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Jim Cramer

Scott Mlyn | CNBC

(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 50 shares of Danaher (DHR) at roughly $295.79. Following the trade, the Charitable Trust will own 300 shares of Danaher. This buy will increase DHR’s weight in the portfolio from about 1.78% to roughly 2.13%. 

Markets are kicking off the trading week on a sharply lower note, with many technology and other high-multiple stocks extending their recent declines. Once again, the rise in the 10-Year Treasury yield is causing investors to rotate out of high-multiple and riskier names and into lower-multiple and cyclically oriented areas like financials and energy. Separately, many names in retail are taking it on the chin after Lululemon (LULU) provided a weaker-than-expected revenue and earnings guidance for its holiday quarter.

With that in mind, we want scan for high-quality stocks that are caught up in the broader action despite no deterioration in the underlying fundamentals, with multiples that may have contracted but are approaching levels at which support can come in (think something that has dropped to a more attractive price-to-earnings multiple, not a 20x price-to-sales stock that has contracted to 15x sales). Again, the focus this year is on companies that “do stuff and make things,” not “story stocks” with hopes of turning a profit at some undetermined point in the future.

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Danaher fits this profile perfectly, as it’s a multi-industry growth company with real earnings, headed by a management team with a proven track record of delivering operations improvements across the portfolio. Moreover, the company’s revenue is 75% recurring in nature, which adds an additional layer of support to the stock’s valuation. Remember, investors tend to reward durable, recurring revenues with higher relative multiples.

As for valuation, with shares now falling to just below 29x forward earnings estimates, we believe support will start to come in. This is because, although Danaher’s multiple is above market, the stock has historically traded in the mid-to-upper 20s multiple region. Combine that with a the recent move that has brought shares to just over 10% below all-time highs, and we believe buyers will be circling at or near current levels — and indeed, they appear to have swooped in at the open to take advantage of the opening sell-off.

We therefore want to use this opportunity to further build our position and reduce our overall cost basis, despite shares being up at the time of this alert and our preference to buy stocks are down.

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. 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. See here for the investing disclaimer.

 (Jim Cramer’s Charitable Trust is long DHR.)