Here’s an update on our energy, industrials and materials names in Jim Cramer’s Charitable Trust, the portfolio we use at the CNBC Investing Club. Jim ran through all 35 of the holdings during the Club’s inaugural Annual Meeting last Saturday, an in-person event held in New York City. A video replay of the meeting is available here . Caterpillar (CAT): Caterpillar may be the biggest winner of a prolonged U.S. infrastructure upgrade cycle because it makes the equipment that’s needed for these large-scale enhancements. Caterpillar’s operations will benefit from the U.S. government’s Inflation Reduction Act and CHIPS and Science Act spending bills, both passed last year. As funding is distributed, new projects will flow into the company’s pipeline. Caterpillar also has a strong track record of returning cash to shareholders, which is why we expect it to raise its dividend every year. It’s a dividend aristocrat. The company’s China business stands to benefit as the world’s second-biggest economy rebounds after Beijing rolled back its zero-covid policy late last year. Coterra Energy (CTRA): The exploration and production (E & P) company recently announced a switch to its capital return program. Coterra raised its base dividend, but with the rest of its excess free cash flow, the priority in 2023 is going to be stock buybacks. In 2022, by contrast, the priority was its variable dividend, which changed quarter by quarter depending on its financial results. We think this strategy makes sense because Coterra shares are down well over 20% from their 52-week high of $36.55 back in June. Buybacks allow us to own a larger percentage of the company’s earnings without any additional capital outlay, which we support. Of our three E & P firms, Coterra is the one most levered to natural gas. Devon Energy (DVN): Shares of the oil-and-gas producer took a nosedive in mid-February after it released fourth-quarter earnings, along with disappointing guidance. Investors didn’t like the fact the company guided for higher-than-expected capital expenditures but less-than-projected production. Additionally, its declared fixed-plus-variable dividend payout, based on Q4 numbers, is lower than we’re accustomed to. While that wasn’t a shock, given lower oil prices in the period weighed on free cash flow, it seemed to catch many investors off guard. Emerson Electric (EMR): Emerson is reshaping its portfolio to be an automation pureplay and focus more on industrial software. We don’t agree with the approach CEO Lal Karsanbhai took in launching a hostile takeover of National Instruments (NATI), a software solutions company, back in January. The move kicked EMR’s stock down. “He better get back on his game,” Jim said of Karsanbhai. Last quarter, the company missed on earnings due to non-operating items but maintained its full-year guide. The industrial company is one of our more recently added holdings. It has not been performing well lately. We initiated a position in the stock in mid-December. The stock has dropped more than 12% year to date. We’re watching how the National Instruments situation turns out, while hoping to see Emerson stay disciplined around its $53 offer. Halliburton (HAL): The oilfield services company, which is largely exposed to North America, is well-positioned to capitalize on the years of underinvestment in drilling capacity. That’s created the conditions for what management has previously dubbed a “multiyear energy upcycle,” which was borne out in the company’s latest earnings report in late January. In conjunction with that report, management announced a plan to return at least 50% of annual free cash flow back to shareholders via dividends and buybacks. We’re pleased to see that capital return commitment. Jim said he’s a big fan of Halliburton’s pricing power, given strong demand for its services. He also mentioned that Halliburton’s top boss, Jeff Miller, has expressed notable conviction that the company’s stock price is too cheap. Honeywell (HON): This high-quality industrial giant has great end markets like nonresidential construction, oil and gas, aerospace, and warehouse automation. Aerospace has proven to be the best part of business, delivering strong growth last quarter . All of Honeywell’s businesses are expected to grow this year except for safety and productivity solutions due to pull-forward demand from e-commerce warehouse overexpansion. Honeywell, one of the 30 companies that make the Dow Jones Industrial Average , could also be impacted by supply chain constraints and input-cost inflation. We’ll be watching to see if those headwinds improve this year. We think the market is mispricing HON stock, which has retreated nearly 9%, this year. We are also believers in the company’s strong management team and would be buyers on a stock pullback. Linde (LIN): We’re bullish on this global industrial gas and engineering leader given its great pricing power, which has enabled it to manage inflation while delivering record margins and return on capital in its latest fourth quarter . Linde should also benefit from the clean energy transition in the U.S. The Inflation Reduction Act is committed to funding energy and climate change programs where clean hydrogen plays a key role. Linde is a leader in building hydrogen plants all over the world, making it the best decarbonization play. We are long-term holders of the stock and see pullbacks as a buying opportunity. Pioneer Natural Resources (PXD): The oil producer saw its stock sell-off on the day before last Saturday’s Annual Meeting in response to a media report that said the company was considering a purchase of Range Resources (RRC), a natural gas-focused firm. Pioneer has since come out and refuted that report, saying it is “not contemplating a significant business combination or other acquisition transaction.” Like any our other E & Ps Coterra and Devon, Pioneer experienced cost inflation that’s pushed up its oil breakevens — to around $39 a barrel at PXD. All things considered, that’s still pretty low, and the company has quality acreage in the Permian Basin. The Club is weighing whether it wants to continue owning three E & P firms. The alternative would be consolidating our holdings to two oil-and-gas producers, along with Halliburton as our third energy stock. (Jim Cramer’s Charitable Trust is long CAT, CTRA, DVN, EMR, HAL, HON, LIN, PXD. 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.
A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.
Nick Oxford | Reuters
Here’s an update on our energy, industrials and materials names in Jim Cramer’s Charitable Trust, the portfolio we use at the CNBC Investing Club. Jim ran through all 35 of the holdings during the Club’s inaugural Annual Meeting last Saturday, an in-person event held in New York City. A video replay of the meeting is available here.
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