We’re encouraged by Abbott stock trade, but dismayed by Honeywell’s move

Every weekday, CNBC Investment Club with Jim Cramer publishes Homestretch—an actionable afternoon update just in time for the final hour of trading on Wall Street. Market Trend: The S&P 500 is expected to post modest gains following Friday’s strong rebound. There’s still some rotation happening in the market, but this time it’s the opposite of the exodus from tech stocks that has dominated the past few weeks. The so-called Big Seven stocks – six of which we own Apple, Alphabet, Amazon, Meta Platforms, Microsoft and Nvidia – fared better on Monday. Small-cap stocks, as measured by the Russell 2000 index, lagged. So far this month, the Russell is up nearly 9%, the Dow is up 3.5%, the S&P 500 is essentially flat and the Nasdaq is down nearly 2%. Trial Verdict: We’re encouraged that shares of club name Abbott Laboratories are well off their morning lows despite being ordered to pay $495 million in a premature baby formula verdict. Given that tens of billions of dollars have been lost in market capitalization since March, this slight pullback may be a sign that the bad news has been priced in. Or it could be a sign that Wall Street recognizes the verdict is a joke. Abbott Chief Executive Robert Ford believes withdrawing the products would lead to a public health crisis. What other options does Abbott have to limit its litigation exposure? If the stock price drops only 1% on this bad news, we can’t help but wonder what good will come if they start winning cases or reaching settlements. Abbott is still far away from either scenario happening, but this type of exercise helps determine our future risk/reward. IPO discussion: Shares of club name Honeywell briefly jumped a few percentage points late Friday on a Bloomberg report that the company is considering a first for its quantum computing business, Quantinuum, as early as next year. Public offering. The valuation being talked about is about $10 billion. We view such a move as a mildly positive move and possibly a nod to Honeywell’s plans to monetize this business at a growing valuation. But we wouldn’t be surprised to see the stock give back those gains quickly. “Honeywell doesn’t get any credit from Quantinuum because the company didn’t turn a profit last week. The market isn’t going to give them a pass,” Jim Cramer said Monday afternoon. Honeywell reported solid second-quarter revenue and better-than-expected adjusted earnings per share, but disappointingly lowered its full-year adjusted earnings per share forecast due to slower growth in short-cycle businesses and acquisition-related costs. Next up: Tuesday marks the start of the club’s second quarter earnings season challenge. We’ll have data from Procter & Gamble and Stanley Black & Decker ahead of the open. We made two small sales at Stanley Black & Decker, but we didn’t want to recoup those proceeds. After the close on Tuesday, 12 other club companies will also report earnings this week, including Advanced Micro Devices, Microsoft and Starbucks. On Monday, we bought some more Starbucks stock — not as a statement ahead of the quarterly report, but to fulfill a signal we sent a week ago when we learned of activist firm Elliott Management’s move took a stake in the coffee giant. (See here for a complete list of stocks in the Jim Cramer Charitable Trust.) As a subscriber to Jim Cramer’s CNBC Investing Club, you will receive trade alerts before Jim makes his trades. Jim waits 45 minutes after sending a trade alert before buying or selling stocks in his charitable trust portfolio. If Jim talked about a stock on CNBC TV, he would wait 72 hours after issuing a trade alert before executing the trade. The investment club information above is subject to our Terms and Conditions and Privacy Policy and our Disclaimer. No fiduciary duty or obligation is created or created by any information you receive in connection with the Investment Club. No specific results or profits are guaranteed.

Every weekday, CNBC Investment Club with Jim Cramer publishes Homestretch—an actionable afternoon update just in time for the final hour of trading on Wall Street.

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