Activists willing to buy Abbott rivals, not eye for baby formula kits

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. (We’re no longer recording audio so we can get this new written feature to members as soon as possible.) No big moves: Markets continued to trade in a tight range on Tuesday, with investors having a third straight session of lackluster trading. The four-week rally has pushed major stock benchmarks to new highs. Another reason for the recent calm in trading may be that everyone is waiting for Nvidia to report its earnings after the close on Wednesday. Nvidia is one of our two “own it, but don’t trade it” stocks. (Apple is another.) Analysts are increasingly anticipating Nvidia, and the risk is high that the artificial intelligence chip giant continues to beat quarterly estimates and raise forward guidance. Updates to Nvidia’s next-generation Blackwell chip platform, which will be launched later this year, and its software business will be a key focus. Infant formula lawsuit: According to the Financial Times, activist investment group Eminence Capital already holds at least 0.5% of Reckitt Benckiser. Eminence’s stance comes as Reckitt’s share price reportedly hit an all-time low in March amid concerns over infant formula litigation. Sources told the Financial Times that other activist investors are interested in Reckitt because they also believe the stock was disproportionately hit by the Illinois jury ruling, which the company has said it will appeal. The interest in Reckitt Benckiser is notable because the club’s name, Abbott Laboratories, is also affected by the Illinois ruling. Abbott makes a competing infant formula and faces similar lawsuits alleging the companies failed to warn about the risks of their products. While we were in Abbott shortly before the sell-off, as were Eminence in Reckitt, we have slowly built ourselves into this weakness. Within two days of the Reckitt Benckiser verdict, Abbott lost more than $10 billion in market value, although many analysts believe Abbott’s liability in any settlement of the infant formula lawsuit would only be in the hundreds of millions. The stock has continued to trade lower for months despite the company reporting better-than-expected quarterly results last month. The company also raised its full-year outlook — something it hasn’t done in years since the first quarter. ABT YTD mountain Abbott YTD Abbott’s next infant formula campaign will be a state trial in St. Louis in July. We know St. Louis is very friendly to plaintiffs – so, unfortunately, we don’t expect this litigation pending issue to go away anytime soon. However, we are willing to remain patient and continue to use share price weakness as a buying opportunity, as Abbott has the support of the medical community and a market cap loss of over $10 billion, well beyond the scope of a potential settlement. Once the market realizes that Abbott’s risk exposure is significantly less than the penalties its stock is taking, investors will eventually focus on how the business actually performs. And, we know the fundamentals are strong. Next up: After the close, homebuilder Toll Brothers will report earnings. On Wednesday morning, we’ll hear word on the name of the club, TJX Companies, which owns TJ Maxx, Marshalls and HomeGoods. We focus on the discount retail group’s comparable sales growth, margins, and management’s assessment of the supply of quality branded merchandise in the market. Target, Analog Devices and Williams-Sonoma also reported Wednesday. (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 shall exist or arise upon your receipt of any information relating to 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. (We are no longer recording audio so we can make this new written feature available to members as soon as possible.)

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