We recently published a list of Jim Cramer Says You Should Buy These 10 Stocks. Since Dow Inc (NYSE:DOW) ranks 7th on the list, it deserves a deeper look.
Jim Cramer last week talked about the decline of tech stocks after the latest CPI report, saying investors “abandoned” tech stocks like “rats from the sinking ship.”
“It was titanic! They took their money and went all in on small and medium-sized companies we call the Russell 2000 because we got a much softer than expected consumer price index.”
Cramer said that the latest CPI number shows inflation “has been beaten” and interest rates are “coming down.” The CNBC host said if we keep getting positive data, he won’t be surprised to see not one but two or three rate cuts this year.
Cramer wondered how major tech companies could fall on the low inflation numbers, and answered his own question by saying that sometimes in the backdrop of lower bond yields stocks of companies that “need lower rates” can suddenly rise.
“What happened today always happens when rates plunged,” Cramer said.
However, Cramer said that there isn’t enough positive data available yet to keep supporting this rally of stocks that benefit from lower rates, adding that such short-term rallies last for about three days. Cramer predicted that big tech stocks will be back after a “few more plunging days.”
For this article we watched several latest programs of Jim Cramer and picked 10 stocks he’s bullish on. With each company we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Dow Inc (NYSE:DOW)
Number of Hedge Fund Investors: 35
Jim Cramer was recently asked about energy and chemical company Sasol. He instead pitched Dow Inc (NYSE:DOW) as a better alternative.
“No, if you’re going to do that you want to buy Dow, no longer Dow Chemicals, Dow Inc (NYSE:DOW)”
Dow Inc (NYSE:DOW) is one of the biggest chemical companies in the world. The company operates in three segments: Packing & Specialty Plastics, Intermediates & Infrastructure and Materials & Coatings. The stock is down about 5% so far this year as pricing headwinds, unfavorable environment amid elevated interest rates and lower volumes continue to take a toll on business. But analysts believe the stock is poised for growth in the long term, especially after the interest rate decrease cycle begins. Dow Inc (NYSE:DOW) is expected to deliver about $2 billion in EBITDA growth by 2026. Dow’s business is exposed to market cycles and interest rates. Dow Inc (NYSE:DOW) thrived when interest rates fell to near-zero levels in the midst of the COVID-19 pandemic. Amid unfavorable environment Dow’s management has been cutting costs and improving efficiency. Dow Inc (NYSE:DOW) recently decided to sell its flexible packaging laminating business to Arkema for $150 million.
Dow Inc (NYSE:DOW) has about $3.7 billion in cash and equivalents, up from $2.98 billion at the end of 2023. Over the past 12 months free cash flow came in at $2 billion, while cash from operations in $5 billion.
Dow Inc (NYSE:DOW) has a dividend yield of over 5%, and management is confident it can continue to deliver strong shareholder value, which shows the company has visibility on improvement in the future. During Q1 earnings call, Dow’s CEO Jim Fitterling said:
Over the past five years, we have worked hard to improve our balance sheet, to improve cash-flow conversion and to build a more resilient company that maintains consistent discipline. This was demonstrated when we delivered $12.4 billion in peak EBITDA in 2021, higher than any other timeframe in Dow’s history. This has created the opportunity for us to invest strategically at the bottom of the cycle for long-term profitable growth. And as implementation of our growth strategy increases our underlying EBITDA, we will continue to target at least 65% of operating net income to shareholders as we move up the next peak. This means at least 45% in dividends and 20% in share buybacks.
Overall, Dow Inc (NYSE:DOW) ranks 7th on Insider Monkey’s list titled Jim Cramer Says You Should Buy These 10 Stocks. While we acknowledge the potential of Dow Inc (NYSE:DOW), our conviction lies in the belief that 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 DOW 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.