We're encouraged by an activist's willingness to buy an Abbott rival, look past baby formula suits

Original Article:

Source: Link

Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. (We're no longer recording the audio, so we can get this new written feature to members as quickly as possible.) No big swings : The market continues to stay in a tight range Tuesday, following three straight sessions of muted action as investors and traders digest a four-week rally that pushed the major stock benchmarks to new record highs. Another reason for the recent uneventful trading could be that everyone is waiting for Nvidia to report its earnings after Wednesday's closing bell. Nvidia is one of our two "own it, don't trade it" stocks. ( Apple is the other.) With analysts expecting bigger and bigger things from Nvidia, the stakes are high for the artificial intelligence chip powerhouse to continue to beat quarterly estimates and raise forward guidance. Updates on Nvidia's next-generation Blackwell chip platform, set for launch later this year, and its software business will be key watch items. Baby formula suits : Activist investor group Eminence Capital has built a stake of at least 0.5% in Reckitt Benckiser, according to the Financial Times. Eminence's reported position follows Reckitt's selloff to an all-time low in March on concerns about baby formula litigation. Sources told the FT that other activist investors are interested in Reckitt because they also believe the stock has been hit too hard by an Illinois jury verdict, which the company has said it will appeal. The interest in Reckitt is noteworthy because Club name Abbott Labs has also been weighed down by the Illinois ruling. Abbott makes a competing baby formula and faces similar lawsuits, alleging the companies failed to warn about the risks of their products. While we were in Abbott shortly before the selloff, like Eminence in Reckitt, we've slowly built up our position into this weakness. In the two days after the verdict against Reckitt, Abbott lost more than $10 billion in market cap despite the assumptions of many analysts that Abbott's liability in any settlement of its baby formula suits would only be in the hundreds of millions of dollars. The stock has continued to drift lower in the months since even as the company reported a better-than-expected quarter last month. It also raised its full-year outlook — something it hasn't done after Q1 in years. ABT YTD mountain Abbott YTD Abbott's next baby formula event is a state trial in St. Louis that begins in July. We understand St. Louis to be very plaintiff-friendly — so, unfortunately, we're not expecting this litigation overhang to go away anytime soon. However, we're willing to be patient and continue to use weakness in shares as buying opportunities because Abbott has the medical community on its side, and the $10 billion-plus loss in market cap greatly exceeds what a potential settlement could look like. Once the market realizes that Abbott's exposure is much less than what its stock has been penalized for, investors will finally focus on how the business is actually doing. And, we know the fundamentals are strong. Up next : After the closing bell, the homebuilder Toll Brothers will report earnings. Wednesday morning, we'll hear from Club name TJX Companies , which owns T.J. Maxx, Marshalls, and HomeGoods. We're focused on the off-price retailing group's comparable sales growth, margins, and what management has to say about the availability of quality branded merchandise in the marketplace. Target , Analog Devices , and Williams-Sonoma also report on Wednesday. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) 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. Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. (We're no longer recording the audio, so we can get this new written feature to members as quickly as possible.)