Wall Street on Tuesday upgraded two underperforming Club stocks — Emerson Electric (EMR) and Danaher (DHR) — to the equivalent of buy ratings. Meanwhile, longtime core holding Apple (AAPL) took another step forward in a key global smartphone market. EMR YTD mountain Emerson Electric’s year-to-date stock performance. The news: Wolfe Research on Tuesday upgraded Emerson Electric (EMR) to outperform, or buy, from the equivalent of a hold rating, while raising its price target on the stock to $103 per share, from $98. That’s a 19% premium on EMR’s closing price on Monday. Emerson’s stock came under pressure this year after the automation-focused industrial giant launched a hostile bid for National Instruments (NATI) in January. But since Emerson last week announced an agreement to purchase National Instruments for $60 per share — a disappointing price given the initial offer of $53 a share — its stock has climbed by around 5%. The transaction should allow a “new EMR” to emerge “as a higher growth and quality company, and at a significant valuation discount,” Wolfe analysts wrote in a note. The Club’s take: Over the past few years, Emerson Electric has reshuffled its portfolio, selling non-core assets and using that cash to buy faster-growing, higher-margin businesses to drive shareholder value, while becoming a pureplay automation company. The latest step in the company’s plan was the long sought-after acquisition of National Instruments, a test and measurement business. Although we have been vocal about our dissatisfaction with the $60-per-share takeout price, we understand the strategic and financial merits of the deal, which should ultimately be highly accretive. Now that the deal uncertainty is behind the company, management must execute on its cost synergy goals and broader automation strategy. DHR YTD mountain Danaher’s year-to-date stock performance. The news: Investors have become too negative about Danaher (DHR), creating a buying opportunity for shares of the life-sciences company, Wells Fargo said in a note to clients Tuesday. The firm upgraded the stock to overweight, or buy, from the equivalent of a hold rating. It also boosted its price target to $285 per share, from $275, which implies 11% upside from the stock’s closing price on Monday. Wells Fargo said its reasons for previous caution on Danaher — excess inventory across the bioprocessing industry — haven’t completely been resolved, leading to below-trend growth in 2023. But at this point, Wells Fargo argued, the inventory issues are already priced into Danaher’s shares, which have fallen more than 3% year-to-date. Wells Fargo’s upgrade Tuesday also comes a day after Danaher reportedly ended a potential bid to acquire contract manufacturer Catalent (CTLT), according to Bloomberg, citing people familiar with the matter. The news outlet first reported Danaher’s interest in Catalent in early February. The Club’s take: Both the Wells Fargo upgrade and the apparent end to Danaher’s pursuit of Catalent should help the sentiment around DHR shares. While the inventory issues are known, we’re pleased to see the bank offer a relatively favorable view on demand for the company’s analytical instruments. It’s also worth keeping in mind that after Danaher’s core instrument business grew double digits in 2022, management has been clear that it expects a moderation in 2023. Danaher also is wise to scrap any plans it may have had to buy Catalent, which has had some operational stumbles lately. Danaher’s rumored interest has been an overhang on the stock since early February. We took advantage of that weakness to add to our position in late February, but are now pleased to see that cloud dissipate. AAPL YTD mountain Apple’s year-to-date stock performance. The news: Apple on Tuesday opened its first brick-and-mortar store in India, strengthening its commitment to growing its business in the country of more than 1.4 billion people. The first retail location, known as Apple BKC, is in the country’s financial center of Mumbai. A second store is scheduled to open in the capital city of New Delhi on Thursday. Apple CEO Tim Cook, who was in Mumbai for the store’s opening Tuesday, has called India a “hugely exciting market” and “major focus” for the iPhone maker. Historically, the iPhone’s expensive price tag has hindered its ability to gain meaningful market share in the Indian smartphone market. But progress has been made in recent years, with sales growing double digits year-over-year in the quarter ended Dec. 31. The Club’s take: Apple’s Mumbai and New Delhi stores are clear signals of India’s importance in the company’s long-term growth plans. We’re confident Apple is gaining traction with Indian consumers , one reason why we continue to see Apple is a long-term investment. We’ve adopted an own-it, don’t-trade-it mantra for Apple because we believe its not maxed out on growth potential. Apple has also diversified its supply chain outside of China in recent years, significantly boosting production in India. The company’s two-pronged strategy of growing both its manufacturing- and consumer market share in India should prove fruitful in the coming years. (Jim Cramer’s Charitable Trust is long DHR, EMR and AAPL. 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. 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Workers produce some of the specialized valves at Emerson Electric Co.’s factory in Marshalltown, Iowa, July 26, 2018.
Timothy Aeppel | Reuters
Wall Street on Tuesday upgraded two underperforming Club stocks — Emerson Electric (EMR) and Danaher (DHR) — to the equivalent of buy ratings. Meanwhile, longtime core holding Apple (AAPL) took another step forward in a key global smartphone market.
