We recently compiled a list of the 10 Stocks Jim Cramer Can’t Stop Talking About. In this article, we are going to take a look at where Zoom Video Communications Inc. (NASDAQ:ZM) stands against the other stocks Jim Cramer can’t stop talking about.
In a recent episode of Mad Money, Jim Cramer advises that worrying about what others are concerned about or getting excited about what everyone anticipates is generally futile for investors. When most investors expect something to happen, it’s often already factored into stock prices.
“You want to know the single most useless thing you can do in this business? Oh, that’s easy. The most useless thing you can do as an investor is to worry about what everyone else is worrying about. The flip side of this is also true: there’s no point in getting excited about something that everybody else is eagerly anticipating. Why? Because when the vast majority of investors agree that something’s going to happen, that thing is already priced into the stock market.”
The stock market reacts quickly to the consensus of hedge fund and mutual fund managers, so by the time the majority agrees on an economic trend, it’s already reflected in stock values. Cramer points out that while the real economy moves at a steady pace—through borrowing, manufacturing, transporting, and selling—stocks adjust almost instantly to new information. This rapid adjustment means that, once big institutional investors align on a particular economic outlook, it is already embedded in the market.
“While the real economy moves at its own steady pace—for example, you have to borrow money to build out equipment, then use that equipment to manufacture goods, transport them to retail outlets, and wait for customers to buy them—the stock market has no such limitations. Stocks don’t quite travel at the speed of thought, but they come pretty close. So, the moment a preponderance of hedge fund and mutual fund managers decide that the economy is slowing, speeding up, or flatlining, stocks start trading like that’s already the case.
Usually, it takes some time to build that kind of consensus, which is why you rarely see these moves happening instantaneously. But once the big institutional portfolio managers are on the same page about something, you can be pretty darn confident that it’s baked into the averages.”
The Efficient Markets Hypothesis
Jim Cramer points out that understanding some basic economics can be quite useful for managing investments, even though economists often use complex models that don’t always align with real-world data. Economists can be too focused on their theories and may ignore conflicting data, but basic economic principles can still offer valuable insights. One key concept Cramer highlights is the Efficient Markets Hypothesis.
This theory suggests that stock prices at any given moment already include all available information. When new data comes out, stock prices quickly adjust to reflect this updated reality. Index fund advocates use this theory to argue that it’s nearly impossible for stock pickers to outperform the market, as all known information is already factored into stock prices.
“This is some basic economics 101 stuff. Now, I don’t have a ton of use for economists as professionals on this show—they tend to take a totally ivory-tower approach to their discipline, meaning they have all sorts of models for how the economy is supposed to work (often very boring models, by the way). But they rarely let empirical facts get in the way of a good theory. If the data conflicts with the model, economists have a bad habit of throwing away the data, not the model. However, as long as you keep that caveat in mind, some basic economics is incredibly useful when you’re trying to manage your own money.
For example, let’s take something a little bit difficult, but we’re going to get through this together: what’s known as the Efficient Markets Hypothesis. This theory says that, at any given moment, stock prices already reflect all the relevant information that’s out there. When some new piece of data emerges, stocks immediately adjust to reflect the new reality. You often hear index fund purists citing this theory to explain why it’s impossible for stock pickers to get any kind of edge. According to them, whatever you know about a company should already be baked into its share price. As far as they’re concerned, markets are so efficient that investing in individual stocks is basically the same as gambling.
Jim Cramer explains that if all possible information about a stock is already reflected in its price, then doing detailed research may not give you an edge. In this view, the only factors that can move a stock’s price are new, unexpected pieces of information. If such information were known to anyone, it would already be factored into the stock price.
“If everything you could possibly know is already priced into the stock, that means your homework is meaningless, and the only thing that can push a stock higher or lower is some random new piece of information nobody knows about. It has to be something totally unknown because, if anyone did know, they would have already acted on it, and thus it would be baked into the share price.”
Essentially, they believe that only completely new, unknown information can influence stock prices, which makes individual stock investing seem like a gamble. Cramer acknowledges that while economists and their theories might seem detached from practical investing, understanding concepts like market efficiency can help investors navigate the complexities of stock investing.
“This means that, under the extreme version of the Efficient Markets Hypothesis, the only things that can move stocks are “unknown unknowns,” to use the parlance of former Defense Secretary Donald Rumsfeld. And if you’re merely betting on unknown unknowns, you might as well just be playing roulette—it’s more fun.
That’s why index fund advocates adore the Efficient Markets Hypothesis. This theory tells them that it’s impossible for individual investors to consistently beat the averages. So if you want equity exposure, the only smart way to do it is by putting your money into a nice, low-cost index fund that mirrors the S&P 500.”
Our Methodology
This article looks at a recent episode of Jim Cramer’s Mad Money, where he discussed several stocks. We’ve selected ten notable companies from his mentions. The article also explores how hedge funds perceive these stocks and ranks them according to their level of hedge fund ownership, from the least owned 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).
A close-up of a hand using a laptop to control an immersive video meeting.
Zoom Video Communications Inc. (NASDAQ:ZM)
Number of Hedge Fund Investors: 39
Jim Cramer reflects on Zoom Video Communications Inc.(NASDAQ:ZM)’s trajectory since its public debut in 2019. Zoom Video Communications Inc. (NASDAQ:ZM) initially soared during the pandemic in 2020, as the demand for its video conferencing platform surged.
“Zoom Video came public in 2019 and then soared to the stratosphere in 2020 once the pandemic made its platform essential, at least during the COVID era. At first, you get a bunch of hot deals that get people excited. In 2020, we also had a ton of electric vehicle and charging station-related IPOs and SPAC mergers. Initially, these stocks were unstoppable, largely because this was a period of high-risk speculation where people were willing to give anything with the right buzzwords the benefit of the doubt—mistakenly, of course. It was reminiscent of the dot-com era in the late ’90s when anything connected with the internet was beloved until the market was flooded with excess supply, and the whole group collapsed in the year 2000.”
Zoom Video Communications Inc. (NASDAQ:ZM) is a strong investment due to its leading role in the video conferencing market, its growing range of products, and its ability to adapt to the hybrid work trend. Zoom Video Communications Inc. (NASDAQ:ZM), which became well-known during the COVID-19 pandemic, still benefits from the ongoing shift to hybrid work setups. Its core video conferencing platform remains essential for businesses, schools, and individuals, providing steady revenue.
Zoom Video Communications Inc. (NASDAQ:ZM) is expanding its product lineup with new tools like Zoom Phone, Zoom Rooms, and Zoom Events, which not only enhance its services but also offer opportunities for additional sales. Moreover, Zoom Video Communications Inc. (NASDAQ:ZM)’s investment in AI features aims to improve user experience and create new uses for its technology, strengthening its market position. With a strong financial foundation and continuous innovation, Zoom Video Communications Inc. (NASDAQ:ZM) is well-positioned for long-term growth as the need for remote and hybrid communication tools persists.
Overall ZM ranks 8th on our list of the stocks Jim Cramer can’t stop talking about. While we acknowledge the potential of ZM 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 ZM 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.
