We recently published a list of 10 Small-Cap Stocks Jim Cramer is Talking About Amid Latest Market Rotation. Since Meritage Homes Corp (NYSE:MTH) ranks 4th on the list, it deserves a deeper look.
Recentyly, 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).
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Meritage Homes Corp (NYSE:MTH)
Number of Hedge Fund Investors: 28
Jim Cramer mentioned home construction company Meritage Homes Corp (NYSE:MTH) during his program on CNBC. He highlighted that the stock sells 9x earnings. However, he said that the stock has “moved too much” and he prefers Toll Brothers.
Meritage Homes Corp (NYSE:MTH) recently reported strong Q2 numbers. Orders of 3,799 homes for the second quarter of 2024 were 14% higher year over year. The company also upped its full-year guidance. Here is what management said during the latest earnings call:
Given current market conditions, we have revised our full year projections higher to the following: total closings between 14,750 and 15,500 units; home closing revenue of $6.1 billion to $6.3 billion; home closing gross margin around 24.5% to 25%; and effective tax rate of about 22.5%; and diluted EPS in the range of $19.80 to $21 flat.
As for Q3 2024, we are projecting total closings between 3,650 to 3,850 units; home closing revenue of $1.5 billion to $1.6 billion; home closing gross margin of 23.5% to 24%; and an effective tax rate of about 22.5%; and diluted EPS in the range of $4.60 to $5.05. Both Q3 and full year guidance assume current market conditions and interest rates.
Meritage Homes Corp (NYSE:MTH) bulls believe the company’s margin outlook can improve amid easier comparisons, operating leverage, and lower commodity costs. The upcoming interest rate cuts could be a major booster for the stock.
Lumber prices are at record lows and are expected to remain depressed. These factors combined should positively impact Meritage Homes Corp (NYSE:MTH) in the upcoming quarters.
Overall, Meritage Homes Corp (NYSE:MTH) ranks 4th 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 Meritage Homes Corp (NYSE:MTH) , 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 MTH 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.
