We recently published a list of Jim Cramer Thinks These 10 Stocks Deserve Your Attention. In this article, we are going to take a look at where KB Home (NYSE:KBH) stands against other stocks that Jim Cramer thinks deserve attention.
In a recent episode of Mad Money, Jim Cramer advised investors to hold off on selling stocks, anticipating a rebound once the market’s downturn ended. This strategy proved effective as the average investor saw gains, with the Dow rising by 484 points or 1.16%, and the NASDAQ also climbing by 1.16%. This performance suggests that selling during Friday’s decline was not the best move.
“Last week, I advised you to hold off on selling everything and just wait, as I believed that once the pain ended, we would see a rebound. The average investor saw gains, with the Dow up 484 points, or 1.16%, and the NASDAQ also climbing 1.16%. While it might not be a full recovery, it shows that selling into Friday’s downturn wasn’t the best strategy.”
The previous week was challenging for economically sensitive stocks and tech stocks, despite the August employment report showing modest growth and a downward revision for July. The recent report seemed favorable for those hoping for Federal Reserve rate cuts, as it presented a balanced scenario of neither too strong nor too weak. Nonetheless, Wall Street reacted negatively, with investors moving away from cyclical stocks in favor of recession-proof sectors like consumer goods and pharmaceuticals. Industrials and semiconductors were particularly affected.
Jim Cramer observed that on Monday, recession-proof stocks such as pharmaceuticals, drug wholesalers, and medical devices continued to perform strongly. However, this trend is concerning as these stocks have surged significantly and might be due for a correction.
“Recession-proof stocks like pharmaceuticals, drug wholesalers, and medical devices continued to perform well, which is dangerous as these stocks have seen parabolic gains and could be due for a correction.”
According to Cramer, historically, when the Federal Reserve is about to cut rates, it’s a signal to shift investment strategies. With the Fed moving towards easing and a rate cut expected next week, Cramer suggests it’s time to reconsider holding recession-proof stocks. Instead, investors should look at more cyclical companies that could benefit from economic stimulation. While investing in cyclical stocks during a downturn can be challenging, anticipating a positive impact from the Fed’s rate cuts could make these stocks attractive.
“Historically, when the Fed is about to start cutting rates, we know that it’s time to shift focus. With the Fed leaning towards easing and an expected rate cut next week, it’s time to consider moving away from recession-proof stocks and investing in more cyclical companies. While it’s challenging to buy cyclical stocks during a slowdown, anticipating that the Fed will boost the economy can make them strong investment opportunities. It’s important to maintain diversification but be ready to adjust as needed.”
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An elevated view of a suburban neighborhood of newly built attached single-family residential homes.
KB Home (NYSE:KBH)
Number of Hedge Fund Investors: 23
Jim Cramer noted that Wells Fargo raised its price target for KB Home (NYSE:KBH) to $80 from $70, which is close to where the stock ended last week. While analysts kept a neutral rating on KB Home (NYSE:KBH), which has already risen 27% this year, Cramer emphasized the significance of the summer surge.
“Wells Fargo upped its price target on KB Home to $80 a share from $70, right around where the stock closed Friday. Analysts maintained their neutral rating on shares, which have climbed 27% so far this year. The summer was an especially strong period for the stock as interest rate cuts, which should spur more activity in the housing sector, moved closer into view.”
A positive outlook for KB Home (NYSE:KBH) is supported by its strong financial performance and favorable market conditions. In Q2 2024, KB Home (NYSE:KBH) reported earnings per share (EPS) of $2.15, well above the expected $1.78, and revenue of $1.71 billion, exceeding predictions. KB Home (NYSE:KBH)’s growth is driven by solid performance in core markets, a 14% increase in book value per share, and a healthy gross profit margin of 21.1%-21.5%.
For 2024, KB Home (NYSE:KBH) forecasts housing revenues between $6.7 billion and $6.9 billion, with average home prices expected to be between $485,000 and $495,000. Despite challenges like rising interest rates, KB Home (NYSE:KBH) has managed higher material costs and market uncertainties effectively, maintaining steady revenue growth and expanding its communities. Analysts expect about 7% annual earnings growth over the next three years, indicating strong long-term potential. Overall, KB Home (NYSE:KBH)’s solid financials, market expansion, and positive housing demand trends support a bullish outlook for its stock.
Overall, KBH ranks 10th on our list of Jim Cramer Thinks These 10 Stocks Deserve Your Attention. While we acknowledge the potential of KBH, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than the ones on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
