject to our Terms of Use and Privacy Policy, as well as our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
Eaton Corporation sign on the NYSE
Source: New York Stock Exchange
Although it wasn’t a perfect earnings season for our industry-focused portfolio companies, we feel pretty good about the outlook for the rest of the year.
