Jim Cramer, the host of Mad Money, cautioned viewers on Wednesday about the risks of blindly following the crowd in the stock market. He emphasized that it is essential to avoid expecting the same outcome as everyone else, as there is a significant chance things will not play out as expected. This, he explained, is because many expectations are often already “priced in” to the market.

“… And that’s why you need to be extra wary of the IPO cycle. Let’s go over this. We’ve seen the pattern over and over again. We get this deluge of new deals, at first, many of them explode higher, but at the same time they’re flooding the market with new stock supply and that supply ultimately drags us down. I’ve said it a million times, the stock market is like any other market. It’s all about supply and demand.”

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When supply increases too rapidly, prices are likely to fall. He stressed that the enthusiasm surrounding IPOs, particularly when they make early investors substantial profits, creates an environment of palpable excitement. Cramer noted that when interest in these IPOs wanes, that initial exuberance quickly turns to frustration, which can cause broader market declines, not just in IPOs but across the board.

Such a cycle, Cramer noted, is nothing new. He pointed to 2020 and 2021 as prime examples of how a flood of IPOs and SPAC mergers, fueled by stimulus checks, led many people to invest in trendy stocks. He added:

“2020, we also had a ton of electric vehicle and charging station-related IPOs and SPAC mergers. At first, these stocks were unstoppable, although most of that was because this was a period of high-risk speculation where people were willing to give anything with the right buzzwords.”

Our Methodology

For this article, we compiled a list of 11 stocks that were discussed by Jim Cramer during the episode of Mad Money aired on February 12. We listed the stocks in the order that Cramer mentioned them. We also provided hedge fund sentiment for each stock as of the third quarter of 2024, which was taken from Insider Monkey’s database of 900 hedge funds.

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).

Jim Cramer Discussed These 11 Stocks Recently

11. Faraday Future Intelligent Electric Inc. (NASDAQ:FFIE)

Number of Hedge Fund Holders: 3

Discussing Faraday Future Intelligent Electric Inc. (NASDAQ:FFIE), Cramer said:

“And look, QuantumScape’s hardly alone, don’t mean to pick on it. All sorts of electric vehicle plays that came public during the IPO frenzy of ‘20 and ‘21 got crushed. Rivian although ended up coming back. But Lucid, Nikola, Canoo, the Lion Electric, Lightning eMotors, Lordstown Motors, Faraday Future Intelligent Electric, all saw their stocks plunge more than 90% from peak to trough.”

Faraday Future (NASDAQ:FFIE) designs, develops, and manufactures electric vehicles, incorporating advanced technologies such as variable platform architecture, propulsion systems, and autonomous driving capabilities. The company is focused on its dual-brand strategy, with plans to launch the FX brand by late 2025, contingent on securing funding. In the third quarter, it reduced its operating loss to $25.2 million, an improvement from $66.4 million the previous year, while its loss before taxes remained almost the same at $77.7 million.

As of September 30, 2024, Faraday Future’s (NASDAQ:FFIE) total assets were $449 million, with liabilities of $292.3 million and a book value of $156.7 million, closing the quarter with $7.3 million in cash. The company is working to expand globally, focusing on the China-U.S. Automotive Bridge Strategy and Middle East initiatives while seeking additional financing.

10. Nikola Corporation (NASDAQ:NKLA)

Number of Hedge Fund Holders: 10

Discussing Nikola Corporation (NASDAQ:NKLA) during Mad Money, Cramer said:

“And look, QuantumScape’s hardly alone, don’t mean to pick on it. All sorts of electric vehicle plays that came public during the IPO frenzy of ‘20 and ‘21 got crushed. Rivian although ended up coming back. But Lucid, Nikola, Canoo, the Lion Electric, Lightning eMotors, Lordstown Motors, Faraday Future Intelligent Electric, all saw their stocks plunge more than 90% from peak to trough. Many like Nikola turned out to be, well, had some fraudulence, their founder and CEO was even sentenced to prison.”

Nikola (NASDAQ:NKLA) develops energy and transportation solutions, focusing on battery electric and hydrogen fuel cell electric vehicles for the trucking industry. It also offers hydrogen fueling stations, BEV charging solutions, and produces the Nikola Tre Class 8 truck and Class 8 FCEV. Even in 2022, Cramer advised against owning the stock as he remarked, “I think that stock is lethal, frankly. … I don’t want to own it.”