We’re making 4 trades, including an exit and an initiation, to reduce our tariff risk
Looking to reduce our exposure to tariffs and China, we’re making changes in the portfolio. We’re exiting our position in Stanley Black & Decker , selling our remaining 510 shares at roughly $86.79 each. We’re buying 50 shares of Home Depot at roughly $409.60. Following the trade, Jim Cramer’s Charitable Trust will own 300 shares of HD, increasing its weighting to 3.33% from 2.8%. We’re selling 275 shares of GE Healthcare at roughly $87.80. Following the trade, the Trust will own 625 shares of GEHC, decreasing its weighting to 1.5% from 2.15%. We’re initiating a position in Texas Roadhouse , buying 200 shares at roughly $180.62. We’re taking advantage of Tuesday’s 2% bounce in tool maker Stanley Black & Decker to exit the position. We’ll use about half of the sale proceeds to beef up Home Depot . We originally outlined this probable shift in December when we downgraded Stanley Black & Decker to our 3 rating . From a portfolio management perspective, these trades allow us to maintain our exposure to the home improvement theme without as much tariff risk. SWK HD 1Y mountain Stanley Black & Decker vs. Home Depot 1 year Future earnings from Stanley Black & Decker face a serious risk from further escalation in President Donald Trump’s trade war against China. The company previously forecasted that a 60% tariff rate on Chinese goods could hit pretax operating income by roughly $200 million per year. The current tariff rate is well below that level as the administration appears to be taking a softer-than-expected stance on China — at least for now. We don’t want to stick around and risk the trade war rhetoric getting more aggressive. Home Depot does have some tariff exposure but not nearly as much. We also view Home Depot as a generally better-run company that should benefit from the cleanup and rebuilding after the Los Angeles wildfires. We called this out in January. Stanley Black & Decker is scheduled to report earnings before Wednesday’s opening bell. In its typical fashion, we expect the company to provide a conservative 2025 outlook, which could pressure the stock. We’re exiting the position with a small loss of about 1% on our remaining shares. GEHC 1Y mountain GE Healthcare 1 year As for GE Healthcare , we are locking in more profits in this healthcare equipment maker as we remain cautious about the state of the health-care industry in China. Club name Danaher ‘s recent quarter didn’t inspire confidence, and Merck ‘s announcement that it has halted shipments of Gardasil, a vaccine that prevents cancer from HPV, to China represented another negative surprise. GE Healthcare has positive things going for it in the United States between strong capital expenditure trends across its core customer base and also its fast-growing radiopharmaceutical business. However, we think a piece of its 2025 guidance may hinge on China getting better, and that is still too hard to see. From this sale, we will realize a gain of roughly 15% on stock purchased in the summer of 2023. GEHC is set to report earnings next week. TXRH 1Y mountain Texas Roadhouse 1 year With the Stanley Black & Decker exit, a new spot opened up in the portfolio. So, we’re calling up the restaurant chain Texas Roadhouse from our Bullpen watch list. We added the stock to our Bullpen on Jan. 24. The company is best known for its namesake fast casual steak but also owns two other concepts: Bubba’s 33 and Jaggers. After years of stubborn inflation, what the consumer craves is a good deal. Texas Roadhouse offers this to its customers by serving high-quality food at a surprisingly low price, translating to strong traffic trends. The proof is in the results. In its third quarter, Texas Roadhouse posted comparable sales growth of 8.5%, driven by 3.8% traffic growth and a 4.7% increase in average check. While the totality is important to look at, the breakout between traffic and check provides a lot of insight into how the company operates. The traffic shows more people are dining at the restaurant, while the average check shows how much they are spending. Texas Roadhouse has figured out how to strike a great balance between maintaining its value proposition with only incremental price increases, explaining why customers are so loyal to the chain. “TXRH’s patient approach to margin recovery in favor of traffic gains over the last few years is paying dividends as the company continues to compound traffic and meaningfully outperform the industry,” analysts at Deutscher Bank wrote in an October note. Taking a look at the monthly cadence of Q3, Texas Roadhouse enjoyed a sustained growth rate. The company said comparable sales were up 8% in July, up 8.1% in August, and up 9.3% in September. By the way, management said its comp for the first four weeks of the fourth quarter, which will be reported on Feb. 20, increased 8.3%. The stock had a great 2024, rallying roughly 50% but has pulled back more than 10% since its November high of $205.27. This pullback creates an entry point for us to start a new position. That previous high of $205 is our price target and represents about 28.5 times the FactSet consensus 2025 earnings-per-share (EPS) estimate of $7.18. This week’s tariff-related headlines add to our case to buy the domestic-leaning Texas Roadhouse. It is expanding into international markets, but the overwhelming majority of the company’s restaurants are located in the United States. Compared to a multinational company that does a ton of business overseas, Texas Roadhouse’s exposure to a strengthening U.S. dollar or retaliatory tariffs should be minimal. That’s why the stock outperformed in the market on Monday and gave back those gains as trade war risks eased. (Jim Cramer’s Charitable Trust is long *SWK, HD, GEHC. 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.
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