We’re downgrading a portfolio stock. Plus, what’s causing the market’s rally
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: Stocks were staging a comeback following a nasty selloff on Tuesday. But the rally has not been concentrated in AI-related names. It has developed as a broader move, driven by a few developments. Most notably, the ADP payrolls report showed private employers added 42,000 jobs in October, more than the Dow Jones consensus estimate of 22,000. That’s a nice turnaround from September’s loss and helped cool fears around a weakening labor market. The ADP report doesn’t always line up perfectly with the non-farm payrolls, but it’s the best data point on the labor market we have due to the ongoing government shutdown. The October ISM Services Index was also higher than expected and up from September. The Prices Index, which measures what U.S. companies in the services sector pay for goods and services, hit 70% for the first time since October 2022. Anything above 50% means prices are increasing. The positive data might help explain why the yield on the 10-Year Treasury spiked to about 4.15%. The market also got a lift after the Supreme Court justices appeared to raise questions about the legality of President Donald Trump ‘s tariff policy. A rollback of tariffs would likely spark a rally in companies whose margins have been squeezed by higher import costs. Watch apparel and retail stocks as a gauge of sentiment around tariffs. The same applies to Stanley Black & Decker — a big Wednesday gainer. Downgrade: The spinoff of Qnity Electronics has done wonders for DuPont investors. After another day of gains, shares of the new DuPont have climbed roughly 16% over the past three sessions, reaching split-adjusted record highs just under $40 each Wednesday. Shares were up about 24% year to date, putting it firmly above the S & P 500’s 16% return. After a long stretch of so-called spin purgatory, our patience has finally been rewarded. Qnity shares, however, have been experiencing a setback. They fell about 4% on Wednesday — the first drop since Qnity started trading as a separate stock on Monday. We are chalking that up to general post-spin volatility, though. It’s important to note that DuPont’s gains this week are not driven by a massive increase in earnings-per-share estimates. Instead, it’s from recognition that the stock’s valuation was far too discounted relative to its multi-industry peers before the Qnity spin. The multiple is moving higher, and the valuation gap has narrowed. According to Bloomberg, the 12-month consensus price target on the new DuPont is about $44, implying that there’s still some more valuation upside to go. However, it’s in our discipline to act on a move of this magnitude. That’s especially true with the uncertainty of DuPont’s earnings report Thursday morning. If it weren’t for our trading restrictions, we would be locking in gains with a small trim. For now, the Club is downgrade DuPont to our 2 rating , meaning we would consider future buys on a pullback. We’re also adjusting our price target to $44, implying roughly 15% upside from Tuesday’s close. Up next: Some key reports after Wednesday’s closing bell are Robinhood , AppLovin , Dutch Bros , Arm Holdings , Qualcomm, Figma , Snap , DoorDash , and Lyft . Outside of the portfolio, Datadog and Warner Bros. Discovery are on deck to release results. Club holdings DuPont and Solstice Advanced Materials , the recent spin-off from Honeywell , are out Thursday morning. Qnity will provide a business update Thursday evening. Club name Texas Roadhouse also reports earnings after Thursday’s close. (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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