We recently published a list of 10 Small-Cap Stocks Jim Cramer is Talking About Amid Latest Market Rotation. Since Fabrinet (NYSE:FN) ranks 2nd on the list, it deserves a deeper look.
Recently, Jim Cramer talked about the rally in the small-cap-heavy Russell 2000 Index, saying these kinds of rebounds show you have to “stay invested” in the market to make “big money.”
“When I say stay in I mean you have to be as invested as you possibly can be so you don’t miss monster moves.”
Cramer said the Russell 2000 index rally was led by several “oddball” stocks that many people aren’t aware of.
“The biggest winners in the Russell today are all the companies I either don’t know or I barely heard of. You know I know thousands of stocks!”
Cramer highlighted that almost half of the stocks rising in the Russell 2000 index were biotech or healthcare companies that are losing money. Cramer believes these companies might be worth something only “years from now” and called them “risky” stocks.
Jim Cramer talked about what he called “small- and medium-sized businesses” which he believes can benefit from two possible developments in the near term: a Trump win in the election and rate cuts. A Donald Trump presidency, according to Cramer, could provide a level-playing field for these small companies which often get left behind by major companies amid tough regulation. Since Trump is expected to decrease regulations if he comes to power, these small companies could thrive in this new environment. Cramer said that money is coming from the “sidelines” as investors begin to invest in stocks instead of hoarding cash to earn interest income.
Cramer has been talking about several small-cap stocks in his programs lately. In a recent program, he mentioned several small-cap stocks that were moving recently and briefly discussed their businesses. We picked these stocks and analyzed their fundamentals and growth potential. We also mentioned hedge fund sentiment around these stocks. 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).
Soonthorn Wongsaita/Shutterstock.com
Fabrinet (NYSE:FN)
Number of Hedge Fund Investors: 33
Fabrinet (NYSE:FN) provides advanced optical, electro-mechanical, and electronic manufacturing services. Cramer said the stock jumped after the latest CPI numbers but it has since pared gains. That, according to Cramer, “makes sense” since it’s an outsourcing company and the latest rotation is about the “end of outsourcing.”
Fabrinet (NYSE:FN) makes low volume highly complex products that are unfeasible to produce in-house for OEMs. Its products are used in key industries like automotive and data centers. Fabrinet (NYSE:FN) is a notable player in the optical communication equipment market that is slated to grow at a CAGR of 8.7%.
Fabrinet (NYSE:FN) saw strong revenue growth in the latest quarter amid demand for data communication products.
FPA Queens Road Small Cap Value Fund stated the following regarding Fabrinet (NYSE:FN) in its first quarter 2024 investor letter:
“Fabrinet (NYSE:FN) is a contract manufacturer of components and modules. The company has a dominant position in hard-to-replicate precision-manufacturing technologies and an enviable track record of execution. The majority of Fabrinet’s sales are to networking equipment manufacturers but it has been successfully diversifying into the data center, industrial, auto, and medical end-markets. FN’s stock jumped after reporting June 2023 earnings – datacenter sales increased 50% sequentially and more than 100% over the previous year, driven by their 800-gigabyte transceivers for Artificial Intelligence applications. The company also announced that Nvidia is a 10%+ customer.
Fabrinet was a top-five holding in the Fund before its June 2023 earnings announcement. Since then, the stock has appreciated considerably and we have trimmed in keeping with our risk management policies. Given the growth in its forward earnings estimates, Fabrinet trades in line with its historical earnings multiples and remains a top five position for us.”
Overall, Fabrinet (NYSE:FN) ranks 2nd on Insider Monkey’s list titled 10 Small-Cap Stocks Jim Cramer is Talking About Amid Latest Market Rotation. While we acknowledge the potential of Fabrinet (NYSE:FN), 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 FN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These Stocks.
Disclosure: None. This article is originally published at Insider Monkey.
Hedge Fund Resource Center