Invest in stocks and avoid 1990s-like speculation that seems so tempting
We had some big wins this week from investing in stocks and managing a portfolio — not speculating, not betting, not risking it all on a wing and a prayer that would make Vegas casino owners green with envy. Honeywell delivered with a terrific quarter in aerospace — and you can, at last, see that its airplane business, with all of its cockpit market share from all the planes, is a fantastic money-maker. Plus, the cash flow from its chemical business is gigantic. Who knew? Even the automation business showed some signs of life. Honeywell this week executes its first step in its plan to split into three separate publicly traded companies. HON YTD mountain Honeywell YTD On Thursday, Solstice Advanced Materials will be spun off and will start trading as its own stock. As Honeywell shareholders, we will get one Solstice share for every four Honeywell shares we own. We plan to keep both stocks. The remaining Honeywell, consisting of aerospace and automation, is set to split in the second half of 2026, in a move that was first pushed by the activist investment management firm Elliott Management almost one year ago. I know Dover has been a disappointment and much more of a trading stock than I would like. As you know from my new book, “How to Make Money in Any Market,” I abhor trading stocks. Those require a start ahead of a cycle and a sell when the cycle starts running out. Dover has decent data center-related businesses and imaging and identification, but it has a lot of auto and canning — and worst of all, refrigerated cases for retail stores, which is a no-growth business that dilutes the good. When we had Dover CEO Rich Tobin on “Mad Money” last week, he had put out a deck showing that only 20% of his business is in secular growth mode. I need that flipped, but that’s a tall order. Tobin has a big buyback on, but when the stock dropped to the $160s, he did very little buying. That was disappointing — what a natural time to buy. DOV YTD mountain Dover YTD Now, we feel stuck on Dover. Tobin has to do a deal to get the company less connected to the economy, which is slowing. But all of the natural winners, like anything data center-centric, are way too expensive. You would think the private equity companies would have something to sell at a reasonable price, but he’s not getting that. So, he is in cost-cutting mode until he finds something and sells something. Fortunately, Tobin is good at that, which is good. Unfortunately, the story is not an episodic one. It should never have been in the $160s in the first place, but maybe it should never have been over $200 either. I don’t want to play “woulda shoulda coulda,” but there was a time to sell this one, and it was when it was in the two hundreds, and I blew it. We have to be nimble now and price sensitive because we need to count on the CEO to make a deal. That’s not how I like to play it. Hence, that’s why I didn’t pound the table after the big win. Then there is Capital One . You know I like that one so much because of how good CEO Richard Fairbank is. But I didn’t know he was that good. He had cut down auto lending a couple of years ago, and we saw no spike in bad loans when some others did. Fairbank’s whole loan portfolio, which he made more than almost any company, did extraordinarily well, and he had much lower losses and charge-offs than I expected. It is clear that the company he bought, Discover, had good discipline, too. COF YTD mountain Capital One YTD In other words, this stock took off because of loan quality, not because of the gigantic $16 billion buyback — it’s only a $143 billion company, or, more importantly, the network that Discover has that will let this company make more money because it can run credit cards through its own system rather than the higher costing Mastercard or Visa networks. That could bring in $1.2 billion in annual synergies, according to analysts. What a colossal windfall, hence the new price target on shares now that they are sharply higher. It is why I emphasized it so heavily last week. Capital One is, in fact, one of my favorites in the Club portfolio, because if this quarter can be so special without the integration of Discover, who knows how much money this company can make when Fairbank puts the thing together fully. So, Honeywell, Dover, and Capital One join BlackRock and Wells Fargo as earnings winners in the portfolio. Oh, and let me make one thing clear, Goldman Sachs, my alma mater, had an excellent quarter, and with all of the mergers and acquisitions and the initial public offerings that I expect that in the next six months, it is absurd that the stock trades at a meager 16 times earnings. The idea that trading somehow held it back is ridiculous. It was disappointing to be sure, but you cannot let that deter you from buying it. Remember, Karen Cramer’s old rule. My business partner back then (and my former wife) would simply divide by 10 to make a $783 stock easier to think about. It’s a “$78 stock going to $100,” where it would still be cheap. I urge you to think of it like that and buy it if you don’t have it. The insight gleaned in this past week, especially from Honeywell, makes me feel that Boeing this week and the chemicals of DuPont on Nov. 6 will be good. Both stocks are a little higher than I want them to be to pound the table in what is now an overbought market. When you are at 4.9% on the proprietary S & P Short Range Oscillator momentum indicator that I have come to trust over decades, you have to be in sell mode, not buy mode, unless a stock gets crushed by mistake. (Anything 4% or higher on the Oscillator indicates an overbought market.) That’s why we sold some Eaton ahead of its Nov. 4 earnings report. I have little faith that the company will tell the story well. I don’t want to put us back to the $320 range without a paddle to swim back. Better to raise cash. That’s what investors do. That’s what portfolio management is all about. Now, let’s go over something I have been meaning to talk about for ages. On Friday, I appeared at a remarkable conference with my long-time buddy Josh Brown and The Compound & Friends podcast and town hall. Josh talked about how, when he was younger, he used to print out my column at TheStreet.com and pass it around. Not everyone had the internet back then. People used to howl at these two fictional characters I had created, Buzz Gould and Batch Hammer, who were playing at a hedge fund back in the 1990s. These two momentum chasers would have a grand old time every day. There was no Reddit back then, or Robinhood, or group moves that were so obvious as to be able to laugh at them. But make money off them, too. With them, I was trying to demonstrate the rewards of pain and momentum without actually liking any of the stock that these two fictional characters were buying. It was hilarious, if I might say so myself. What would I do? Well, I would often start my day with a list of what we would be goosing. So, when it became all clear that momentum was back after a couple of shaky days, I would have come in on Friday and written some dialogue between the two. Buzz was the trader who wanted to do whatever the flow dictated. Batch was trying to be rational but was often swayed by Buzz’s mesmerizing touting. So, here goes, a reprisal of Buzz and Batch going at it in today’s market. Buzz: “Hey, Batch, the coast is clear, we gotta take up Palantir, it’s ready.” Batch: “Why did something happen with Palantir?” Buzz: “No, stupid idiot, Palantir’s north of $180, and you know that a $180 stock goes to $200.” Batch: “But doesn’t Karp have to say something?” (Alex Karp is the CEO of Palantir.) Buzz: “I hear he’s going on Fox Business, Claman Countdown, talking about how he’s gone full MAGA.” Batch: “Axios has a piece about him saying that as part of a new book about him.” Buzz: “These buyers don’t read Axios. We gotta take down 20,000 shares, help get the thing going.” Batch: “I will keep that in mind when the market opens.” Buzz: “No moron, we are going into Robinhood now and just take up the stock. Don’t worry, everyone is doing the same thing, and once we get it to $182 or $183, everyone will see it going, and they will pile on, maybe we squeeze some shorts into the bell.” Batch: “I don’t know if this is right, but Karp’s an animal. I am in. It’s a Rule of 80 stock.” Buzz: “Oh yeah, 80, gotta figure that out, ’cause ServiceNow is a Rule of 50. We should buy that, too, ’cause it reports next week.” Batch: “What is the rule of 80 anyway?” Buzz: “It’s two times the rule of 40.” Batch: “Then let’s get this done! $185 top.” That’s exactly what happened. It’s the easiest money in the world. It’s stellar. I can’t do it here. It is too stupid, too based on emotion. Too over the top, but Buzz and Batch do it every day. They would always play the game. So, take the quantum stocks. These are all these amorphous money losers. Many have no chance of going up against IBM. IONQ , the $20 billion leader, had just fallen from an Oct. 13 close of $82 per share to $55 last Wednesday, a seven-session slide. It was ripe for a bounce. So, what happens? With the stock down big, “Buzz and Batch” hear that the White House is going to spread some leftover Chips Act money around, the hated Democratic plan that bailed out Inte l. Paul Dabbar, now the deputy secretary of Commerce, co-founded Bohr Quantum Technology and was once its CEO. The word was that Dabbar was going to come in and save these companies. It spread like wildfire on Friday. So here we go. Buzz, the aggressive joker, comes in at 4 a.m., and goes into Robinhood and says buy 50,00 each of D-Wave, IONQ, Rigetti Computing — which he calls spaghetti, which they laugh at every time, and Quantum. By 5 a.m., they really got them going. Next thing you know, there’s a Wall Street Journal article about how Commerce is ready to put the money in. Batch, the more cerebral, had held back when he first heard “they” were taking up the quantums — but when he saw the article, he went to town and walked them all up with 100,000 share orders. Then the next thing you know, IBM , which had gone down on some small Red Hat downtick, was getting talked about as a quantum play. Not only that, it was cooperating with Advanced Micro Devices on a quantum chip. That turned a walk-up trade into an investment for Monday’s trading, where they would hope/bet that Commerce does something on Monday so they could blow out all of the quantums at great prices to the suckers who weren’t clued in. At the same time, let’s listen in on some other trades. Buzz: “Hey Batch, they are taking up quantum, we gotta go nuke.” Batch: “But they have nothing to do with each other.” Buzz: “What does that have to do with it. Trump loves nukes.” Batch: “Which one?” Buzz “We gotta go for the highest quality, that’s ‘Okla’.” Batch “I think it’s ‘ Oklo ‘ with an ‘o’ not an ‘a’.” Buzz: “‘Oakla, Okta,’ or Oklo, why are we wasting time; start buying. Who cares, it’s going higher, just go guy buy 50,000, the coast is clear.” Batch: “I don’t know, I am a little nervous; this stock was at $193 a week ago, now it is at $119.” Buzz: “Will you cut it out, the White House will bail us out.” Batch: “Okay, Oklo, here we go!” Sure enough, right on cue, we learn that Energy Secretary Chris Wright urges the Federal Energy Regulatory Commission to get going on reviews of data centers; 60-day limit. This is remarkable because the FERC always takes years on this stuff. The stock opens down, and then roars higher, closing up $11 per share. Buzz and Batch are long gone by then. Even though it has Sam’s backing — Sam Altman from OpenAI — it is too risky. That’s how it is played by our fictional “Buzz and Batch” speculators. Now, let me tell you how I think of all of this. I think it is manipulation. It’s pump and dump. I hated this stuff so much,I was eager to leave this business. I will not participate in it or write about it. But, I wanted you to know what’s going on behind the scenes in what I see is the most corrupt, tainted market since the late 1990s. Does it matter? Remember, there are three markets: everything in and about AI data centers, the speculative stocks, and the regular economy names. You just saw how the spec market works. It’s not investing. It’s not even trading. It’s just very polished manipulation. I hate it. It certainly has no business in a Charitable Trust that invests in stocks. My Trust is the portfolio we use for the CNBC Investing Club. I feel, though, that I have no choice but to show you the worst of the market. The stuff that really is like the 1990s. The crypto stocks, the two times stocks, quantum, battery stocks like Quantumscape , which has monstrous losses since 2018, rocket stocks, nuclear stocks, crazy biotechs, and anything that sounded even a bit like the next Tesla or could attract a Cathie Wood-type or Ark Investing-type. When all of these start doing equity offerings, like in 2000, a lot of money, maybe all of the money, will be lost. That’s just a game. So, you watch these stocks. You can play them if you want to. But you will so do without Buzz and Batch’s guidance. They pulled out in March 2000 when the go-go ’90s dotcom bubble topped out, right be it burst. They got it right, and, thankfully, you never heard from them again. (Jim Cramer’s Charitable Trust is long HON, COF, DOV, BA, DD, BLK, WFC, GS. See here for a full list of the stocks.) 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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