Cramer’s Investing Club: Two sells, one buy and the reasons behind the trades

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We sold 25 shares of Estee Lauder (EL) at roughly $356.66. In addition, we bought 25 shares of Eli Lilly (LLY) at roughly $241.91. Lastly, we sold 200 shares of Marvell Technology (MRVL) at roughly $92.06.

• Following the trades, the Charitable Trust will own 100 shares of EL, 425 shares of LLY, and 1,100 shares of MRVL.
• This trim will decrease EL’s weighting in the portfolio from about 1.07 % to about 0.86% and decrease MRVL’s weighting in the portfolio from about 2.80% to 2.38%.
• Eli Lilly’s weighting in the portfolio will increase from about 2.34% to roughly 2.48%.

We are trimming into strength two stocks that are trading at or near their all-time highs and picking up shares in a healthcare company that is sitting out today’s broader market rally.

Estee Lauder, now you may be wondering why we are not selling all of our shares. Why not channel our inner Steve Miller Band and “take the money and run” in this small of a position? Plus, we recently initiated a position in Chevron, and we typically do not like to put on a new stock before taking one off.

Ultimately, we decided to hold on to the rest of our EL. It is an exceptionally run company with a high-quality franchise that will benefit even more as travel patterns normalize. We could change our mind on the next leg higher, but we have always viewed EL as a core position, and we don’t like to trade around stocks we consider core.

This trim will lock in a great gain of about 20% on shares we purchased in mid-May.

Eli Lilly is trading lower Tuesday on what we believe to be is a misunderstood piece of research this morning. Analysts at Guggenheim reiterated their Buy rating on LLY and increased their price target to $272 from $268. While the analysts remain long-term bullish about the company, we think what may be shaking out some investors today is the fact that Guggenheim believes Eli Lilly management will offer below consensus 2022 earnings per share guidance at their Dec. 15 Investor Event.

This isn’t new news to us. If you look back to our write-up of the company’s third-quarter, we specifically called out how the company will face tough year-over-year comps due to a minimal revenue contribution from COVID-19 therapies. Additionally, management already said operating margins will come under pressure next year due to investments in support of trials and launches of their industry-leading pipeline. We would have thought the market was more prepared for this type of information and that analysts would have adjusted their estimates by now. But they didn’t, and that’s why we think the stock is a buy today and again if it gets hit when guidance is officially unveiled.

Longer-term, we cannot emphasize enough how big Eli Lilly’s pipeline is with its diabetes/obesity drug tirzepatide and donanemab for Alzheimer’s. In fact, Guggenheim said in their research note today that they forecast “an unprecedented decade of double-digit EPS growth from 2021 – 2031” based on the projects Eli Lilly is working on and the growth of their portfolio.

Marvell Technology is a tough sale for us to make. If you read our analysis of Marvell’s third-quarter earnings report, then you already know how much we like the company. We have total conviction in CEO Matt Murphy and how he has positioned Marvell to be the leader in secular growing multiyear trends in the data center, 5G networking, and automotive chips. Shares of Marvell Tech have now rallied nearly 30% over the past three trading sessions and have gained more than 90% year to date. We think the move is not over, but as much as we like the stock long-term, we cannot neglect our discipline of slowly trimming stocks as they make new all-time highs. This is especially true for positions in high multiple tech. This avoidance of greed is what protects us from stretches where one could be caught offsides if tech stocks fall massively out of favor, just like what the market went through over the past month.

Marvell has been a great win for the charitable trust over multiple years, and this trim will lock in a gain of about 270% on shares we purchased in August 2019.

The CNBC Investing Club is now the official home to my Charitable Trust. It’s the place where you can see every move we make for the portfolio and get my market insight before anyone else. The Charitable Trust and my writings are no longer affiliated with Action Alerts Plus in any way.

As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Typically, Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If the trade alert is sent pre-market, Jim waits 5 minutes after the market opens before executing the trade. If the trade alert is issued with less than 45 minutes in the trading day, Jim executes the trade 5 minutes before the market closes. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. See here for the investing disclaimer.

(Jim Cramer’s Charitable Trust is long EL, LLY, MRVL and CVX)