CNBC Investing Club: Stocks Choppy, Healthcare Rallies as AI Dips

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.

Stocks are choppy on Friday, with the S & P 500 swinging in and out of positive territory. For the week, the S & P 500 is on track for a drop of almost 2%, continuing what's been a soft June for the broader market.

Oil is lower again, putting U.S. benchmark WTI crude on pace to close the week under $70 per barrel. Oil remained firmly lower Friday despite President Donald Trump saying on social media that Iran's drone attacks on ships in the Strait of Hormuz represented "a foolish violation" of its ceasefire agreement with the U.S.

Interest rates are down, with the 10-year Treasury yield under 4.4%. As the AI theme took a step back this week, investors fell in love again with healthcare. The sector is up more than 7% this week, putting the group at the top of the S & P leaderboard for June, ahead of the industrials and financials.

Club healthcare names Cardinal Health , Johnson & Johnson and Eli Lilly all outperformed the market and are on pace for record closes in Friday's session. Nothing fundamentally changed from one week to the next for these stocks; this was about market positioning and rotating out of high-flying AI stocks. Whether this is some type of month-end or quarter-end dynamic remains to be seen. Software experienced a similar rally at the end of May, but the market's enthusiasm proved short-lived.

At least with healthcare, the sector doesn't have the same type of AI-disruption overhang weighing on it. After battling Cardinal Health through much of the spring, we trimmed our position on Thursday to ensure we didn't squander the modest, but hard-fought gain.

Next week brings Honeywell's long-awaited breakup into two standalone companies. Shareholders will receive one share of Honeywell Aerospace (ticker: HONA) for every two shares of Honeywell they own. Following the spin, the remaining company, which will be called Honeywell Technologies, will undergo a 1-for-2 reverse stock split. We plan to own both companies for the portfolio.

Analysts at RBC Capital initiated coverage of Honeywell Aerospace on Friday with a buy-equivalent rating and $300 price target. We agree with RBC's belief that Aerospace is positioned for strong growth in the years ahead. Honeywell Aerospace also looks cheap out of the gate, trading at a discount to peer RTX Corporation on an enterprise value-to-EBITDA basis (earnings before interest, taxes, depreciation and amortization).

We view the Technologies side of Honeywell as more of a show-me story considering the significant reshaping of the portfolio that's occurred over the past few years, shedding slower-growth, lower-margin businesses while making acquisitions designed to accelerate growth and improve the quality of earnings. Honeywell Technologies will be focused on building, industrial and process automation.

Also on our radar next week is Nike's earnings report on Tuesday after the closing bell. It's a make-or-break quarter for the athletic footwear and apparel company's status in the portfolio.

On the economic data front, it's jobs week. The June nonfarm payrolls report is due out Thursday instead of the usual Friday because the market is closed Friday in observance of the Independence Day holiday. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.)

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