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Palo Alto shares helped by contract news, Abbott Labs braces for ruling
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: Wall Street is under pressure Thursday, led to the downside by the tech-heavy Nasdaq Composite , which dropped more than 2%. The S & P 500 is down more than 1%, while the Dow Jones Industrial Average lost about 260 points, or 0.6%. Selling in Microsoft and Meta Platforms following their Wednesday evening earnings results weighed on the Nasdaq and S & P 500. Also adding to the weakness: The yield on the closely watched 10-year Treasury note continued its climb higher, topping 4.3% at one point in the session. Investors are gearing up for Friday morning’s nonfarm payrolls report, which is expected to show the U.S. economy added 100,000 jobs in October while the unemployment rate remain unchanged at 4.1%. But many expect noise in the numbers due to the impact of the recent hurricanes and Boeing strike. The data will help shape Wall Street’s expectations around the path of Federal Reserve policy. Currently, traders are pricing in a roughly 95% chance of a quarter-point interest rate cut at the central bank’s meeting next week. Earlier Thursday, the Fed’s favorite inflation gauge, the PCE price index, matched expectations, rising 2.1% in September . Cyber deal: Morgan Stanley put out a note Thursday morning on Club holding Palo Alto Networks that caught our eye, discussing reports of the cybersecurity leader landing a five-year, roughly $1 billion software licensing agreement with the Department of Defense. An executive at Palo Alto Networks also posted about it on LinkedIn , without mentioning the dollar amount and duration. “While timing of bookings or revenue recognition isn’t clear yet, we think this could provide multi-year tailwinds,” Morgan Stanley analysts wrote to clients. These headlines could be helping support shares of Palo Alto in Thursday’s down market. The stock rotated between slight gains and losses, holding up much better than an exchange-traded fund that tracks the cybersecurity industry , which dropped more than 1% in the session. Shares of our other cyber holding, CrowdStrike , were down nearly 4% Thursday. To be sure, Morgan Stanley sought to temper expectations on the reported Palo Alto deal. The firm noted, for example, that the contract was awarded through software reseller Carahsoft, which means it “likely includes ~15% reseller margin for Carahsoft.” Nevertheless, analysts said they “think this contract award … suggests the large but elusive DoD opportunity could finally be coming into fruition.” Palo Alto did not respond to CNBC’s request for comment on the licensing agreement. The company experienced some softness in its federal government business earlier this year and also tamped down expectations about the next few quarters, which added to the messiness in its February earnings report. More recently, on an August earnings call, Palo Alto CEO Nikesh Arora said the company continued to have “a muted set of expectations” around its federal government business due to the election. Trial decision looms: We’re bracing ourselves for a verdict soon in Abbott Labs ‘ latest trial over allegations that its specialized premature infant formula causes an intestinal illness commonly abbreviated as NEC. The company has strongly denied the claims, and recently received the backing of major U.S. health agencies, which in a statement earlier this month came out in support of using the formulas like Abbott’s to treat premature infants. “There is no conclusive evidence that preterm infant formula causes NEC,” the agencies wrote. However, the judge in Abbott’s trial — held in the 22nd Judicial Circuit of Missouri — did not allow that statement to be shown to jurors in the case . For that reason, we’re not expecting the Club holding to receive a favorable verdict. A loss in the case could ding the stock, but that could represent a buying opportunity, according to Director of Portfolio Analysis Jeff Marks. The reason is that while Abbott faces additional lawsuits over its formula, we expect the statement from U.S. health agencies will be allowed as evidence in future cases. Up next: Apple , Amazon and Coterra Energy are set to report quarterly results after the closing bell Thursday. Outside the portfolio, we’ll also hear from Intel , U.S. Steel and Juniper Networks . As mentioned, the big event Friday is the October nonfarm payrolls report. Chevron , Exxon Mobil and chemical maker LyondellBasell Industries are among the notable earnings reports Friday. (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. 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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.
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