We recently compiled a list of the 10 Stocks Jim Cramer Thinks You Should Check Out. In this article, we are going to take a look at where Vistra Corp. (NYSE:VST) stands against the other stocks Jim Cramer thinks you should check out.
Jim Cramer draws an engaging parallel between fantasy football and stock investing as the NFL season begins. Cramer uses this occasion to introduce his concept of “Fantasy Stock Football.” He likens selecting stocks for an investment portfolio to drafting players for a fantasy football team, emphasizing how both require strategic thinking and role balancing.
“While you’re enjoying the game, I want to get you into the NFL spirit with some Fantasy Stock Football.”
Unveiling Jim Cramer’s “Fantasy Stock Football” Strategy
Cramer enjoys blending real-world sports with market insights to offer a unique perspective on investing. He notes that, like fantasy football teams, investment portfolios consist of various stocks that play different roles, contributing to overall performance. Reflecting on the previous year, he highlights that the 11 stocks he recommended have risen an average of 38%, outperforming the S&P 500’s 23% gain. This comparison underscores his belief in the strategic approach to both fantasy football and stock selection.
“Now look, I love comparing real teams and real players to my favorite stocks. These are two great tastes that taste great together. More importantly, it gives me another angle to help you—I’ve got to teach you about the market in any way I can. Picking stocks for your portfolio has a lot in common with drafting players for your fantasy football team.
Fifty-five million people do it. Different positions play different roles for your fantasy team, just like different stocks fill different roles in your portfolio. By the way, if you look at the 11 stocks I highlighted when we did this a year ago, they’re now up an average of 38%, compared to the S&P 500, which is up 23% during the same period.”
Cramer’s Warning Against Overreacting to Market Fluctuations
Jim Cramer highlights some key mistakes investors are making and emphasizes the importance of a strategic approach to investing. He points out that many investors are making errors by overreacting to market fluctuations and trying to time their moves poorly. According to Cramer, sometimes the best strategy is to do nothing and avoid making rash decisions.
“People keep making a ton of mistakes when they should really just be sitting on their hands. Sometimes the best thing you can do is absolutely nothing. Instead, they’re acting out every possible fantasy nightmare when it comes to the market. Not only is it tedious and foolhardy, but it’s also very expensive for anyone who’s running with this non-strategy. You can see the averages, which started out like a house on fire today, only to fizzle out by the end.”
Jim Cramer: Trust Powell’s Strategy Amid Economic Data Volatility
Cramer criticizes the persistent doubts about Federal Reserve Chair Jerome Powell. He believes Powell has managed the transition from tightening to easing policies well, despite earlier criticism for slow rate hikes. The ongoing panic over economic data—whether strong or weak—shows a lack of faith in Powell’s ability to adjust rates appropriately. Cramer asserts that the Fed will act as needed, whether that means a 25 or 50 basis point cut, and advises investors to trust Powell’s strategy rather than being swayed by market noise.
“There’s a belief that the Federal Reserve under Jerome Powell will somehow screw up the transition as they shift from tightening to stop inflation to easing to combat recession. At this point in Powell’s tenure, I find it insane that he never seems to get the benefit of the doubt. Well, yes, he started raising rates a little too late in 2022, but it’s hard to blame him for that. Powell didn’t want to hit the brakes on the economy when we were still dealing with a healthcare emergency, which is why he didn’t tighten in 2021.
Who would have thought that COVID would run its course so quickly? Who could have imagined that the Biden administration would be able to pass generous spending packages right when we stopped needing them, sparking an inflationary run? Since then, though Jerome Powell has done pretty much everything right. Once rolling, he raised rates with vigor because our country had some of the worst inflation in recent history.
The rate hikes, one after another, did manage to tamp down inflation. Everything that could be controlled by the Fed is now going the right way. Prices have come down all over the place, though many are still elevated compared to 2019 levels. But I don’t think anyone surveying the situation could honestly contend that Powell is going in the wrong direction…
What’s most important, though, is that if you have faith in Jerome Powell, as I do, you know he’ll give us a 25 basis point cut if that’s what’s needed. And if the economy suddenly gets weaker, then a 50 basis point cut would be on the table. Why is that so hard to understand? People keep freaking out about things that simply won’t be a problem, given that we have a competent central bank. They’ve done this during the run-up to every Fed easing cycle I can recall. You always get these tense moments—like right now—filled with wild swings, full of sound and fury, and of course, yes, signifying nothing.”
Jim Cramer Defends AI, Calls Early Criticisms Misguided
Cramer addresses skepticism around artificial intelligence (AI), arguing that it is premature to dismiss its potential. While current AI developments may not seem revolutionary, he believes that significant advancements, such as breakthroughs in cancer diagnosis, indicate that AI’s impact will grow over time.
“We’ve gone from a world where artificial intelligence (AI) was supposed to solve everything to a world where AI is treated as just a robust sham, except for when ServiceNow gets one more contract, of course. At its apex, AI was supposed to make organizations much more efficient, improve gross margins magically, and create inventions vastly better than the status quo. Sadly, we don’t see much of anything tangible, other than competing chatbots—rivaling inquiry systems that can generate information in sentence form, including hallucinations. We’re told the whole thing’s a canard, and this reality has slapped true believers like me in the face.”
Jim Cramer believes that dismissing AI as a failure is premature. He argues that people are underestimating its potential, as we are still early in discovering its practical applications. According to Cramer, recent advances in accelerated computing and generative AI have already led to significant breakthroughs, such as improvements in cancer diagnosis. While the excitement around AI in healthcare may suggest we’re on the brink of a major revolution, Cramer points out that we’re actually witnessing a gradual but important evolution in the technology’s capabilities.
“Now look, I think that’s just plain wrong. It’s way too early to view AI as a waste. People know nothing. We’re only a couple of years into finding use cases, for heaven’s sake. We just got word that accelerated computing and generative AI have led to a breakthrough in cancer diagnosis, which could be very important. That’s a huge thing. But the hype of what this technology could mean for healthcare seems to illustrate that we aren’t seeing a revolution yet—we’re just seeing a faster evolution.”
Our Methodology
The article reviews a recent episode of Jim Cramer’s Mad Money, where he discussed and recommended various stocks. It highlights ten companies that Cramer featured and explores their perception among hedge funds. The companies are ranked from the least owned to the most owned by hedge funds.
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).
Solar panel workers installing a new farm for clean energy generation.
Vistra Corp. (NYSE:VST)
Number of Hedge Fund Investors: 92
Jim Cramer points out that Vistra Corp. (NYSE:VST) has emerged as an unexpected growth utility, with its stock rising sharply due to its nuclear energy investments and the increasing electricity demand. He compares Vistra Corp. (NYSE:VST) to CeeDee Lamb of the stock market, noting that both are based in Dallas—Lamb plays for the Cowboys, a team Cramer nearly drafted. Cramer also highlights that Vistra Corp. (NYSE:VST) is one of the few companies challenging NVIDIA Corporation (NASDAQ:NVDA) in terms of performance.
“Vistra Energy came out of nowhere as a growth utility, with its stock soaring thanks to the company’s nuclear exposure and the realization that we desperately need more electricity in this country. I call Vistra the “CeeDee Lamb” of the stock market. Vistra is based in Dallas, just like Lamb, who plays for the Cowboys—whom I almost drafted. Vistra is also one of the few stocks giving Nvidia a run for its money.”
Vistra Corp. (NYSE:VST) is a compelling investment choice based on its strong Q2 2024 results and positive growth outlook. Vistra Corp. (NYSE:VST) reported an EPS of $1.43, surpassing the expected $1.38, and generated $3.85 billion in revenue, which exceeded forecasts by nearly 14%. This revenue growth shows the strength of Vistra Corp. (NYSE:VST)’s diverse operations across the U.S. power markets.
Despite economic challenges, Vistra Corp. (NYSE:VST) has maintained profitability with a solid return on equity of 21.05%, reflecting good capital management. Analysts are optimistic about Vistra Corp. (NYSE:VST)’s future, with “Buy” ratings from Morgan Stanley and UBS, and price targets above $100 per share. This confidence is supported by Vistra Corp. (NYSE:VST)’s strategic investments in renewable energy, positioning it well for long-term growth as the world moves towards cleaner energy.
Legacy Ridge Capital stated the following regarding Vistra Corp. (NYSE:VST) in its Q2 2024 investor letter:
“One of the sectors we know well which had been out of favor for several years has quickly come into favor: Independent Power Producers (IPPs). We’ve written consistently about NRG and Vistra Corp. (NYSE:VST) since the 2019 letter, have owned each, or both, since 2018, and invested a meaningful amount of our assets in VST specifically the past few years. Nate and I intend on spending more time in the year-end letter on our updated views on the IPPs and our learnings from the on-going investment, but we were a bit surprised how quickly the narrative around these companies changed. Our Blue Sky 2030 estimates of intrinsic value converged with the share price 6-years before we thought probable. In the 2019 letter, with respect to VST, we wrote:
“Over the next decade management should have close to $15 Billion to deploy to share repurchases. If you assume they have to pay an average price for the stock that’s higher than the current one, and they can only repurchase 60% of shares outstanding instead of the 100% the math implies, FCF per share in 2030 would be $14. That’s a $70 stock at today’s valuation, but a $140 stock at a more reasonable FCF yield of 10%.” And… “The IPPs are un-investable for most money managers, so there we are. When they become investable we’ll probably be long gone.”
We’re not exactly long gone, but sentiment has certainly surpassed investable. After 5+ years of VST trading between $17 – $26 a share—and $26 exactly a year ago—it hit a high of $107 in May on the heels of the Artificial Intelligence (AI) narrative and the implications for electricity demand. While we agree with the prevailing consensus view that more Data Centers will be built, Data Centers require base load energy, and that the US will probably be short base load energy, predicting the rate of any technological advancement is not our area of expertise, and we feel the margin of safety has dissipated. Therefore, what had been our largest position entering 2023 and 2024, and has been our greatest contributor to performance, is now one of the smaller positions in the fund.”
Overall VST ranks 2nd on our list of the stocks Jim Cramer thinks you should check out. While we acknowledge the potential of VST 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 VST 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.