In Jim Cramer’s latest Sunday column , he suggested the stock market’s strong start in 2023 shows that investors are moving beyond a narrow focus on the mega-cap tech stocks — known colloquially as FAANG — that have determined the direction of equities markets for a decade. While he doesn’t advise abandoning the tech sector altogether, Jim sees this a moment to rotate into other stocks that are “more representative of a resurgent America buoyed by its natural resources, its post-Covid strength, and its central bank that preserves purchasing power.” In other words, if the FAANG stocks can’t deliver earnings this week that are strong enough to keep their January rallies going, the money may not leave the market altogether. Instead, it could flow into other areas of the S & P 500 and the Dow Jones Industrial Average that are aligned with the so-called old, or real, economy. Jim coined the term FANG for then Facebook, now Meta Platforms (META), Amazon (AMZN), Netflix (NFLX) and Google, now Alphabet (GOOGL), a decade ago. Apple (AAPL) was added later as the second “A” name. This thinking matches up with a segment last Friday on “Mad Money.” The charts, as interpreted by legendary technician Larry Williams, suggested investors should steer clear of the showhorses in the Nasdaq in favor of the workhorses in the Dow 30. Williams described the showhorses as stocks in the tech-heavy Nasdaq that are “great at publicity, but they’ve never been in a Street fight, which is why these companies have struggled so much to adjust to the new reality where business has slowed down and nobody wants to give them money.” The workhorses, Williams said, are “reliable companies that put in the work and know how to handle difficult situations because they’ve been through them many times before. Think most of the stocks in the Dow Jones Industrial Average or the kind of stocks Warren Buffett loves to own for Berkshire Hathaway .” We are still willing to bless ownership of the highest quality tech stocks this year, if they are profitable and can be valued by traditional metrics like price-to-earnings ratios without major adjustments from generally accepted accounting principles (GAAP). But in the near term, we still favor stocks of companies that are the backbone of the real economy. If we think of real economy stocks, or workhorses, as those in the Dow, then let’s take a look at its 30 constituents and see how they match up with the stocks in Jim Cramer’s Charitable Trust that comprise the Club’s portfolio. American Express (AXP): There’s no real comparable in the portfolio for this credit card company. Amgen (AMGN): There is no direct comparable in the portfolio for this biopharmaceutical firm. Apple (AAPL): The Club holding has been our own-it-don’t-trade-it stock. It’s the best company in the world with a dominant hardware business and growing services unit, providing a deep competitive moat and bundling opportunities. Boeing (BA): We don’t have any pure-play aerospace companies, but the largest segment at Honeywell (HON), another Dow name, is aerospace. Caterpillar (CAT): We started a position in CAT roughly two weeks ago and added to it two days later. We like this dividend aristocrat for its exposure to construction, non-residential housing and mining. Cisco Systems (CSCO): We have a small position in this networking equipment company because it has a huge backlog, trades at a very reasonable valuation and pays a solid dividend. Chevron (CVX): We owned Chevron for most of 2022 but sold it for a big gain. We still have plenty of energy exposure through our position in oilfield-services giant Halliburton (HAL) and three exploration and production companies: Coterra Energy (CTRA), Devon Energy (DVN), and Pioneer Natural Resources (PXD). Dow Inc (DOW): The materials company we own in the portfolio is industrial gas giant Linde (LIN). In an uncertain economic environment, we think Linde can still perform well because of the resilience of its gas-selling markets, pricing power and productivity initiatives. It also stands to gain from investments in green hydrogen projects. Goldman Sachs (GS): Of the traditional investment banks, we have preferred to own Morgan Stanley (MS) over Goldman because the former’s push into the asset management industry has made its revenue stream more fee-based and less cyclical. Home Depot (HD): We don’t have a true comparable for Home Depot in the portfolio. Honeywell (HON): Honeywell has been one of our favorite industrials for a long time due to its exposure to aerospace, oil-and-gas, and non-residential construction end markets. IBM (IBM): We don’t have a true comparable for IBM in the portfolio. Intel (INTC): We have stayed away from Intel for many years, preferring chipmakers Advanced Micro Devices (AMD) and Nvidia (NVDA). It’s been clear for a long time now that Intel is years behind in its technology. But we wouldn’t quite call AMD and NVDA workhorses. Instead, these are high-quality semiconductor names in which we own small positions in anticipation of a turnaround later this year. Johnson & Johnson (JNJ): We have a position in J & J and like this health-care stock for the planned separation of its consumer products unit from its faster-growing pharmaceuticals and medical technology franchise. Coca-Cola (KO): It may be focused on alcohol and not soft drinks, but Constellation Brands (STZ) is the beverage stock we own in the portfolio. We’ve liked STZ because alcohol sales tend to be resilient in an economic slowdown and its Mexican beer portfolio is gaining market share. JPMorgan (JPM): We have long preferred Wells Fargo (WFC) over JPM because the former is restructuring its business and reducing excess costs. McDonald’s (MCD): We prefer Starbucks (SBUX) over McDonald’s when it comes to restaurants. McDonald’s has been a great stock to own, but what drew us to Starbucks was its plan to unlock efficiencies in its U.S. stores, along with an ambitious expansion strategy in China. 3M (MMM): We don’t have any direct comparables to this conglomerate in the portfolio. Merck (MRK): In pharmaceuticals, we prefer Eli Lilly (LLY) to Merck because Eli Lilly has superior growth prospects and Mounjaro has the potential to be the best-selling drug of all time . Microsoft (MSFT): We continue to hold a position in this technology giant, but are cautious in calling it a workhorse given its exposure to cloud computing and PCs. We remain on the sidelines . Nike (NKE): We don’t own any apparel stocks, but we have a position in the off-price retailer TJX Companies (TJX), which benefits from the inventory glut across retail. Procter & Gamble (PG): We have a position in P & G and see the earnings of this dividend aristocrat rising once it moves past headwinds from the U.S. dollar , commodities and transportation costs. Travelers (TRV): There is no true comparable for this insurance company in the portfolio. UnitedHealth Group (UNH): An easy comparable of this health insurance provider in the portfolio is Humana (HUM). We prefer HUM to UNH because of its revamped Medicare Advantage offering, which has led to market-share gains. Salesforce (CRM): We have a position in CRM, but we’re not quite ready to consider this enterprise giant a workhorse. Still, it remains a high-quality enterprise software company, and activist investors in are likely to pressure management to expand operating margins faster. Verizon Communications (VZ): There is no true comparable for this telecommunications company in the portfolio. Visa (V): Again, like American Express, there is no true comparable for this credit card company in the portfolio. Walgreens Boots Alliance (WBA): There is no real comparable for this pharmacy retailer in the portfolio. Walmart (WMT): Club holding Costco (COST) is a logical comparable of Walmart. We prefer COST to WMT because its volume-driven business model helped it more effectively navigate inflation and supply chain challenges over the past year. Walt Disney (DIS): This Club holding has been down and out over the past two years, but we think a turnaround is in the cards under the leadership of recently-reappointed CEO Bob Iger. (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.
A person walks through the Wall Street subway station near the New York Stock Exchange (NYSE) in New York on May 27, 2022.
Angela Weiss | AFP | Getty Images
In Jim Cramer’s latest Sunday column, he suggested the stock market’s strong start in 2023 shows that investors are moving beyond a narrow focus on the mega-cap tech stocks — known colloquially as FAANG — that have determined the direction of equities markets for a decade.
While he doesn’t advise abandoning the tech sector altogether, Jim sees this a moment to rotate into other stocks that are “more representative of a resurgent America buoyed by its natural resources, its post-Covid strength, and its central bank that preserves purchasing power.”