Danaher exhibits how hanging on to an excellent firm's distressed inventory can repay
Every weekday, CNBC Investing Club with Jim Cramer publishes Homestretch – an actionable afternoon update just in time for the final hour of trading on Wall Street. (We are no longer recording the audio so we can get this new written feature to members as quickly as possible.) Market Talk: The S&P 500 and Nasdaq jumped to new intraday highs on Wednesday, extending gains the previous meeting from rally late in the day. In fact, the S&P 500 broke 5,300 for the first time ever. The Dow, meanwhile, was about half a percentage point away from its all-time high. Wednesday's meeting was triggered by a weaker-than-expected consumer price index for April, which led to a rise in government bond prices and a fall in yields (corresponding to their inverse relationship). As a result, market odds for multiple Federal Reserve rate cuts this year increased. A weak retail sales report for April, also out on Wednesday, was seen as “bad news is good news” as a slowdown in demand for goods could help moderate inflation. The only thing we remain vigilant about in this rally is how overbought the stock market has become. You have to look back to last December to find a time when the S&P 500 Short Range Oscillator was so overbought. To be fair, only a slight decline was needed to overcome the overbought condition at the time – the S&P 500 fell about 2% from December 28, 2023 to January 4. However, the market took a few weeks to digest the late 2023 run-up before heading back up. New High: We had a chance to read Danaher's bullish presentation at the Bank of America Healthcare conference on Tuesday. We thought management's discussions were consistent with what we heard last month, when the life sciences and medical diagnostics company delivered strong results across its three core businesses. We saw it as a sign that the long-awaited turnaround in the biotech industry was finally here. At the conference, Danaher further noted that bioprocessing inventory depletion will be completed in the second quarter, driven by the normalization of inventory and ordering patterns from major customers. The company cautiously forecast continued low activity in China. One point from the conference that we found particularly interesting was that if drug prices decline as a result of the Inflation Reduction Act, Danaher could see a tailwind as it is expected that the volumes and consumption of these drugs to patients would increase. Danaher's business consists primarily of consumables and is therefore volume-oriented. Danaher shares rose more than 1% on Wednesday, adding to 3% gains from the previous day. The move takes the stock to a new 52-week high, although still about $30 per share below its Covid pandemic record. The stock's strong performance over the past year is a good example of how holding on to an investment in a high-quality company can pay off while the company weathers temporary inventory issues. In these cases, the stock price is likely to bottom long before its economic cycle. Cramer quickly gets to the point: “It could be a big deal for unemployment claims that Red Lobster suddenly closed about 50 restaurants. That’s a lot of employees,” Jim Cramer said. “Disney doesn't deserve this drop as it's becoming a very cheap stock, but people don't think Disney is serious about the layoffs now. No Peltz.” “Data centers are natural gas guzzlers. I think a lot of natural gas power plants are being built to meet the electricity demand.” Next up: Cisco Systems reports after the closing bell on Wednesday, and we're excited to hear what the networking equipment maker has to say about its Splunk acquisition. On Thursday morning we will hear from Walmart, Deere and some Chinese companies in Baidu and JD.com. (A complete list of Jim Cramer's Charitable Trust stocks can be found here.) As a subscriber to 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 foundation's portfolio. If Jim discussed a stock on CNBC television, he waits 72 hours after the trade alert is issued before executing the trade. THE INVESTING CLUB INFORMATION SET FORTH ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. THERE ARE NO fiduciary duty or duty IN RECEIVING YOUR INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
Every weekday, CNBC Investing Club with Jim Cramer publishes Homestretch – an actionable afternoon update just in time for the final hour of trading on Wall Street. (We are no longer recording the audio so we can make this new written feature available to members as quickly as possible.)
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