We recently compiled a list titled Jim Cramer’s Top 10 Stocks to Track for Potential Growth. In this article, we will look at where Topgolf Callaway Brands Corp. (NYSE:MODG) ranks among Jim Cramer’s top stocks to track for potential growth.

In a recent episode of Mad Money, Jim Cramer points out the surprising strength in the market, noting that many companies are performing better than Wall Street recognizes. He argues that people should stop doubting these companies every time there’s a negative data point. Cramer highlights the impressive management and execution by CEOs, which often goes unnoticed.

“Suddenly, all is forgiven, or if not all, then at least most. I’m talking about the incredible resilience in this market, buoyed by a recognition that many companies are simply better than Wall Street gives them credit for. We need to stop turning against them every time there’s a seemingly bad data point. Every day I come to work, I’m dazzled by the resourcefulness of executives who do their best to create value for you, the shareholder. Lots of stocks went up on days like today when the Dow advanced 335 points, the S&P gained 75%, and the NASDAQ jumped 1.0%, all thanks to good management and excellent execution that often goes unnoticed.”

While Cramer acknowledges that some CEOs deserve skepticism, he emphasizes that many are outstanding and deserve recognition for their hard work. He criticizes the focus on short-term economic indicators and emphasizes that great companies aren’t distracted by minor fluctuations.

“Listen, I’m not a pushover. I can hit CEOs with tough questions when needed, some of them deserve skepticism and scorn. But there are also plenty of brilliant, hardworking CEOs with incredible teams, and you ignore their hustle at your own peril. This often gets lost in the shuffle when we’re focused on the parlor game of guessing the Fed’s next move—a quarter point, half a point, quarter, half. You know what I say? Let’s get serious. Terrific companies don’t get caught up in that quarter-half shuffle.”

Cramer explains how Kroger CEO Rodney McMullen has led the supermarket chain to success despite challenges, including resistance to its acquisition of Albertsons and a tough economic environment. McMullen has managed to keep food costs down and deliver strong results through effective strategies like a superior loyalty program and regional store improvements. Despite high food prices, the company’s stock rose more than 7% following a positive earnings report, showcasing the company’s successful turnaround.

“CEO Rodney McMullen has managed to keep food costs down and deliver fantastic numbers, all while maintaining an expensive, unionized labor force in a very uncertain commodity environment. How? The company confounded critics by developing a superior loyalty program, regionalizing their stores, and creating some of the best private-label products out there, second only to Costco. Food is still expensive, but cooking at home is far cheaper than dining out. McMullen tells us that consumers are no longer flush with cash, especially his most budget-conscious clientele. He notes, “Budget-conscious customers are buying more at the beginning of the month to stock up on essentials, and as the month progresses, they become more cautious with their spending.”

Wow, that’s a tough environment. When I heard this, I thought back to the old company, the one that used to miss its numbers whenever the environment got a little tough. Everybody else remembers the old company too, which is why the stock was just sitting there waiting to be picked up, until this quarter’s report, after which it soared more than 7% in response to the fabulous results. Everyone thought the company would drop the ball, as they used to, but McMullen has finally whipped his supermarket into shape.”

Cramer contrasts this with the tech industry, where complex details often lead Wall Street to misunderstand a company’s true potential. He believes that in tech, analysts frequently overlook the expertise and capabilities of CEOs who have a deep understanding of their businesses.

“We all need to eat, so it’s not hard to understand the grocery business. But it’s quite different when it comes to tech, where analysts constantly doubt the resolve and expertise of CEOs who simply know more about their businesses than the critics. In tech, the complexity often leads Wall Street to conclusions that have little to do with reality.”

Our Methodology

This article reviews a recent episode of Jim Cramer’s Mad Money, where he discussed several stocks. We selected and analyzed ten companies from that episode and ranked them by the level of hedge fund ownership, from the least to the most owned.

At Insider Monkey we are obsessed with 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).

Topgolf Callaway Brands Corp. (NYSE:MODG)

Number of Hedge Fund Investors: 17

Jim Cramer believes that Topgolf Callaway Brands Corp. (NYSE:MODG) has the potential to recover and become a valuable stock once it separates from Topgolf, which he sees as a burden. He admits that his initial optimism about the merger was misplaced and now feels more skeptical. Cramer hopes both businesses can improve after the separation, but he is less confident about Topgolf Callaway Brands Corp. (NYSE:MODG)’s future prospects. He refers to the current situation as a corporate setback, reflecting disappointment in the performance of the combined entities.

“I think a standalone Topgolf Callaway Brands Corp. (NYSE:MODG)  has the potential to turn itself around and could be a good value stock once it’s no longer burdened by the Top Golf albatross. Here’s the bottom line, you need a healthy amount of skepticism to survive in this stock-picking business, and I wasn’t skeptical enough about Topgolf Callaway Brands Corp. (NYSE:MODG)’s acquisition of Top Golf. I hope both businesses can turn things around once they separate, although I’m far less optimistic about the future of Top Golf. For now, this is just a pure corporate tragedy.”

Topgolf Callaway Brands Corp. (NYSE:MODG) presents a strong investment opportunity due to its impressive earnings and promising growth potential across its varied portfolio, which includes Topgolf Callaway Brands Corp. (NYSE:MODG), and lifestyle brands. Despite some macroeconomic challenges, the Topgolf segment continues to drive growth, with Q2 2024 revenue up 5% and operating income rising 27.5%, showcasing its resilience and efficiency. While Topgolf Callaway Brands Corp. (NYSE:MODG) saw an 8.2% drop in equipment sales compared to last year’s successful Big Bertha launch, the brand’s strong reputation and demand for premium gear suggest it will recover.

Topgolf Callaway Brands Corp. (NYSE:MODG)’s $0.42 EPS in Q2 2024 reflects its ability to exceed earnings expectations, boosting investor confidence. Moreover, a strategic review of the Topgolf segment could unlock new growth opportunities through partnerships or investments. With a diverse portfolio that spans entertainment, sports, and lifestyle markets, Topgolf Callaway Brands Corp. (NYSE:MODG) is well-positioned for long-term success, making it an appealing investment even amid short-term economic pressures.

Polen U.S. Small Company Growth Strategy stated the following regarding Topgolf Callaway Brands Corp. (NYSE:MODG) in its fourth quarter 2023 investor letter:

“Topgolf Callaway Brands Corp. (NYSE:MODG) was created in 2021 with the merger of Callaway, a longstanding and slower-growing collection of high-quality golf brands, and Topgolf, an emerging sports and entertainment company. We spent over a year researching Topgolf Callaway as we sought to gain comfort with the level of earnings post-pandemic (golf popularity increased significantly and the Topgolf operating model. Importantly, we believe the Topgolf business model has significant room for growth both in units and in unit-level profitability. At the same time, the core Callaway brands provide ballast and cash flow to be reinvested to drive future growth.

Beyond stores/units, Topgolf Callaway Brands Corp. (NYSE:MODG) has invested in great brands and golf technology that we believe will create additional runways for growth. While the company is profitable, earnings have been under pressure over the past year. However, we believe they will reach an inflection point based on business mix and growth in Topgolf sometime in FY24, before growing at a consistent low-to-mid teens rate driven by store/unit expansion.”

Overall MODG ranks 9th on the list of Jim Cramer’s top stocks to track for potential growth. While we acknowledge the potential of MODG as an investment, 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 MODG 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 was originally published on Insider Monkey.