Palo Alto shares buoyed by contract news as Abbott Laboratories prepares to rule

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. MARKETS: Wall Street came under pressure on Thursday, sending the tech-heavy Nasdaq down more than 2%. The S&P 500 fell more than 1%, and the Dow Jones Industrial Average fell about 260 points, or 0.6%. Selloffs in Microsoft and Meta Platform after earnings reports late Wednesday weighed on the Nasdaq and S&P 500. Investors are preparing for Friday morning’s nonfarm payrolls report, which is expected to show the U.S. economy added 100,000 jobs in October, while the unemployment rate remained unchanged at 4.1%. But many expected noise in those numbers due to the impact of recent hurricanes and the Boeing strike. The data will help shape Wall Street’s expectations for the Fed’s policy path. Currently, traders see a 95% chance of a quarter rate cut when the central bank meets next week. Earlier Thursday, the PCE price index, the Fed’s favorite inflation gauge, was in line with expectations, rising 2.1% in September. INTERNET TRANSACTIONS: On Thursday morning, Morgan Stanley released a report on Club Holdings’ Palo Alto Networks that caught our attention, discussing the cybersecurity leader’s five-year deal with the Department of Defense worth approximately Report on $1 billion software licensing deal. A Palo Alto Networks executive also posted on LinkedIn, but did not mention the amount or duration. “While the timing of bookings or revenue recognition is unclear, we believe this could provide multi-year tailwinds,” Morgan Stanley analysts wrote in a note to clients. The headlines could help support the week Four Palo Alto stock prices fell in the market. The stock, which has bounced back and forth between modest gains and losses, has fared much better than exchange-traded funds tracking the cybersecurity industry, which fell more than 1% intraday. Shares of CrowdStrike, another of our Internet holdings, fell nearly 4% on Thursday. To be sure, Morgan Stanley tried to temper expectations for the reported Palo Alto deal. For example, the company noted that the contract was awarded through software reseller Carahsoft, meaning it “may include approximately 15% of Carahsoft’s reseller profits.” Still, analysts said they “believe this contract award … indicates that a large but elusive opportunity for the Department of Defense may finally materialize.” Palo Alto did not respond to CNBC’s request for comment on the licensing agreement. . The company saw some weakness in its federal government business earlier this year and lowered its outlook for future quarters, adding to the confusion surrounding its February earnings report. Most recently, during an August earnings call, Palo Alto Chief Executive Nikesh Arora said the company still had “a set of modest expectations” for its federal government business due to the election. Trial outcome looms: We’re expecting a verdict soon in Abbott Labs’ latest trial alleging that its specialty preterm infant formula caused intestinal disease (often abbreviated NEC). The company has strongly denied the claims and recently received support from major U.S. health agencies, which in a statement earlier this month expressed support for the use of formulas such as Abbott’s to treat premature infants. “There is no conclusive evidence that preterm infant formula causes NEC,” the agencies wrote. However, the judge in Abbott’s case in Missouri’s 22nd Judicial Circuit Court did not allow that statement to be shown to jurors in the case. Therefore, we do not expect a favorable ruling for Club Holdings. Jeff Marks, director of portfolio analysis, said losses in the case could have an impact on the stock, but it could represent a buying opportunity. The reason is that while Abbott faces more lawsuits over its formula, we expect the U.S. health agency’s statements will be allowed as evidence in future cases. Next up: Apple, Amazon and Coterra Energy will report quarterly results after the close on Thursday. In addition to the product portfolio, we’ll also hear from Intel, U.S. Steel, and Juniper Networks. As mentioned, the big event on Friday is the October non-farm payrolls report. Chevron, Exxon Mobil and chemicals maker LyondellBasell Industries were among noteworthy earnings reports on Friday. (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. 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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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