Jim Cramer, the host of Mad Money, expressed concerns about the impact of rising bond yields on the stock market, suggesting that this trend could restrict the recent tech rally and limit broader sector gains. On Tuesday, he remarked that the bond market is creating significant disruptions, stating:
“Bonds are wrecking the narrative, driving the people outta everything that works when the Fed cuts rates and they’re going right back into tech. That’s the opposite of what, if you’re a true bull, you want to see.”
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Despite the Dow experiencing a modest decline of 155 points, the S&P 500 managed a slight increase of 0.16%, while the NASDAQ achieved a record close with a 0.78% rise on Tuesday. Cramer pointed out that the market is becoming increasingly narrow and exclusive, primarily benefiting tech stocks at the expense of broader participation, which he considers unhealthy. Cramer explained that this trend was somewhat anticipated.
He recounted how, when news broke about the Fed potentially implementing a 50 basis point rate cut, there was a surge of enthusiasm among investors who began buying bonds. They were betting on a series of rapid rate cuts, leading to expectations that bond yields would fall. Cramer noted, “It seemed a total legit thing, right? I mean the economy was slowing, that’s been the pattern historically.” He added that as inflation began to ease, it appeared that history was repeating itself.
However, following the significant rate cut on September 18th, something unusual occurred: long-term rates rose for the first time since 1995. This shift, which he described as a “total buzzkill,” is beginning to manifest in corporate earnings reports. He went on to say:
“If the bond market doesn’t start behaving, or at least calming down, if longer-term interest rates don’t stop going up, we’re going to start losing the groups that have led us higher for months now.”
In conclusion, Cramer warned:
“If it [the bond market] doesn’t stop its retreat, then we’re gonna start questioning the idea that the Fed will keep cutting rates, ushering in a fabulous economy for 2025, which is what I was looking for.”
Jim Cramer on Alphabet and Other Stocks
Our Methodology
For this article, we compiled a list of 7 stocks that were discussed by Jim Cramer during the episode of Mad Money on October 29. We listed the stocks in ascending order of their hedge fund sentiment as of the second quarter, which was taken from Insider Monkey’s database of more than 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).
7. Stanley Black & Decker, Inc. (NYSE:SWK)
Number of Hedge Fund Holders: 24
Talking about Stanley Black & Decker, Inc. (NYSE:SWK), Cramer did a deep-dive into its latest earnings report. Here’s what he had to say:
“Finally, there’s Stanley Black & Decker, which we own for the Charitable Trust… Putting it briefly though, Stanley Black & Decker posted a slight revenue miss paired with a 17-cent earnings beat off a $1.05 basis. Basically, revenue was light due to weaker consumer and automotive end markets, offset slightly by growth for the DeWalt brand. Now that is a brand that’s geared toward professionals, the regular Black & Decker brand is do-it-yourself.
But the company had excellent margins. The gross margin jumped nearly 300 basis points year-over-year, 300 basis points pretty good, which is what fueled the monster earnings beat and I like that.”
Cramer highlighted the company’s decision to adjust its full-year earnings forecast, noting that the company raised the lower end of its earnings range while simultaneously lowering the upper end by the same amount. He pointed out that it fell short of Wall Street’s expectations for a more optimistic outlook.
“Overall, I think the company’s doing a good job of controlling what it can control and making the business more efficient. However, Stanley Black & Decker’s still at the mercy of its end markets, and right now, there’s more bad than good. The thing that really hurt though, the reason why the stock plunged 8.77%, wow, is that management indicated the softness could extend to next year.
On the call, CEO Donald Allan explained, ‘We are optimistic that the markets will turn in our favor in the future as interest rate cuts in many geographies likely will prove to be an initial catalyst.’ But then he goes on to say, ‘There will be a lag (that’s the key word for me, lag) between lower rates and the flow-through to demand for our categories, and we expect choppy markets will extend into the first half of next year until interest rate reductions have a greater effect and the US election result is known and settled.’”
Cramer noted that the company expects an increase in demand in the future. However, he said that Allan pointed out that this anticipated surge may not materialize until the latter half of 2025, which Cramer feels is quite a long wait for current shareholders. Despite the stock’s decline of 13% on Tuesday, Cramer commented that this drop was an overreaction. He mentioned that while the stock did recover from its lowest point, ultimately closing down by $9, the extent of the decline still appeared excessive.
“Can’t say I’m very happy about this one. In fact, I’m furious about it, but I’m not ready to give up on it either, not with that great yield, not with that great brand or set of brands, and not when the Fed’s still poised to cut rates. This just happens to be that lag right now where we just don’t have rates impacting [the] bond market enough.”
Stanley Black & Decker (NYSE:SWK) is a prominent manufacturer specializing in hand tools, power tools, outdoor products, and related accessories. During the third quarter earnings call, Executive Vice President and CFO Patrick D. Hallinan stated that the company is on track to achieve an adjusted gross margin of approximately 30% for the full year.
Hallinan emphasized the ongoing commitment to improving supply chain efficiencies as part of a broader strategy aimed at reaching a target of over 35% adjusted gross margins. This focus is intended to support additional growth investments and improve overall earnings.
In light of current market conditions, Stanley Black & Decker (NYSE:SWK) management has revised its 2024 EPS guidance. The GAAP EPS is now projected to fall between $1.15 and $1.75, down from the previous range of $0.90 to $2.00. Adjusted EPS guidance has also been narrowed, with expectations set between $3.90 and $4.30, revised from $3.70 to $4.50. Additionally, the company has reiterated its forecast for free cash flow at approximately $650 million to $850 million.
6. Masco Corporation (NYSE:MAS)
Number of Hedge Fund Holders: 34
Cramer believes that Masco Corporation (NYSE:MAS) is doing better than pure-play home builders because it has exposure to multiple end markets.
“… What about Masco? This maker of fixtures, faucets, and cabinets turned in a comparatively better quarter. Their sales only fell a little bit shy of expectations, basically flat year-over-year. But their gross margins grew by 90 basis points that allowed them to put up 8% earnings growth and that matched the estimates.”
Cramer noted that the company revised its outlook, indicating a potential decline in decorative architectural products. He highlighted that this segment typically generates substantial gross margins, prompting the company to adjust its full-year revenue guidance downward. As a result, the forecast for earnings per share has also been slightly reduced, moving from $4.20 to $4.15 at the upper end.
“Not good, definitely not the end of the world, but you can’t have number cuts. According to management, their previously weak plumbing business has been improving though their do-it-yourself paint business remains challenged. Even though Masco shaved down its full-year forecast, they’re still feeling very confident because the company’s got so much exposure to the repair and remodel markets.
I think that’s why Masco doing better than a pure-play home builder like D.R. Horton. CEO, Keith Allman reiterated that the mid to long-term outlook for the repair and remodel market looks good… saying that improved home equity and home price appreciation plus higher consumer confidence and yes, a reduction in rates would help.”
Cramer pointed out that the expectation of a decrease in rates has not materialized. He emphasized the cautious approach home builders have taken over the years regarding the construction of new homes. This hesitance has resulted in the average existing home aging, leading to a greater need for renovations and repairs
“… Overall, the Masco quarter was just fine, not particularly strong, but also not bad like D.R. Horton, which is why this stock finished the day down only slightly. Hey listen, if you deliver in line, you don’t get crushed here.”
Masco Corporation (NYSE:MAS) is a leading company in the home improvement and building products sector, engaged in the design, manufacture, and distribution of a diverse range of products. As the company navigates the complexities of the current market, it forecasts ongoing challenges in demand for the remainder of the year. In light of this, the company has adjusted its expectations for 2024 adjusted EPS to a range of $4.05 to $4.15, down from an earlier forecast of $4.05 to $4.20.
Masco Corporation (NYSE:MAS) President and CEO Keith Allman emphasized the company’s commitment to operational efficiencies and cost-saving measures, indicating that these efforts will help improve operating margins throughout the year. Despite the short-term challenges, Allman expressed confidence in the long-term fundamentals of the repair and remodel market, asserting that the company is well-equipped to continue delivering value to shareholders.
5. The Boeing Company (NYSE:BA)
Number of Hedge Fund Holders: 42
Discussing The Boeing Company (NYSE:BA), here’s what Cramer had to say:
“You know what’s really a shame? This session should have been just terrific, terrific because far away from housing and bonds and tech, we witnessed a miracle of capitalism when Goldman Sachs priced 112.5 million shares of Boeing at $143, that’s a more than 5% discount to where it closed the night before, raising $16.1 billion. It was the largest follow on deal since the federal government dunked its AIG stake back in 2012.. Boeing also raised a slug of money in the bond market, getting a total of $21.1 billion, enough to tie it over the company’s losing $1 billion a month.”
Cramer said that this achievement echoes a time from a few years ago, specifically during the height of the COVID-19 pandemic when the company issued $25 billion in bonds back in April 2020.
“Today’s equity offer means that Boeing’s viable again, there’s no longer a chance that it becomes a ward of the state even if the striking machinist union continues to play a high-risk game of chicken with management over wages. Now that Boeing has enough money, it’s finally got the leverage against the union and that means there’ll be a deal soon. Once that happens, they can go back to making planes. They used to do that, they can do it again… One of the most pressing overhangs in this market has now been removed from the bears’ equation. Boeing stock’s free to go higher. It may be much higher if CEO Kelly Ortberg can execute. I love miracles of capitalism. This was one of them.”
Boeing (NYSE:BA) is an aerospace leader engaged in the design, development, manufacturing, sales, and servicing of a wide range of products, including commercial jetliners, military aircraft, satellites, missile defense systems, human space flight initiatives, and related services. On October 23, it released its third-quarter financial results, revealing a revenue of $17.8 billion, which was slightly below the $18.1 billion recorded in the same period last year.
Boeing (NYSE:BA) faced a significant increase in core loss per share, which deteriorated to $10.44 from $3.26 year-over-year. The decline is because of the various challenges currently confronting the company, including ongoing supply chain disruptions. A work stoppage involving the International Association of Machinists (IAM) has further complicated operational efficiency. Despite these obstacles, the company continues to maintain a substantial backlog of over $511 billion.
4. D.R. Horton, Inc. (NYSE:DHI)
Number of Hedge Fund Holders: 62
On Tuesday, during Mad Money’s episode, Cramer said that D.R. Horton, Inc. (NYSE:DHI) stock “absolutely imploded” despite the fact that the company is a big operator in its industry.
“This excellent operator which builds predominantly starter homes, if you can call $400,000 a starter home, reported a clear top and bottom line miss with weaker-than-expected revenues, 5% revenue shrinkage, and earnings down 12% year-over-year. Ouch. But as bad as the headline numbers were, it was the forward-looking metrics that really hurt.”
Cramer noted that the company reported a modest year-over-year increase in net sales orders, rising just 1% to slightly over 19,000 units. He highlighted that Wall Street had forecasted orders to exceed 20,000, indicating a shortfall in expectations. Additionally, Cramer remarked that the value of these net sales orders declined by 2%, falling short of forecasts. Even more concerning was the significant drop in the company’s sales order backlog, which decreased by 19%.
“Horton’s forecast for the 2025 fiscal year, the 12-month period that ends next September, came in pretty light. They’re expecting 90,000 to 92,000 closings, the analysts were looking for 94,000. They’re talking $36-$37.5 billion in revenue, Wall Street was looking for $39 billion. That’s a big miss. Basically, Horton’s projecting closings up just 1.5%… Those are not the numbers that I wanted to see from a home builder in a world where the Fed’s cutting rates.”
Cramer expressed no surprise at the stock’s significant drop of over 7% on Tuesday, noting that it had actually fallen even further at one point. He remarked that the decline was justified, suggesting that the stock could have seen an even steeper fall. Cramer anticipates a wave of downgrades in the days ahead.
“On the conference call, CEO Paul Romanowski pinned the weaker number on “the volatility of rates” and buyers’ expectations that rates will be lower next year. In fact, management referred to a pause three separate times in the conference call, with COO Michael Murray describing a very choppy selling environment in the quarter with a buyer that seems on pause until mortgage rates come down. It makes sense to me. And remember, these guys are really good operators. We’re not dealing with some company that gets it chronically wrong. We’re talking about something that gets it chronically right.”
D.R. Horton (NYSE:DHI) has a track record of closing over 1,100,000 homes and operates in 125 markets across 36 states. For fiscal 2025, its management has projected revenues between $36 billion and $37.5 billion, along with plans for closing between 90,000 and 92,000 homes. This outlook shows a recalibration of previous targets, considering the ongoing challenges in the housing market.
Despite these adjustments, D.R. Horton (NYSE:DHI) management emphasizes a commitment to strategic land acquisitions and careful inventory management, aiming to sustain growth and optimize operations across different regions. Management also highlighted the importance of maintaining adaptable financial operations to address fluctuations in interest rates and issues related to affordability.
3. Cadence Design Systems, Inc. (NASDAQ:CDNS)
Number of Hedge Fund Holders: 64
Cramer likes Cadence Design Systems, Inc. (NASDAQ:CDNS) and commented that it reported surprising numbers in its recent earnings report.
“We got this unbelievable set of numbers last night from some outfit you haven’t heard of, but I studied pretty closely for the last 30 years, called Cadence Design Systems. An incredibly good semiconductor design software company goes arm in arm with Nvidia, it sent the whole group flying.”
Cadence Design (NASDAQ:CDNS) is a significant player in the global semiconductor industry, providing a comprehensive range of software, hardware, services, and reusable integrated circuit (IC) design blocks. On October 28, it announced its third-quarter results, showing accelerating growth and a positive outlook for the upcoming quarter.
During the third quarter, the company experienced a revenue increase of 19%, reaching $1.215 billion. It slightly exceeded market expectations, while non-GAAP earnings per share rose by 30.2% to $1.64, significantly surpassing analysts’ consensus forecasts. The growth marked a substantial improvement compared to the prior quarter, which had seen a 9% revenue increase.
A strong area of growth was observed in the system design and analysis segment, which reported a remarkable 47% increase. This surge shows heightened demand for AI-driven optimization and advanced modeling tools. Cadence Design’s (NASDAQ:CDNS) intellectual property (IP) business saw revenue growth of 59%, further highlighting the company’s strong position in this area. Another noteworthy aspect of the quarter was the performance of the Cadence.AI portfolio, which nearly tripled in revenue.
2. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Holders: 108
Talking about Advanced Micro Devices, Inc. (NASDAQ:AMD), Cramer said:
“AMD reported a strong set of results this evening, partially fueled by demand for their AI chips, the only ones that come close to Nvidia’s. However, they also gave you some not-so-hot guidance for the current quarter because they’re worried about supply constraints. The demand for these chips is off the charts, but they may not be able to make enough of them because there’s only so much high-end semiconductor capacity worldwide. Now to me, silly little me, that seemed like a high-quality problem. But it’s a problem nonetheless, which is why the stock got slammed in the after-hours trading.”
Advanced Micro Devices (NASDAQ:AMD) has emerged as a prominent company within the semiconductor sector, particularly gaining favor among personal computer manufacturers. On October 29, the company released its third-quarter financial results, which met market expectations for earnings while exceeding sales projections.
In this quarter, it reported non-GAAP EPS of $0.92, accompanied by revenues of $6.82 billion. This revenue surpassed Wall Street’s average forecast of $6.71 billion, indicating a stronger-than-anticipated sales performance during this period. However, despite these positive figures, management’s forward guidance raised concerns among investors, reflecting a cautious outlook.
During Advanced Micro Devices’ (NASDAQ:AMD) earnings call, CEO Lisa Su addressed the current supply chain situation, stating that while the environment remains challenging, the company has effectively managed its capacity throughout the supply chain. Su emphasized that while the company expects continued tightness in supply in the coming quarters, there are plans for significant growth leading into 2025.
1. Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders: 216
Cramer called Alphabet Inc.’s (NASDAQ:GOOGL) recent earnings report impressive and praised the company’s relatively new CFO.
“Alphabet, on the other hand, reported an unambiguously fantastic quarter. Anat Ashkenazi, I told you, she’d be good, the CFO used to be over at Lily… I was worried about Alphabet because there’s so many moving parts… although we still own it for the Charitable Trust. This time, Alphabet handily beat the estimates. Big numbers from Google Cloud business… and strong ad sales for Search, and yes, YouTube. Just an excellent quarter, one that allowed the stock to roar in after-hours trading even though it had already run up into earnings. Very impressive.”
Alphabet (NASDAQ:GOOGL), established as the parent company of Google following a restructuring in 2015, continues to demonstrate significant growth across its various business segments. On October 29, the company released its third-quarter results, revealing noteworthy financial metrics. Net income experienced a remarkable increase of 34%, with earnings per share rising by 37% to reach $2.12.
Alphabet’s (NASDAQ:GOOGL) consolidated revenues reached $88.3 billion, marking a 15% increase, or 16% when adjusted for constant currency, compared to the same quarter the previous year. Google Cloud reported substantial revenue growth of 35%, totaling $11.4 billion.
This growth was driven by accelerated advancements in areas such as AI Infrastructure, Generative AI Solutions, and core Google Cloud Platform products, indicating a significant shift toward cloud services in the tech industry. Additionally, YouTube has also made significant strides, with total ad and subscription revenues surpassing $50 billion over the past four quarters for the first time.
While we acknowledge the potential of Alphabet Inc. (NASDAQ:GOOGL) 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 GOOGL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
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