Arm shares extend weekly rally to almost 50%, and Starbucks pulls the plug on an AI project
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. Markets are closing out Friday on a higher note, with the S & P 500 reapproaching 7,500 and on pace for its eighth straight week of gains. The Dow Jones Industrial Average reclaimed 50,000 on Wednesday and traded at roughly 50,700 on Friday. Within the S & P 500’s 11 sectors, the biggest gains Friday are in healthcare, where Merck is leading the pack on encouraging trial results ; information technology, where Dell is flying over 16%; and industrials, led by Generac after it was upgraded at Jefferies . Communication services, consumer staples and energy were the only sectors in the red as of 1:30 p.m. ET. Club name Arm Holdings is rallying again, extending this week’s gains to almost 50%. This is likely a candidate for another trim on Tuesday (the U.S. stock market is closed on Monday for Memorial Day). We sold some shares this past Monday — admittedly right before the stock’s big run — but we still locked in a sizable gain of roughly 20% on a position initiated in late April. One of the beauties of a long-only portfolio is that your winners naturally become a larger part of the portfolio as they appreciate, while the losers become smaller as they decline. Using Arm as an example, we initiated the position at 1% of the portfolio in April — consistent with our discipline of starting new positions small. After the stock rallied 20% over the following month, its gains naturally increased its weighting in the portfolio. When we trimmed shares on Monday, we brought the position back down from 1.22% to 1% of the portfolio. Following the almost 50% surge this week — compared with a roughly 1% gain for the S & P 500 — the position has grown again to nearly 1.5% of the portfolio. By making another trim back to 1% of the portfolio, we can better risk manage this exponential move by bringing the position closer to our original weighting, while also raising cash to fund other purchases or potentially buy back more Arm shares if the stock pulls back. Artificial intelligence is changing how companies operate their daily tasks, but the efficiency gains from this new technology don’t come without some growing pains. Reuters reported on Thursday that Club name Starbucks has ended an AI program designed for automating inventory accounting because it was making too many mistakes. It sounded like a great idea in theory to improve the supply chain, but not if it’s making errors. Nevertheless, we can’t imagine this update changes the company’s $2 billion cost savings target , which is something we expect CEO Brian Niccol to discuss at his fireside chat next Thursday the Bernstein Strategic Decisions conference. The cost savings goal matters because it’s the second leg of Niccol’s turnaround. The first was fixing top-line growth, and he has delivered with U.S. same-store sales up 7.1% in the recently reported quarter . Retail earnings continue next week, with Club name Costco , Dick’s Sporting Goods , Best Buy , Gap , Burlington and American Eagle Outfitters scheduled to report. On the AI front, Marvell Technology and Dell Technologies are the key reports to watch. In software, we’ll see Club name Salesforce , Synopsys , and Snowflake . A couple of cybersecurity companies in Zscaler and Okta also report, setting the stage before we hear from Club names CrowdStrike and Palo Alto Networks in the first week of June. The key economic readings next week are the Conference Board’s monthly consumer confidence report; the April personal consumption expenditures (PCE) index; the Census Bureau’s look at durable goods; the second read on first-quarter gross domestic product; and April new home sales. (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.
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