We’re selling 375 shares of Morgan Stanley at roughly $122 each. In addition, we’re initiating a new position in Goldman Sachs , buying 83 shares at roughly $557. Following Thursday’s trades, Jim Cramer’s Charitable Trust will own 375 shares of MS, decreasing its weighting to 1.3% from 2.6%. The Trust will own 83 shares of GS, with a weighting of about 1.3%. We’re looking to put our big cash to work after Wednesday’s Fed-driven selloff pushed the market deeper into oversold territory. At minus-7.86% on the S & P 500 Short Range Oscillator , this is the most oversold the market has been since October 2023. We’re looking for opportunities in the market because history suggests it’s a good time to do some buying when the Oscillator gets this far into oversold territory. If you bought the S & P 500 after the Oct. 3, 2023 selloff that sent the Oscillator below minus-7, you did well one month later with the S & P 500 gaining about 3%. While looking to buy, we sat out the big “up open” and didn’t purchase any stocks because those are often traps after a big market decline. We’ll make some gradual buys once the market settles in. But before we do, we’re shaking up our financial positions, selling half of our Morgan Stanley shares to fund a new position in Goldman Sachs. This sale is on an approximate 1-for-1 basis – the sale proceeds from Morgan Stanley will go directly to fund Goldman Sachs with no material change to our cash position. We plan to use our remaining Morgan Stanley shares as a source of funds to scale deeper into Goldman, a stop during Jim Cramer’s career on Wall Street. We’re downgrading Morgan Stanley to our 3 rating , meaning sell into strength. We will realize a gain of about 46% on stock purchased in early 2022. Morgan Stanley has been a great stock to own in 2024 — up 33% year to date and outperforming the S & P 500 . The stock started to catch fire in September when the market realized the Federal Reserve was about to start cutting interest rates. It moved an extra leg higher after a blowout third-quarter report in October — and more recently, after Donald Trump won the presidential election. Throughout our time with Morgan Stanley, our main focus has mostly been on its investment banking business, especially ahead of Fed rate cuts. Falling interest rates make everything IB easier from mergers and acquisitions to debt issuance to initial public offerings — for which investment banks facilitate and get paid for advising. However, it hasn’t always been so simple. Morgan Stanley has become more of a wealth management player over the years. Where it once looked like wealth management was an easy driver of price-to-earnings multiple expansion because its revenue streams are mostly fee-based and therefore less cyclical, there have been some road bumps along the way, including net new asset growth and pre-tax margins. Morgan Stanley’s WM business may have turned a corner last quarter. It added $64 billion of net new assets and pretax margins expanded to 28.3%. Morgan Stanley shares soared on this news and narrowed its performance gap against Goldman Sachs, which has gained more than 45% year to date. GS MS YTD mountain Goldman Sachs vs. Morgan Stanley YTD Many expect the capital markets business will strongly increase over the next few years. Plus the more favorable regulatory environment should create a wave of M & A and IPOs that’s great for investment banking advisory business. Multiple banking analysts project that capital markets activity, which includes stock and bond trading operations, will reach the 2021 Covid pandemic peak levels in 2026. Goldman Sachs exposure to investment banking is much more significant than Morgan Stanley’s exposure, which is why we are making the switch. In the third quarter 2024, Morgan Stanley’s institutional securities business, made up of investment banking, equity, and fixed-income revenue, represents about 44% of total sales. If we compare that to Goldman’s global banking and markets segment, it represented about 67% of total revenue. One more thing to keep in mind — the Fed dot plots on Wednesday indicated fewer rate cuts next year. If bond yields remain stubbornly high, what we could see again is investors moving uninvested cash into higher-yielding alternatives. That could once again pressure wealth management margins. The switch to Goldman mitigates some of this risk. But the bottom line is that capital markets is Goldman Sachs’ bread and butter. It is the leading M & A advisor in the world. If capital markets activity accelerates over the next few years as many expect, we’ll want to be invested with the highest quality investment bank. We are starting our Goldman price target at $650 per share, which represents more than 18% upside to Wednesday’s close. It’s also about 15 times the consensus 2025 earnings per share estimate. That’s still a hefty discount to the S & P 500’s multiple. With Thursday’s trades, the Club owns four financial stocks . In addition to Morgan Stanley and now Goldman Sachs, we have positions in Wells Fargo and BlackRock . (Jim Cramer’s Charitable Trust is long MS, GS. 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.
