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.”
9. Lucid Group, Inc. (NASDAQ:LCID)
Number of Hedge Fund Holders: 19
Lucid Group, Inc. (NASDAQ:LCID) was mentioned during the episode, and here’s what 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.”
Lucid (NASDAQ:LCID) designs, engineers, and manufactures electric vehicles, powertrains, and battery systems, while also developing proprietary software for its vehicles in-house. When Cramer was asked about the company in August 2024, he stated, “I think you should sell Lucid.” Over the past 5 years, the company stock declined over 67%.
8. Rivian Automotive, Inc. (NASDAQ:RIVN)
Number of Hedge Fund Holders: 31
Rivian Automotive, Inc. (NASDAQ:RIVN) designs, develops, and manufactures electric vehicles, including pickup trucks and SUVs, and provides a range of consumer services such as financing, insurance, maintenance, and charging solutions. It also operates a fast-charging network, offers fleet management services, and partners with Amazon on electric delivery vans.
Cramer mentioned the company and 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.”
In October 2024, during Cramer’s Mad Dash, Cramer mentioned Rivian’s (NASDAQ:RIVN) announcement of a shortage of a shared component on the R1 and RCV platforms and commented:
“The reason I thought that was interesting was because they were going to do 50,000, maybe 52,000. Looks like they’re going to do 47,000, 49,000. It doesn’t sound like it’s a demand problem. It sounds like it’s a part problem. The reason I point that out is because the demand problem at Ford is bad… EVs everywhere are under this turmoil…
I want to believe that Rivian is right, because I think Rivian is terrific… I want to believe that they’re right that it’s a part, not demand, but I don’t know… This sector away from Tesla is just sheer hell right now… I need more information because nobody else has a supply problem. One of the things I thought was great is that, one thing that’s gone is that whole supply problem issue with the semis. Maybe this is another part, but these guys are not in a position to miss. They’re just not… I don’t know. It doesn’t seem like a good shift in the EV game.”
7. Enphase Energy, Inc. (NASDAQ:ENPH)
Number of Hedge Fund Holders: 38
Cramer, while discussing people’s tendency to stick to their investment thesis because of confirmation bias, explained how solar stocks like Enphase Energy, Inc. (NASDAQ:ENPH) rose for 2 years but suffered when the public realized their cost and the interest rate environment.
“The residential solar stocks soared in 2020 and 2021 and kept running into 2022 even when most growth plays were getting pulverized. If you owned it, maybe you thought you were winning because people were embracing renewable energy and the government was subsidizing it heavily. But in 2023, the residential solar stocks, they, they got obliterated. Why?
Do you know that it had nothing to do with the popularity of renewable energy and it couldn’t be stopped by generous federal subsidies? Instead, it turned out that people can’t really afford residential solar systems without borrowing money. Meaning the whole industry was actually built not on solar but on financing. And once people realized long-term interest rates would remain elevated for quite some time, the residential solar stocks, they all got crushed. It’s not a coincidence, something like Enphase was roaring in 2020 and 2021 when people could borrow money for next to nothing.”
Enphase (NASDAQ:ENPH) is a company specializing in the design, development, production, and sale of energy solutions, with a focus on the solar photovoltaic industry.
6. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 81
Cramer mentioned Johnson & Johnson (NYSE:JNJ) and emphasized analyzing why packaged goods stocks are gaining or declining.
“If you buy these stocks because you believe in the business but then they go higher as part of a sector rotation that has nothing to do with the business, you still gotta win. The bank isn’t gonna tell you that they can’t take that money because they don’t accept profits from rotations. But you don’t wanna get caught with your pants down because the market suckered you into believing that Procter and Gamble was going up based on the fundamentals, when really it was benefiting from rotation into the whole consumer packaged good stock sector, you know the Colgate, JNJ.
This is what I meant earlier about filtering out the signal from the noise and it is hard to do. Why? Because there’s something called confirmation bias. When you have a thesis and new evidence seems to prove your thesis correct, the natural thing is to believe you are right all along. You should approach that feeling with skepticism.”
Johnson & Johnson (NYSE:JNJ) ) is a healthcare company involved in the research, development, production, and promotion of a wide variety of healthcare products. At the beginning of the year, whilst discussing the company, Cramer said:
“The market has turned against these kinds of stocks viciously. Too slow growing. I think you can put either way though and make good money just by reinvesting their juicy dividends.
Doesn’t help that all pharma’s are under the microscope as President Biden rushed out a series of drugs that Medicare will try to get better prices for. This is the one part of the Inflation Reduction Act that actually reduces inflation at the expense of the drug companies.”
5. Colgate-Palmolive Company (NYSE:CL)
Number of Hedge Fund Holders: 54
Discussing Colgate-Palmolive Company (NYSE:CL) and how packaged goods stocks can take a turn for the better or worse depending on the cycle, Cramer explained:
“If you buy these stocks because you believe in the business but then they go higher as part of a sector rotation that has nothing to do with the business, you still gotta win. The bank isn’t gonna tell you that they can’t take that money because they don’t accept profits from rotations. But you don’t wanna get caught with your pants down because the market suckered you into believing that Procter and Gamble was going up based on the fundamentals, when really it was benefiting from rotation into the whole consumer packaged good stock sector, you know the Colgate, JNJ.
This is what I meant earlier about filtering out the signal from the noise and it is hard to do. Why? Because there’s something called confirmation bias. When you have a thesis and new evidence seems to prove your thesis correct, the natural thing is to believe you are right all along. You should approach that feeling with skepticism.”
Colgate-Palmolive (NYSE:CL) is a global producer and distributor of consumer products, recognized for its diverse portfolio of brands, including Colgate, Protex, Sanex, Meridol, Softlan, and Ajax.
4. The Procter & Gamble Company (NYSE:PG)
Number of Hedge Fund Holders: 68
Cramer explained that The Procter & Gamble Company (NYSE:PG) stock often rises irrespective of its fundamentals and noted that it is a recession stock. Cramer pointed out that there are several well-managed consumer packaged goods (CPG) companies, and Procter & Gamble is a long-time favorite among them.
He mentioned that there are many logical reasons to like the company, such as its strong management, attractive dividend, and the potential for lower plastic and fuel costs to improve its gross margin, a significant part of its expenses. However, Cramer emphasized that while these reasons make sense, logic does not always drive the stock market on a daily basis. He added:
“So you buy the stock and then it explodes higher. What’s next? Well, you have to ask yourself why is it rallying… Let’s say you rack up a nice win in Procter, you should ask yourself if you were right or if you simply happened to be in the right place at the right time. What do I mean by right place or time? Rotation, rotation, rotation.
There are times when the consumer packaged goods stocks roar higher for reasons that have nothing to do with the underlying companies. Procter, like all consumer packaged goods plays, is a recession stock because its earnings tend to hold up during a slowing economy, its stock roars when we get lousy economic data.”
Procter & Gamble (NYSE:PG) provides a diverse range of consumer goods, including products for beauty, grooming, healthcare, fabric, and home care, as well as baby, feminine, and family care, all under several well-established brands.
3. QuantumScape Corporation (NYSE:QS)
Number of Hedge Fund Holders: 22
Cramer did a deep-dive into QuantumScape Corporation (NYSE:QS) and how the market reacted to it after its IPO in 2020.
“It’s a company called QuantumScape. QuantumScape, which in retrospect was basically a science experiment looking to develop better battery technology for electric vehicles. Anyone can develop better, more efficient batteries with the ability to charge very quickly and and, and you can make a killing even in a world where electric cars have lost some of their luster.
But QuantumScape was a long way from having anything they could actually commercialize and they could sell. Even four years later, these guys still didn’t have any meaningful revenue. Back in 2020 and early 2021, Wall Street was still giving the benefit of the doubt to anything connected to electric vehicles. QuantumScape came public via a SPAC deal and you have to be, remember, you have to be really skeptical of those. And when that merger was announced, the SPAC it was merging with, saw its stock more than double in just two trading sessions putting it in the 20s.”
Cramer then highlighted QuantumScape’s (NYSE:QS) rapid rise to $132 in December 2020, driven by hype around its electric vehicle technology, before the stock was targeted by short sellers. Cramer mentioned that as Wall Street lost interest in unprofitable, speculative companies, the stock plummeted by late 2022. He noted that any recent rebounds were likely due to short squeezes rather than any real improvement in the company’s fundamentals.
QuantumScape (NYSE:QS) is a research and development firm dedicated to creating and commercializing solid-state lithium-metal batteries for electric vehicles and other applications.
2. Zoom Video Communications, Inc. (NASDAQ:ZM)
Number of Hedge Fund Holders: 39
Talking about IPOs that burned hot initially, Cramer mentioned Zoom Video Communications, Inc. (NASDAQ:ZM) and said:
“Just in 2021, get this, we had roughly 400 traditional IPOs and another 200 SPAC mergers, which originally were meant to be blank check companies that would make a bunch of acquisitions over time. But in 2020, lots of startups began to use SPAC mergers as a way to come public while evading the strict regulations that the SEC, you know, the Securities Exchange Commission places on IPOs.
Now initially there were some very exciting ones that really caught fire. For example, Zoom Video. This one 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.”
Zoom Video (NASDAQ:ZM) provides a comprehensive communications platform that includes services such as Zoom Meetings, Zoom Phone, Zoom Chat, Zoom Rooms, and Zoom Webinars, as well as tools for virtual events, developer integrations, and an all-in-one contact center solution.
1. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 193
A caller asked about high-growth rate companies and asked if NVIDIA Corporation (NASDAQ:NVDA) was an example of that. Cramer replied:
“Well, okay, NVIDIA’s a really great example. Lemme tell you why. Because when you look at Nvidia on forward earnings or the estimates, it always looks expensive and then it so far trumps those estimates that when you look backward, it turns out that the stock was selling at a remarkably low price to earnings multiple. And that’s been the secret to Nvidia literally since 2012. Incredible. It just keeps doing that.”
NVIDIA (NASDAQ:NVDA) offers a range of solutions, including graphics processing units (GPUs) for gaming, enterprise workstations, and cloud-based computing, along with networking platforms, AI software, and platforms for automotive and robotics applications. It also provides services like the GeForce NOW game streaming service and Omniverse software for metaverse development.
Fred Alger Management stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q4 2024 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) is a leading supplier of graphics processing units (GPUs) for a variety of end markets, such as gaming, PCs, data centers, virtual reality, and high-performance computing. The company is leading in most secular growth categories in computing, and especially artificial intelligence and super-computing parallel processing techniques for solving complex computational problems. In our view, Nvidia’s computational power is a critical enabler of AI and therefore essential to AI adoption. Shares contributed to performance during the quarter, driven by strong demand for its data center products, especially the Hopper H200 chips, which generated double-digit billions in revenue, marking the fastest product ramp in the company’s history. Management provided fiscal fourth-quarter revenue guidance above analyst estimates, along with resilient operating margins supported by robust demand and limited competition. In our view, Nvidia’s leadership in scaling AI infrastructure, including advancements in inference and test-time scaling (i.e., reasoning during inference), is driving adoption among enterprises and startups, providing continued demand for its high-performance chips and software solutions. As older-generation chips are repurposed for inference and new clusters are deployed, we believe Nvidia is well-positioned to capitalize on growing compute needs across AI applications.”
While we acknowledge the potential of NVIDIA Corporation (NASDAQ:NVDA) as an investment, our conviction lies in the belief that 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 NVDA 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 at Insider Monkey.
