We're buying more of a stock that should rally when the Fed starts cutting rates

Published Tue, Jun 4 202412:41 PM EDT

We are buying 50 shares of Stanley Black & Decker at roughly $83.89. Following the trade, Jim Cramer's Charitable Trust will own 890 shares of SWK, increasing its weighting to 2.33% from 2.20%. Shares of the toolmaker fell Tuesday after Barclays downgraded its rating to equal weight from overweight and cut its price target to $86 from $100. The analyst left its 2024 earnings-per-share estimate unchanged at $3.73 but lowered its 2025 estimate by 12 cents to $4.82, well below the consensus estimate of $5.48. Barclays said the stock needs to have "very rapid" earnings revisions to work, noting that Street estimates already reflect a recovery. Other factors informing the analysts' more negative view include sluggish sales, a high inventory position, the potential need to reinvest more to maintain market share, and high balance sheet leverage. The bear case around Stanley Black & Decker can be summed up in one line: mortgage rates are too high. That makes it expensive for people to buy a home and renovate or remodel it, impacting the entire do-it-yourself home improvement industry, which includes Stanley Black & Decker and big retailers like Home Depot and Lowe's . The catalyst that should jumpstart the existing home sales market is the Federal Reserve cutting interest rates. Mortgage rates will follow interest rates down, making it easier for people to buy an older home and put money into it. If the Fed continues to keep rates higher for longer, we fully expect Stanley's sluggish sales growth to continue, as Barclay's expects. After the market anticipated as many as six rate cuts back in January, the continued delay and uncertainty of when the Fed will lower rates is a big reason why Stanley Black & Decker shares have frustratingly fallen nearly 15% year to date. But if the job market loosens and inflation eases a level that allows the central bank to start cutting rates, the home improvement market has the potential to reenergize to a level that could lead to those upward earnings revisions for Stanley Black & Decker's that Barclays seeks. It's why Jim said on our Monthly Meeting last week that this business could "catch fire" on the sign of the first cut. We're not trying to forecast when the cutting will start, but we like the idea of holding onto a name like Stanley Black & Decker for when it happens. In the meantime, we are being paid to wait by SWK's dividend yield that now sits at about 3.8%. (Jim Cramer's Charitable Trust is long SWK. 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. 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.