China’s sluggish economic recovery has weighed on key Club stocks. Here’s why we’re holding on

China’s long-awaited post-Covid recovery is faltering as the world’s second-largest economy faces growing deflationary pressure, a property-market crisis, sluggish growth and record-high youth unemployment — erecting a maze of obstacles for the Club’s holdings that are most exposed. But we still think a Chinese economic rebound is on the horizon. And, in the meantime, our China-focused names are poised to ride out the storm, while finding alternate routes to growth. “We’re hearing that China’s going to drag down the rest of the world, including us. But we’ve seen this movie before, and we know how it ends,” Jim Cramer said earlier this month, referencing China’s 2015 stock-market crash and subsequent resurgence . Still, the challenges are significant. Since Beijing moved to relax its Covid-19 restrictions late last year after three years of intermittent lockdowns that weighed heavily on growth, the world’s No. 2 economy has failed to bounce back as investors expected. Instead, a property-market crisis has accelerated following decades of excessive borrowing and overbuilding. Beyond the housing-sector woes, manufacturing activity is shrinking, a youth unemployment crisis is a ballooning, and consumer spending remains sluggish. Earlier this month, China’s central bank cut interest rates for a second time in an effort to shore up the economy amid increasing deflation risks. With these macroeconomic headwinds holding back growth for some of the Club’s key holdings, here’s why we’re sticking with these China-exposed names — and how each is responding. EL YTD mountain Estee Lauder (EL) year-to-date performance Estee Lauder (EL) is the most exposed to China weakness out of our 35-name portfolio, relying on the country for roughly 30% of total sales. But with management signaling that results will likely improve sometime next year for the cosmetics company, we’re cautiously optimistic on the stock. We used the current weakness — the stock is down more than 33% year-to-date — as a buying opportunity, purchasing 100 shares of Estee Lauder on Monday, at $154.11 apiece. The company’s latest quarterly results from the Asia-Pacific region came in better than Wall Street expected, even as Estee Lauder management said retail sales in China deteriorated, particularly in the Hainan region. “Significant short-term headwinds” persist in the country, management said. And the company’s highest-margin product category, skin care, also remained under pressure because of the slow recovery for travel retail in Asia more broadly. Still, we expect the situation to gradually improve, and the upside reward far outweighs the downside risk from current levels. AAPL YTD mountain Apple (AAPL) year-to-date performance Apple (AAPL) has been reliant on China — a key manufacturing hub for the company’s products — for years. But the tech giant has been gradually shifting focus to emerging markets in order to diversify its supply chain. Key among these efforts is the company’s expansion into India, which has become one of the top iPhone markets this year, according to Counterpoint Research. Additionally, the company opened its first two retail stores in the world’s most populous country in April, with CEO Tim Cook later telling CNBC in June that India represents a “huge opportunity” for the iPhone maker. Greater China — a term the firm uses to describe Taiwan and Hong Kong, along with mainland China — is Apple’s third-largest sales region , after the Americas and Europe. The region, however, has posted three consecutive quarters of revenue declines. That’s further accelerated Apple’s production shift away from China to India. The company’s rapid expansion in the southeast Asian country will help it diversify revenue streams and boost its bottom line as it captures more market share, continuing to make the Big Tech name an “own it, don’t trade it” stock. SBUX YTD mountain Starbucks (SBUX) year-to-date performance Starbucks’ expansion in China is central to our investment thesis on the stock since it is considered a long-term growth driver for the coffee giant. China is the second-biggest market for Starbucks behind the U.S. And while China currently accounts for roughly 9% of Starbucks’ total sales, compared to 73% in the U.S., the coffee chain operates more than 6,200 locations in the country and is on track to meet its goal of 9,000 stores by 2025. That means Starbucks has room for growth as Chinese consumer demand ultimately recovers, making us continued long-term holders of the stock. In the company’s fiscal third-quarter results, Starbucks continued to see an improvement in China, with sales there increasing an impressive 46% year-over-year. China’s “coffee category is poised for growth, supporting Starbucks expansion in the country,” analysts a Bernstein wrote in a recent note, even as competition in the country intensifies. WYNN YTD mountain Wynn Resorts (WYNN) year-to-date performance Wynn Resort ‘s (WYNN) second quarter results showed that China’s special administrative region of Macao — one of the world’s biggest gambling hubs — is a a rare bright spot for the Chinese economy. Earnings at Wynn’s Macao properties recovered to 72% of pre-Covid levels in the second quarter, outpacing analysts’ forecasts. The company’s management also said that momentum for gross gaming revenue continued into the current quarter. “Based on the fact that we believe China is still at least a year behind the U.S. in terms of a recovery, we don’t see a reason why Macao demand shows slow anytime soon, even if there is a slight contraction on the China macro front,” analysts at Stifel wrote in a research note following Wynn’s results earlier this month. The Macao recovery remains the lynchpin of our investment case in Wynn and the recent burst of pent-up demand in the casino center shows it should continue to be top-and-bottom-line driver for Wynn. (Jim Cramer’s Charitable Trust is long EL, SBUX, AAPL, WYNN. 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. 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