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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. Markets: The S & P 500 was modestly lower Wednesday after the Federal Reserve left interest rates unchanged at its May policy meeting. Longer dated Treasury yields declined too, meaning they increased in price. Fed Chair Jerome Powell will take questions from reporters at 2:30 p.m. ET, and we’ll update this story with the top central banker’s thoughts on tariffs, inflation and the economic outlook more broadly. Apple-Alphabet: Apple and Alphabet shares fell Wednesday after Eddy Cue, Apple’s senior vice president of Services, said the company was “actively looking” at retooling the Safari web browser on devices to focus on AI-powered search engines, according to Bloomberg News. Cue’s comments were made during his testimony in a federal court as part of the Justice Department’s lawsuit against Apple. Cue also said search on Safari declined for the first time in April, a result of more people using AI. The report also mentions Cue believes AI search providers will replace standard search engines like Google. Alphabet shares are taking the biggest beating, losing more than 7%. Apple dropped around 1.5%. Cue’s comments have multiple implications. For Alphabet, losing its search dominance to generative AI chatbots like ChatGPT was the principal reason we exited our position at the end of March. Alphabet may have a lot of other things going for it, such as YouTube, Google Cloud, and Waymo, but Google Search is its principal money maker, and losing market share could have significant ramifications in the future. We may not have gotten the best price on our sale, but we feel a lot better about ringing the register in light of what Cue said and missing this sell-off. When it comes to Apple, the situation is more complex. The stock declined due to its long-standing partnership with Alphabet, which pays Apple to keep Google as the default search engine on its devices — a deal now under scrutiny by the Department of Justice. Any changes to this arrangement could negatively impact Apple, a risk that Cramer acknowledged a few weeks ago. It’s a factor that must be recognized as the antitrust case goes through the remedy phase. DuPont’s multiple: Our investment thesis for Dupont is based on the belief that splitting the company into two separate publicly traded entities — one focused on electronics and the other on industrials, including health care, water, and other markets — will create greater value than keeping the company whole. The premise is based on looking at the trading multiples of peers and applying those numbers to the new businesses. But what happens when one of those peers underperforms? We mention this because the most comparable company to DuPont’s electronics business — focused on end markets such as smartphones, consumer electronics, data centers, and high-performance computing— is Entegris . Valued at $11 billion, Entegris also provides materials to the semiconductor and broader tech industry. As a secular-growing, higher-margin business, Entegris is trading at a premium multiple to legacy DuPont. But the idea is that when DuPont’s electronics-focused company, which will be called the hard to pronounce “Qnity,” spins off on Nov. 1, it will trade at a similar multiple to Entegris. The problem with comparing DuPont’s electronics business to Entegris right now is that the latter is struggling. Shares fell as more than 10% at one point on Wednesday after the company missed consensus expectations in the first quarter on net sales and adjusted earnings per share, and provided a second quarter outlook significantly below expectations. It’s a much different story than DuPont’s electronics business, which excelled in the first quarter, although some of that was due to a pull forward of about $30 million in sales. Still, DuPont expects its electronics company to grow organic sales by 6% to 7% in 2025, and believes it is trending toward the higher end of the range. On the other hand, analysts expected Entegris to grow net sales by about 4.6% this fiscal year before today’s update. The company does not give guidance on an annual basis. What does this all mean? When we first ran our Dupont sum-of-the-parts analysis last May, Entegris shares traded at a 2024 enterprise value-to-EBTIDA ratio of around 24 times (EBITDA stands for earnings before interest, taxes, depreciation, and amortization). That multiple has fallen to about 15 on Wednesday. Accordingly, we must take down our suggested multiple for DuPont’s electronics business, which we had conservatively put at 21.6, a 10% discount to where Entegris was trading. At this point, though, a valuation haircut to Entegris may no longer be necessary since DuPont’s business is growing faster at a higher margin. Other adjustments to the original sum-of-the-parts math are necessary, including to account for the water business being retained with the legacy Dupont. We also need new assumptions for revenue and EBITDA, along with updated net debt and share outstanding figures. If legacy Dupont maintains its EV-EBITDA multiple of 10, our new sum-of-the-parts math suggests the two independent companies combined are worth about $91.50. If we apply a 10% discount, simply out of conservatism, this brings our new price target to $82, down from $100 previously. Keep in mind: Trading multiples can change quickly in this market if there is a meaningful trade deal with China, or if investors grow more concerned about an economic downturn. As developments change, so too will the sum-of-the-parts math. Nevertheless, it remains true that DuPont’s breakup plan should create more value for shareholders than staying as one company would. Up next: Companies reporting after the closing bell Wednesday include Arm Holdings , Skyworks Solutions , Cleveland-Cliffs , Dutch Bros , Flutter Entertainment , Carvana , Zillow , and CF Industries . Before the opening bell Thursday, we’ll see the quarters from ConocoPhillips , Warner Bros Discovery , Kenvue , Restaurant Brands , Yeti , Tapestry , Crocs , Molson Coors , and Shopify . (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.
