Cramer club identifies five portfolio stocks it would add on weakness

Jim Cramer and portfolio director Jeff Marks used the CNBC Investing Club’s July meeting Thursday to point to five portfolio holdings they would consider adding to: Corning, GE Vernova, Eaton, FedEx Freight and Johnson & Johnson. For everyday investors watching the AI trade, the takeaway was direct: fast stock rallies can justify profit-taking, which means selling part of a winning position, even if the company’s business has not worsened.

Cramer said some artificial intelligence winners have been hit recently after near-vertical moves. He said he does not think their fundamentals have deteriorated, according to CNBC, but argued that emotion can push stocks to levels that become hard to support.

The club’s discussion centered first on the giant cloud operators funding the AI buildout. Cramer said Alphabet, Amazon, Microsoft and Meta Platforms face a spending squeeze: they are pouring money into data centers while investors debate whether future profits will be enough to justify the bill. Memory chips, which store data and are essential for AI servers, have also become more expensive, raising the cost of those projects.

On Alphabet, the club pointed to Google Search, YouTube and Google Cloud as businesses that can help fund AI investments. CNBC also noted Warren Buffett’s investment in Alphabet as a supportive signal. Amazon drew more caution, with the club saying its spring momentum has faded and raising concern that heavy bond issuance could lead to an equity sale. Microsoft, according to the club, needs clearer AI revenue from products such as Copilot, while Meta’s move into selling computing capacity has helped ease worries about its AI spending. Apple was described as different from the cloud companies because it needs memory for devices but is not spending heavily on AI data centers.

Among AI infrastructure suppliers, the club said Nvidia remains central to data centers and that nothing has visibly gone wrong with the business, though Cramer wants a larger stock buyback. Broadcom was described as benefiting from customer interest in custom chips as an alternative to Nvidia. Intel drew praise for central processing unit demand and CEO Lip-Bu Tan’s efforts to improve manufacturing, while Qnity was framed as a scarce supplier of chemicals and materials used in chipmaking.

Corning was one of the clearest add candidates. CNBC said the club had sold 150 shares in June after a sharp rally and would look to buy back about 25 shares if not restricted. GE Vernova and Eaton were also named as add candidates because data centers need more power: GE Vernova makes turbines that turn natural gas into electricity, while Eaton sells electrical equipment that moves power to server racks.

Outside the AI complex, the club said it was tempted to add to FedEx Freight after J.B. Hunt’s results suggested the freight downturn is easing. FedEx itself was described as more focused after separating its less-than-truckload business, with the parcel company positioned against UPS into the holiday season.

Johnson & Johnson was another name the club said it wanted to add. CNBC said the company’s second quarter included a $150 million revenue shortfall at Abiomed, its heart pump unit, but the club viewed that as small relative to a company with about $100 billion in annual sales and a strong pharmaceutical business.

The club also discussed places to reduce exposure. Home Depot and Starbucks were named as possible trims, and CNBC said the club trimmed Home Depot after the meeting. Cramer and Marks tied Home Depot’s case to interest rates, saying lower inflation and eventual Federal Reserve cuts could help housing demand, but that capital may be better used elsewhere until that happens.

Other portfolio notes were mixed. Goldman Sachs’ latest quarter was praised, Wells Fargo remained in the portfolio after results, and Capital One was described as inexpensive while management works to explain the earnings power of its Discover deal. Costco’s valuation, at more than 40 times earnings, was flagged as a risk, while CrowdStrike and Palo Alto were viewed positively but only after a pullback. CNBC said Investing Club subscribers receive trade alerts before Cramer trades for his charitable trust, with waiting periods before execution.

This story draws on original reporting from CNBC.