Ada Nya Begini: These 4 Club stocks are making headlines. Here's our take on each news story

Wednesday, August 10, 2022

These 4 Club stocks are making headlines. Here's our take on each news story - CNBC

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Earnings are a bit more subdued this week, but a number of Club stocks are in the news for other reasons. Here's our take on four headlines and whether they impact our investment thesis for each company. Qualcomm The news: Samsung on Wednesday announced two new foldable smartphones — the Galaxy Z Flip 4 and Galaxy Z Fold 4 — and Qualcomm (QCOM) technology plays a key role in both devices. Specifically, Samsung is using the Club holding's Snapdragon 8+ Gen 1 Mobile Platform, which Qualcomm describes as its most advanced 5G processor to date. Among the platform's features are an 18-bit image signal processor, helping phone cameras capture way more data than previous 14-bit ISPs; faster computing and graphics processing speeds; and more energy efficiency, which is helpful when paired with the Galaxy Z Flip 4's larger battery. Club take: Our investment in Qualcomm is due, in large part, to the semiconductor designer's push into markets like automotive and Internet of Things (IoT), diversifying away from its traditional stronghold in smartphones. We believe this multi-year transformation will boost the company's value and help make earnings less reliant on consumer end markets, which as we've seen this year can be a drag on the stock when they go through slowdowns. All of that said, we're glad to see Qualcomm's relationship with Samsung remains strong, even as handsets are set to be a smaller piece of the sales pie in the years ahead. In its previous versions of these foldable phones, Samsung used a less-advanced Qualcomm processor, the Snapdragon 888 5G Mobile Platform. Samsung sees an opportunity for the foldable phone market to grow, and if the South Korea-based company is right, that's good news for Qualcomm. Remember that in late July, when QCOM reported earnings, management told investors about a new deal with Samsung to expand the use of its chips in future premium Samsung Galaxy products. Although the smartphone market is currently going through an inventory adjustment period, and it could take a couple of quarters to sort through, we believe Qualcomm is better positioned to weather this storm because of its share gain story with Samsung and also for the higher average selling prices Qualcomm gets in premium phones. Meta Platforms The news: Meta Platforms (META) said Tuesday it successfully raised $10 billion in its first-ever corporate bond deal. The proceeds are expected to be used for general corporate purchases, which could mean a lot of things, but we think it will be used on share buybacks and also help fund the company's expensive multi-year investment in its metaverse. Club take: Taking on debt to partially fund buybacks can be a risky practice for the wrong company, but we see no issue with Meta taking on some debt for the very first time in the company's history. Even after this deal, the company's balance sheet remains quite strong, and the bond terms look favorable with rates varying from 3.5% on the notes due in 2027 to 4.65% on the notes due in 2062. Meta Platform's business may be slowing due to competition from TikTok, monetization transitions, and a weakening ad market, but the deal should not be viewed as a sign of weakness because tapping the bond market is something that even Apple partakes in from time to time. Last year was a big year of buybacks for Meta, with the company repurchasing about $45 billion worth of stock, or about $20 billion more than what they had spent in the previous three years combined. Meta's buyback in 2022 has been about $15 billion, so the pace of buybacks has slowed down this year, but management still has plenty of firepower at its disposal with the $24 billion it has remaining on the current authorization. Alphabet The news: Bloomberg News reported Tuesday afternoon that the Department of Justice was readying a lawsuit against Alphabet (GOOGL) that would claim its Google unit has an illegally dominant position in the digital advertising market. The report said the lawsuit could arrive "as soon as next month," putting an end to years of investigatory work into the tech giant's digital ad presence. In a statement to Bloomberg, a Google spokesperson defended itself and claimed "enormous competition in online advertising has made online ads more relevant, reduced ad tech fees, and expanded options for publishers and advertisers." Club take: This would be the second time in recent years that the Department of Justice has sued Google. While the first came during the Trump administration and focused on its search engine dominance , we're not surprised to hear President Joe Biden's DOJ could be getting in on the antitrust action, too. The Democratic administration has sought to take a tougher stance against Big Tech. Lawsuits of this magnitude are generally complex, and we recognize a range of outcomes from a settlement to a protracted court battle could be on the horizon. However, when we think about the most drastic enforcement actions the DOJ could take — forcing the company to break itself up — we are generally not that concerned. In fact, we think the sum of Alphabet's parts — YouTube, Google Search, Google Cloud — are worth more on their own than they are together. "Ultimately, Google, if they break it up, then you own the stock. If they don't break it up, then you own the stock. It's a pretty good situation," Jim Cramer said in October 2020 on the day the Trump DOJ announced it was suing Google. We still feel the same way today. Honeywell The news: The president and CEO of Honeywell's (HON) aerospace division painted a rosy picture Tuesday at a conference hosted by the investment bank Jefferies. "As good as setup as I have seen," the executive, Michael Madsen, said. "The challenge is not going to be demand over the next few years. It's not even the challenge this year. It's going to be supply." On the supply side, Madsen said the issue really stems from labor availability. However, he said Honeywell is "engaged very heavily" with suppliers to find solutions and is seeing some progress on that front, suggesting over time barriers to meeting customer demand may be less significant. For example, in the second quarter, he said supplier output rose 7.5% compared with first-quarter levels, with further improvement in the third and fourth quarters. Honeywell's aerospace unit also looks solidly positioned to handle inflation because contracts within its original equipment division that are indexed to material and labor inflation, Madsen said. Club take: We were encouraged by Madsen's commentary, as it bolstered our view that Honeywell is the right kind of industrial stock for this moment despite the macroeconomic uncertainty that generally weighs on the sector; the same goes for industrial gas firm Linde (LIN). For HON, aerospace accounts for roughly one-third of its revenue, and we've believed the Covid recovery in air travel should be supportive of growth for multiple years. Madsen's remarks do nothing to change our mind, especially as it looks like the supply snarls are easing somewhat and the company is able to deftly manage inflationary pressures. We understood the second point already, evidenced by Honeywell's recent hike to the low end of its full-year earnings guidance and its increase to its segment margin guidance, but Madsen offered valuable color on how the aerospace business is contributing there. (Jim Cramer's Charitable Trust is long QCOM, META, GOOGL and HON. 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.

Qualcomm Inc. President and CEO Cristiano Amon speaks during the company's press event for CES 2022 at the Mandalay Bay Convention Center on January 4, 2022 in Las Vegas, Nevada. CES, the world's largest annual consumer technology trade show, is being held in person from January 5-7, with some companies deciding to participate virtually only or canceling their attendance due to concerns over the major surge in COVID-19 cases.

Ethan Miller | Getty Images

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These 4 Club stocks are making headlines. Here's our take on each news story - CNBC

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