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We’re adding to a China reopening stock, buying ahead of Covid rules eventually easing


We are buying 40 shares of Estee Lauder (EL) at roughly $219.55 a share each. Following Tuesday’s trade, the Trust will own 250 shares of EL, increasing its weighting in the portfolio to 1.88% from 1.58%. Shares of this prestige beauty company have been hit hard to start the new week due to worries about rising Covid cases in China and new lockdowns. These renewed concerns make it seem like those recent reports that suggested Chinese government leaders may finally move away from their draconian zero Covid policy as early as next spring could be premature and too optimistic. It’s still too early to know for sure, but we remain steadfast in our belief that the Chinese government cannot maintain its restrictive pandemic approach forever due to the harmful effects it has had on its economy, the second biggest in the world behind the U.S. However, no one quite knows for sure what China will do and how it will respond to the latest surge in cases. We have called Estee Lauder the single best way to play a China reopening. So while the stock offers significant potential to the upside when the news flow turns positive, we must also be aware that the stock has risks to the downside when the headlines turn for the worse. To this point, Estee Lauder was one of the top-performing names in the S & P 500 just a couple of weeks ago when it looked like China was making plans to move away from zero Covid. But it was one of the worst-performing stocks in the index Monday, losing more than 6%, as investors raised concerns about lockdowns. Estee Lauder gets about one-third of its sales from travel and its travel retail business is highly dependent on tourism in Asia. Due to our belief that it’s only a matter of time before China breaks away from zero Covid and reopens its economy, we believe those associated selloffs in Estee Lauder represent long-term buying opportunities. The headlines can be conflicting at times, making the action in the stock one step forward, one step back, but markets are forward-looking and we think it’ll be more favorable to buy ahead of the reopening instead of waiting for it to happen. Outside of what’s happening in China, which is completely out of Estee Lauder’s control, we like how management is operating the business and positioning it for growth in the future. We are fans of the $2.8 billion acquisition of Tom Ford. We believe it will be a good deal for Estee Lauder as it will benefit from owning a fast-growing luxury brand long-term, and it will no longer have to make royalty payments to sell Tom Ford’s beauty products. (Jim Cramer’s Charitable Trust is long EL. 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.

A sales assistant arranges lipsticks at an Estee Lauder store.
Qilai Shen | Bloomberg | Getty Images

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