Jim Cramer’s 14 Best of Breed Stocks

Published on October 28, 2023 at 1:38 pm by Fahad Saleem in Hedge Funds, News

In this article, we will take a look at the Jim Cramer’s 14 best of breed stocks. To see more such companies, go directly to Jim Cramer’s 5 Best of Breed Stocks.

Investing is getting harder by the day amid rising volatility and complex market dynamics. There was a time when investors used to choose either value or growth stocks and stick to their respective investment philosophies for longer periods of time. But time has proved that investing is not about drawing hard lines. It’s all about finding quality and choosing quality stocks that beat the market over a long-term horizon. A report on quality stocks by asset management firm Schroders describes the importance of investing in quality stocks and compares quality stocks with value stocks:

“Our analysis suggests that Quality companies generate a return premium in excess of the market over time with lower risk whilst we also observe that this return is accentuated when risk aversion is high or rising. Historically, many of these periods have often been associated with Value strategies underperforming, meaning that Quality also appears to offer significant strategic diversification to Value approaches. The complementary role of Value and Quality does not appear to be spurious. We observe that higher quality companies have very different characteristics to Value stocks which are often less profitable, more cyclical and exhibit weaker balance sheets. Philosophically, it is also possible to argue that high quality companies are complementary to Value in the sense investors fail to incorporate the persistence of the positive attributes of quality companies into the future, particularly their profitability, whereas the opposite is often true for stocks with weaker fundamentals (which creates the value opportunity). The complementary nature of Value and Quality enables investors to construct a more balanced equity portfolio which is more likely to perform across a broad range of market environments.”

What are Best of Breed Stocks?

Jim Cramer often talks about “best of breed” stocks his programs. What does he mean by best of breed? Cramer likes to pick companies that are the best in their clans, surpassing all other companies in their respective groups in terms of their business strengths, reputation, profitability and future outlook. Earlier this year, Jim Cramer explained his rationale behind investing in best of breed stocks. He said that when we are out shopping for a car we always look to find the best of breed car in our budget. Then why, Cramer wondered, people like to buy “garbage cryptocurrencies” or penny stocks when it comes to investing?

Jim Cramer said most people like to find cheap stocks because they have a low dollar price. Cramer said he likes to bargain hunt but only for those companies that are actually trading at discounted prices compared to their true value. How to spot best of breed stocks? Cramer has an answer:

“I know when I see it.”

Having a long-term investment horizon is an important part of Jim Cramer’s strategy of buying best of breed stocks. A couple of years ago, while talking about some best of breed stocks, Jim Cramer talked about an analyst downgrade for a stock that he considered as best of breed. Jim Cramer said that when he talks about best of breed stocks he’s not talking about stock picks for hedge funds who are trying to beat the market in the “next minute.” Instead he said he wanted to pick individual stocks for those who want to have a long-term investment horizon.

Jim Cramer's Best of Breed Stocks

Our Methodology

For this article we saw several programs of Jim Cramer and picked stocks he believes are best of breed. Some top names in the list include Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT).

Jim Cramer 14 Best of Breed Stocks

14. Roblox Corporation (NYSE:RBLX)

Number of Hedge Fund Holders: 35

Roblox Corporation (NYSE:RBLX) ranks 14th in our list of the best of breed stocks to buy according to Jim Cramer. Jim Cramer last year said that companies like Roblox Corporation (NYSE:RBLX) were tanking even when they had posted strong earnings. Cramer at the time predicted the selloff around these stocks won’t last long. Cramer was wrong about this one.

Roblox Corporation (NYSE:RBLX) shares have lost about 28% over the past one year. However, Roblox Corporation (NYSE:RBLX) jumped in September after SoMA Partners Gil Simon, while talking to CNBC, said Roblox Corporation (NYSE:RBLX) could double. Here’s what the analyst said:

“We think the next few years is a nice trajectory for them to increase those margins by as much as 300 basis points a year. We think next year will be an up year, this year will be the trough and we are looking out to 2025 and 2026 and we think those margins could be back into the 20s.”

Artisan Mid Cap Fund made the following comment about Roblox Corporation (NYSE:RBLX) in its second quarter 2023 investor letter:

“We initiated new GardenSM positions in Keysight, Roblox and Liberty Media Corp–Liberty Formula One during the quarter. Roblox Corporation (NYSE:RBLX) is an online platform that allows users to play games created by other users and to create their own games using the Roblox Studio, a robust suite of development and coding tools. The company’s model is similar to a social network in that user-generated content scales with user growth on the platform and benefits from viral adoption. While the graphics, user interface and general gameplay currently appeal more to younger people, Roblox is pursuing a strategy of investing heavily to accelerate its technological capabilities so that it can provide experiences that appeal to an older demographic. We believe the valuation is justifiable given the stickiness of the core platform (the average user spends 2.4 hours per day on Roblox), its attractive business model and a potential bull case where Roblox becomes a leading place to create and consume social 3D experiences for the general population.

Roblox is another (there are more) example of a company that is well-positioned to benefit from generative AI advancements. As discussed earlier, Roblox is a social gaming platform that relies on user-generated content. This content is enabled by the platform’s robustyet-simple tools for relatively novice developers. AI has the potential to turbocharge this tool set—with AI-assisted code building and generative artwork creation. Over time, this should enable a deeper pool of user-generated content that attracts an expanding set of game players.”

13. Cloudflare, Inc. (NYSE:NET)

Number of Hedge Fund Holders: 38

Jim Cramer last year labeled Cloudflare, Inc. (NYSE:NET) as a “red hot” and best of breed stock. Cramer said that Cloudflare, Inc. (NYSE:NET), among other major tech stocks, are usually the first to see bottom during market rotation. When these companies begin to fall the selloff lasts for just three days, before the curve flattening out and seeing a boost, according to Cramer.

Cloudflare, Inc. (NYSE:NET) shares have gained about 22% over the past one year. As of the end of the second quarter of 2023, 38 hedge funds out of the 910 hedge funds tracked by Insider Monkey had stakes in Cloudflare, Inc. (NYSE:NET).

Like Cloudflare, Jim Cramer is also excited about Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT).

The biggest hedge fund stakeholder of Cloudflare, Inc. (NYSE:NET) was Hamilton Helmer’s Strategy Capital which owns a $94 million stake in the company.

Baron Fifth Avenue Growth Fund made the following comment about Cloudflare, Inc. (NYSE:NET) in its Q1 2023 investor letter:

“We also added to Cloudflare, Inc. (NYSE:NET) during the quarter, the leading cloud-based networking and software infrastructure provider. Despite facing a macro-driven elongation of deal cycles, the company reported solid quarterly results with 42% year-over-year revenue growth, while also guiding to 37% growth for 2023. The company’s speed of innovation enables it to continuously grow its opportunity set as it adds more products to its platform, solving additional problems for customers from network services to zero-trust. Its scale-based competitive advantages enable it to be the low-cost provider in the industry, while also having significant volumes of data to power its AI models and improve its product over time. Once it gets customers on board, Cloudflare is then able to cross-sell them additional networking and security solutions at high marginal profitability, as they are served on the same underlying infrastructure and thus the company doesn’t need to spend once more on customer acquisition. This creates a virtuous cycle that should enable Cloudflare to become an important part of the infrastructure layer of organizations over time, in our view.”

12. Nucor Corporation (NYSE:NUE)

Number of Hedge Fund Holders: 38

Jim Cramer labeled steel company Nucor Corporation (NYSE:NUE) a best of breed stock a couple of years ago. At that time Jim Cramer said that Nucor Corporation (NYSE:NUE) had the “best balance sheet” in the steel industry and the company was best in class and best in breed. Cramer has also praised Nucor Corporation (NYSE:NUE)’s shareholder returns and said there’s no reason to believe the “cycle” of shareholder returns was going to be over. Cramer was talking in the context of a stock downgrade on Nucor Corporation (NYSE:NUE) initiated by Goldman Sachs. Cramer said that buying Nucor Corporation (NYSE:NUE) at low levels was an opportunity for long-term investors.

Nucor Corporation (NYSE:NUE) shares have gained about 22% over the past one year. As of the end of the second quarter of 2023, 38 hedge funds had stakes in Nucor Corporation (NYSE:NUE). The biggest hedge fund stakeholder of Nucor Corporation (NYSE:NUE) was Ken Griffin’s Citadel Investment Group which owns a $256 million stake in the company.

11. Halliburton Company (NYSE:HAL)

Number of Hedge Fund Holders: 39

Jim Cramer last year said during his program that Halliburton Company (NYSE:HAL) was a best of breed stock with operations almost all over the world. HAL shares have gained about 41% over the past one year.

A total of 910 hedge funds tracked by Insider Monkey had stakes in Halliburton Company (NYSE:HAL). The biggest stakeholder of Halliburton Company (NYSE:HAL) was Richard S. Pzena’s Pzena Investment Management which owns a $244 million stake in the company.

Carillon Eagle Mid Cap Growth Fund made the following comment about Halliburton Company (NYSE:HAL) in its Q1 2023 investor letter:

“Halliburton Company (NYSE:HAL) provides equipment and services to the global energy industry. Investor concerns surrounding the impact that recent softness in crude oil and natural gas prices would have on the overall level of production activity weighed on the company’s stock in the quarter. However, the recent commitment by the Organization of the Petroleum Exporting Countries (OPEC) to reduce production to balance global supply and demand should support healthy levels of activity specifically within North American shale, where Halliburton is a market leader. Over the longer term, we believe the company also should lay a pivotal role in helping exploration and production companies navigate ongoing productivity declines.”

10. Costco Wholesale Corporation (NASDAQ:COST)

Number of Hedge Fund Holders: 67

Here’s what Jim Cramer said about Costco Wholesale Corporation (NASDAQ:COST) and some other big retailers in September while labeling these companies best of breed:

“What makes Walmart and Costco so special is that, if they don’t like the prices they’re quoted, they can just go and make their own store brands and put them side by side.”

Insider Monkey’s database of 910 hedge funds shows that 67 hedge funds out of the 910 hedge funds tracked by Insider Monkey were long Costco Wholesale Corporation (NASDAQ:COST). The biggest stakeholder of Costco Wholesale Corporation (NASDAQ:COST) during this period was Ray Dalio’s Bridgewater Associates which had a $435 million stake in the company.

Patient Capital Opportunity Equity Strategy made the following comment about Costco Wholesale Corporation (NASDAQ:COST) in its Q2 2023 investor letter:

“Many technicians and quantitative strategists expect growth stocks to continue to outperform. There’s a good shot that’s right but longer term, we remain more optimistic on classic value. People remain enamored with growth investing. Value stocks trade at a discount to historical valuations unlike growth stocks, which trade at a premium.

Take two high quality stocks as an example, Costco Wholesale Corporation (NASDAQ:COST) (“growth”) vs. JPMorgan (“value”). Costco (COST) has a long history of excellent performance, earning attractive returns on capital with consistent growth. Over the past 30 years, it’s grown earnings per share at 9% per year, but it’s compounded capital at better than 16% annually as the P/E multiple expanded from ~12x to 37x this fiscal year’s earnings. Sell-side consensus expects EPS growth to continue at roughly the same rate for the next 5 years. If it sustains the current multiple, the 9% implied return would be solid. But with valuations near all-time highs, and interest rates on the rise, there’s clear risk to that valuation.

Costco’s P/E grew from 18x to 37x during the same time JPMorgan’s fell from 12x to 10x. This makes sense to a certain extent because while both companies delivered improving returns on capital, Costco’s improved more. Valuations are sensitive to interest rates. Since JPM experienced no valuation expansion, it also seems to have less valuation risk.

We can calculate the justified P/E based on return on capital, cost of capital and growth rate. For companies with very high returns on capital and strong growth (like Costco), very high P/Es can be justified, especially in a low interest rate environment. We also analyze market implied expectations by calculating the implied growth rates. For Costco, it’s about 5.3% – in perpetuity! That seems elevated to us! For JPMorgan, it’s less than 0.5%. Way too low in our opinion.”

9. McDonald’s Corporation (NYSE:MCD)

Number of Hedge Fund Holders: 68

In December 2022 Jim Cramer called McDonald’s Corporation (NYSE:MCD) a best of breed restaurant stock. After an earnings report last year, Cramer said that McDonald’s Corporation (NYSE:MCD)’s has excellent systems and execution and the company knows “how to run their business.” Cramer also praised the company’s comp. sales growth. A month ago, Cramer appreciated Wells Fargo’s upgrade on McDonald’s Corporation (NYSE:MCD).

Of the 910 hedge funds in Insider Monkey’s database of 910 hedge funds, 68 hedge funds reported owning stakes in McDonald’s Corporation (NYSE:MCD).

8. The Procter & Gamble Company (NYSE:PG)

Number of Hedge Fund Holders: 74

About three months ago, Jim Cramer talked in detail on why he chooses to invest in best of breed stocks and stays away from low quality companies. During his discussion he used the example of The Procter & Gamble Company (NYSE:PG) and called it a best of breed stock. Cramer said that The Procter & Gamble Company (NYSE:PG) might not give you short-term gains but it’s a stock to buy and hold for the long term. Cramer said that The Procter & Gamble Company (NYSE:PG) is a long-term story you can count on. He said The Procter & Gamble Company (NYSE:PG) is an “industry leader,” with a “great balance sheet” and a strong history of dividends.

As of the end of the second quarter of 2023, 74 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in The Procter & Gamble Company (NYSE:PG).

ClearBridge Sustainability Leaders Strategy made the following comment about The Procter & Gamble Company (NYSE:PG) in its Q2 2023 investor letter:

“Reinforcing defensive exposure and pushing our consumer staples positioning from underweight to overweight the benchmark, we added The Procter & Gamble Company (NYSE:PG), a leading consumer products company with leading franchises in a variety of stable categories, including fabric care, baby, beauty and health. It is a high-quality company with a track record of superior growth, market share gains and attractive returns on capital. It also has defensive attributes when economic conditions deteriorate. Procter & Gamble is a sustainability leader with a demonstrated commitment to addressing environmental and social objectives in how it manages the business, and it has above-average corporate governance practices. Many Procter & Gamble products have a positive impact by promoting hygiene, self-care or health.”

7. Walmart Inc. (NYSE:WMT)

Number of Hedge Fund Holders: 81

In September Jim Cramer talked about some retail stocks that he believes are best of breed when it comes to the retail and consumer industry. Cramer said that what makes Walmart Inc. (NYSE:WMT) one of the best retail stock is the company’s ability to offset the effects of inflation by offering its own products to compete with branded products via competitive pricing.

As of the end of the second quarter of 2023, 81 hedge funds out of the 910 funds tracked by Insider Monkey has stakes in Walmart Inc. (NYSE:WMT). The biggest stakeholder of Walmart Inc. (NYSE:WMT) during this period was DE Shaw which had an $862 million stake in the company.

6. Palo Alto Networks, Inc. (NASDAQ:PANW)

Number of Hedge Fund Holders: 83

Palo Alto Networks, Inc. (NASDAQ:PANW) is another stock Jim Cramer called best of breed last year and said the selloff around the stock won’t last much longer. Jim Cramer was right about this one, too. Palo Alto Networks, Inc. (NASDAQ:PANW) has gained about 64% over the past one year.

Out of the 910 hedge funds tracked by Insider Monkey, 83 hedge funds in Insider Monkey’s database had stakes in Palo Alto Networks, Inc. (NASDAQ:PANW). The biggest hedge fund stakeholder of Palo Alto Networks, Inc. (NASDAQ:PANW) was David Blood and Al Gore’s Generation Investment Management which owns a $655 million stake. Like PANW, Alphabet Inc. (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT) are some other stocks Jim Cramer loves.

TimesSquare Capital U.S. Mid Cap Growth Strategy made the following comment about Palo Alto Networks, Inc. (NASDAQ:PANW) in its Q2 2023 investor letter:

“Another area of strength was the Information Technology sector. At the lead was a 28% gain from Palo Alto Networks, Inc. (NASDAQ:PANW). A global provider of network and cloud-based cybersecurity systems, Palo Alto’s revenues and earnings were higher than anticipated, which led management to increase its guidance for the balance of the fiscal year. Palo Alto’s billings rates grew faster than expected—especially for its Next-Gen Security platform—while at the same time the company’s margins strengthened. As its shares climbed, we trimmed our position.”

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