The Nasdaq MarketSite in the Times Square neighborhood of New York on Tuesday, May 31, 2022.
Michele Nagle | Bloomberg | Getty Images
We are buying 25 shares of Microsoft (MSFT) for around $ 240 each. After Thursday’s deal, Jim Cramer’s Charitable Trust will hold 375 shares of MSFT, increasing its weighting in the portfolio to 3.26% from 3.05%
The purchase by Microsoft will put a small amount of money to work Thursday after the falls caused by the Federal Reserve from the previous session finally put our trusty S&P oscillator in oversold territory at minus 5.16%. As a reminder, whenever the oscillator falls below minus 4%, it signals oversold conditions in the market, which could mean a rebound is due.
In addition to the oversold Oscillator, we will put in some cash on Thursday to counter the weak market sentiment. The number of bears in the AAII Investor Sentiment Survey has surpassed 60, marking the highest level since March 2009, when it was 70. This is a historical level of pessimism in the market and when people start leaning too much in one direction, contrarians in us what to move the other way.
Of course, the Oscillator can still get more oversold from here and the sentiment, believe it or not, can still get worse. We have seen this show over and over again this year. As a new wrinkle, stocks are facing stiff competition for investment dollars with the 2-year Treasury yield now firmly above 4.1%, making it difficult for stocks to rally sustainable until yields settle. they will be cooled. But at the very least, we think these indicators suggest that there is already a lot of negativity in the market. This means we need to be on the lookout for high quality, profitable company stocks with age-old growth characteristics, excellent balance sheets and return on capital programs. This is the profile of the companies we want to buy and own as the Fed continues to raise rates to slow the economy and stifle inflation.
For Microsoft, we are repurchasing the second 25 of the 50 shares sold for around $ 283 in August. We previously repurchased the first 25 shares at around $ 265 at the end of August. Although the stock was up slightly on Thursday, the shares were down about 10% since our last purchase. Tech stocks are falling like knives as interest rates rise, making the next buy after a 10% drop an adequate increase. We call it large-scale buying.
Finally, we want to point out that a couple of sell-side analysts had positive things to say about Microsoft on Thursday following a conference and meeting with management. Specifically, Morgan Stanley said, “Our recent visit to the Microsoft campus builds our confidence in the equation that drives total return for teens, which we don’t think is reflected in MSFT equities.”
The four factors behind Morgan Stanley’s view are 1) “durable” double-digit revenue growth prospects, 2) gross margin improvement, 3) operating cost growth below dollar gross profit growth and 4) a strong return on capital program. At the latter point, Microsoft announced a 10% increase in its dividend earlier this week.
(Jim Cramer’s Charitable Trust is along MSFT. See here for a complete list of actions.)
As a CNBC Investing Club subscriber with Jim Cramer, you will receive a commercial notice before Jim makes a trade. Jim waits 45 minutes after sending a trade notice before buying or selling a stock in his charity fund’s portfolio. If Jim has talked about a title on CNBC TV, he waits 72 hours after issuing the trade notice before executing the trade.