Dover is shuffling its portfolio wisely — and why we’re upgrading a struggling consumer stock

Posted on July 22, 2024 by Vaseline

Every weekday, the CNBC Investing Club with Jim Cramer publishes the Homestretch — a useful afternoon update, just in time for the final hour of trading on Wall Street. Markets: Stocks rose nicely in afternoon trading, with the S&P 500 up 1.1% and the tech-heavy Nasdaq climbing even more. The small-cap Russell 2000, one of the hottest trades of late, also rose. It’s a flipped script from what we saw last week, when the market rotated out of the “Magnificent Seven” and high-flying semiconductor stocks in favor of small caps. In Monday’s session, the technology, communications services and consumer discretionary sectors of the S&P 500 outperformed. Meanwhile, energy and consumer staples were the only two sectors in the red. Mergers & Acquisitions: Club holding company Dover said Monday it will sell its Environmental Solutions Group business to Terex Corporation for $2 billion in cash. Dover’s environmental division specializes in the waste collection industry, making things like garbage trucks and trash compactors. It generated about $750 million in revenue in 2023, or about 9% of Dover’s total revenue. The deal is expected to close before the end of the year. We’re not sure why Dover’s stock fell nearly 2% on the news. OK, so maybe Terex got the better end of the deal on paper — its shares rose about 10% on the news, and you don’t typically see the acquirer get that much traction in M&A. But that’s the type of active portfolio management Dover is known for. We’re always fans when companies spin off non-core assets with less attractive growth profiles and use the cash to either make add-on acquisitions in more attractive sectors or boost cash returns to shareholders through share buybacks. Dover didn’t say on Monday what it would use the proceeds for, but that’s beside the point. Effective portfolio management is what separates good companies across multiple sectors from great companies. That’s why we’re not surprised that fellow Club industrialist Honeywell is finally getting back on track after all the recent deals. We’re still waiting for the other side of the ledger, when it sheds some non-core assets. Both Dover and Honeywell are scheduled to report earnings on Wednesday morning. Upgrade brewing: Shares of Starbucks fell Monday after bucking the market’s downward trend last week with a nearly 7% jump on Friday. The catalyst for Friday’s gains: A report in The Wall Street Journal that Elliott Management was taking a stake in the coffee chain. This is a major positive development for Starbucks and its battered shareholders. Being present and working with a hard-nosed company like Elliott should lead to positive change and hold management accountable. We expect them to find ways to create value. We stuck with Starbucks after its terrible earnings drop and guidance cut on April 30, believing the problems were largely of their own making and not a branding issue. While turnarounds don’t happen overnight, the combination of an already risk-free outlook and Elliott on the shareholder side makes us buyers. We’re raising our rating back to 1. Up next: Monday is the big steel night with earnings from Nucor and Cleveland-Cliffs. In tech, NXP Semiconductors and Cadence Design Systems are scheduled to report earnings. Danaher is scheduled to report earnings before the bell on Tuesday, and we’re hoping that club name signals that its bioprocessing company is on track for a recovery. Other notable earnings reports include Spotify, United Parcel Services, GE Aerospace, GM, Coca-Cola, Freeport-McMoRan and HCA Healthcare. (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’ll receive a trade alert before Jim executes a trade. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he will wait 72 hours after the trading alert is issued before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. NO OBLIGATION OR DUTY EXISTS OR IS CREATED BY YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Every weekday, the CNBC Investing Club with Jim Cramer publishes the Homestretch: a useful afternoon update, just in time for the final hour of trading on Wall Street.