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Cramer’s Investing Club: We are buying more shares of this mall retailer on the omicron dip

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Matthew Mitchell, center, talks with customers as Sierra Phillips adjusts a denim display at the American Eagle/Aerie store at Easton Town Center in Columbus, Ohio on May 15, 2020.

Andrew Spear | The Washington Post | Getty Images

(This article was sent first to members of the CNBC Investing Club with Jim Cramer. To get the real-time updates in your inbox, subscribe here.)

After you receive this email, we will be buying 250 shares of American Eagle Outfitters (AEO) at roughly $22.85. Following the trade, the Charitable Trust will own 4,950 shares of American Eagle. This buy will increase AEO’s weight in the portfolio from about 2.63% to 2.77%.

Retail stocks are taking a big hit Wednesday in reaction to the weaker than expected November retail sales report. The downside move confirms and compounds the big sell-off the group experienced in Monday’s session, which may have been related to concerns that the rapidly spreading omicron variant will keep shoppers out of the mall and stores for the rest holiday season. Investors are taking a more defensive position when it comes to retail, explaining why we have seen a big rotation out of department store stocks and specialty retailers like American Eagle Outfitters and buying interest in companies like Walmart (WMT).

But consider this: Due to this week’s decline, AEO is now trading back at levels the company has not seen since February. This round trip comes despite all the market share and new customers Aerie has gained, the margin lift at AE thanks to the strength of casual wear and denim, and all the improvements made to the supply chain/logistics through what should prove to be a couple of smart acquisitions. We clearly started buying AEO way too early, but we will not let the weak action in the stock intimidate us out of this position.

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American Eagle Outfitters is doing well right now and reported the best third quarter in its group. This is not a retailer in distress, though you would not know that if you only paid attention to the stock price and didn’t follow the strength of its categories as explained on the third-quarter earnings call.

Lastly, we want to stick with AEO at these levels because investors get pretty solid dividend. And due to the recent decline in the equity price, the dividend yield has increased to about 3.17%. We think a dividend of this size should at least provide some support to the stock’s already inexpensive price-to-earnings multiple.

Boeing on watch list

Outside of AEO, we are taking a hard look at Boeing (BA), yes, Boeing, as a potential purchase despite the company’s well-documented challenges. What’s attractive about Boeing back down to $191 is that the stock has now washed out nearly all the gains from earlier in the month that were attributed to China’s issuance of an airworthiness directive for the 737 MAX. Recall this was a key milestone event towards the aircraft’s return to service in the world’s second-largest domestic aviation market. Plus, we like the momentum Boeing is showing with its orders and 737 MAX deliveries.

Ultimately, we decided not to add to our Boeing position right here because we are hesitant to violate our low, roughly $179 average cost basis in an already established position. However, we wanted to point out what we believe to be an opportunity, especially if the stock price comes in further on concerns related to the ongoing suspension of 787 deliveries and the impact of rising omicron cases on international travel.

Eli Lilly and Nucor updates

In other news, Eli Lilly (LLY) and Nucor (NUE) are in the headlines Wednesday after both companies provided updated guidance. Their stocks are moving in opposite directions, with Eli Lilly, which we have been steadily buying for the portfolio, leading the S&P 500 this morning in response to its raised 2021 outlook and upbeat 2022 forecast.

Meanwhile, Nucor, which we sold some shares of at around $120 in late November, is the big laggard of the day after management’s record fourth-quarter earnings range came in short of street estimates.

We’ll have some more thoughts out on Nucor and Eli Lilly later today, but we want Investing Club members to know that we view the weakness in NUE as more of an opportunity to buy back what we sold higher. In fact, we would buy Nucor off this decline if we didn’t already own a position for the Charitable Trust. But from our own perspective, we aren’t picking up any shares into this decline because we are waiting for a level that would improve our average cost basis of $101.46.

The CNBC Investing Club is now the official home to my Charitable Trust. It’s the place where you can see every move we make for the portfolio and get my market insight before anyone else. The Charitable Trust and my writings are no longer affiliated with Action Alerts Plus in any way.

As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Typically, Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If the trade alert is sent pre-market, Jim waits 5 minutes after the market opens before executing the trade. If the trade alert is issued with less than 45 minutes in the trading day, Jim executes the trade 5 minutes before the market closes. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. See here for the investing disclaimer.

(Jim Cramer’s Charitable Trust is long AEO, BA, LLY, NUE.)

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