The Nasdaq MarketSite in the Times Square neighborhood of New York, on Tuesday, May 31, 2022.
Michael Nagle | Bloomberg | Getty Images
We’re buying 25 shares of Microsoft (MSFT) at roughly $240 each. Following Thursday’s trade, Jim Cramer’s Charitable Trust will own 375 shares of MSFT, increasing its weighting in the portfolio to 3.26% from 3.05%
The Microsoft purchase will put a small amount of cash to work Thursday after the prior session’s Federal Reserve-driven declines finally put our trusted S&P Oscillator into oversold territory at minus 5.16%. As a reminder, any time the Oscillator moves below minus 4%, it signals oversold conditions in the market, which could mean it’s due for a bounce.
In addition to the oversold Oscillator, we’re putting some cash to work Thursday as a counter to the poor sentiment in the market. The number of bears in the AAII Investor Sentiment Survey crossed above 60, marking the highest level since March 2009, when it was 70. That’s a historic level of pessimism about the market — and when people start leaning too far in one direction, the contrarians in us what to move in the other way.
Of course, the Oscillator can still get more oversold from here and sentiment, believe it or not, can still get even worse. We’ve seen this play out time and time again this year. As a newer wrinkle, stocks are facing stiff competition for investment dollars with the yield on the 2-Year Treasury now firmly above 4.1%, making it hard for equities to rally in a sustainable fashion until yields cool off. But at a minimum, we think these indicators suggest there’s a lot of negativity already priced into the market. This means we must be on the lookout for stocks of high-quality, profitable companies with secular growth characteristics, great balance sheets and capital return programs. That’s the profile of companies we want to buy and be owners of as the Fed continues to raise rates to slow the economy down and stamp out inflation.
For Microsoft, we are buying back the second 25 of the 50 shares we sold at around $283 in August. We previously bought back the first 25 shares at around $265 in late August. Although the stock was up fractionally Thursday, shares were still down about 10% since our last purchase. Technology stocks are falling knives as interest rates rise, making the next purchase after a 10% drawdown a fitting increment. We call this buying with wide scales.
Finally, we want to point out that a couple of sell-side analysts had positive things to say about Microsoft Thursday following a conference and meeting with management. In particular, Morgan Stanley said, “Our recent Microsoft campus visit increases our confidence in the equation driving a high-teens total return, which we do not think is reflected in MSFT shares.”
The four factors behind Morgan Stanley’s view are a 1) “durable” double digit revenue growth outlook, 2) improving gross margins, 3) operating expense growth below gross profit dollar growth, and 4) a strong capital return program. To this last point, Microsoft announced a 10% increase to its dividend earlier this week.
(Jim Cramer’s Charitable Trust is long MSFT. 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.