We recently compiled a list of the 10 Stocks That Have Jim Cramer’s Attention. In this article, we are going to take a look at where Carvana Co. (NYSE:CVNA) stands against the other stocks that have Jim Cramer’s attention.
On a recent episode of Mad Money, Jim Cramer notes that after a significant rally in the past two weeks, the market took a hit ahead of the Federal Reserve’s upcoming meeting in Jackson Hole. The Dow fell 170 points, the S&P dropped 43 points, and the NASDAQ tumbled 1.67%. This downturn marks a return to reality, which can be harsh.
“After the monster move we’ve had in the last two weeks, that’s why, on the eve of the big Federal Reserve powwow in Jackson Hole, the averages got slammed. It’s back to reality, and reality can sting.”
Previously, after a dramatic unwind of the Yen carry trade, the market quickly collapsed but then rebounded strongly over eight days. According to Cramer, during that period, anything that was doing well surged, and there was optimism that anything struggling would improve once the Fed started cutting rates. However, that optimism has faded.
“If you remember, after the sudden unwind of the Yen carry trade, the market experienced a sharp decline followed by a remarkable 8-day rebound. During that time, stocks that were performing well surged, and there was hope that struggling stocks would improve once the Fed began cutting rates. However, that was then, and this is now.”
Now, we’re experiencing what Cramer refers to as the “buyer’s remorse” phase. Stocks that had risen on hope alone are now falling sharply. Even the prospect of the Fed stepping in hasn’t been enough to prevent the decline.
“Since the winning streak ended, we’re entering what I call the “buyer’s remorse” phase. Stocks that had been climbing based on hope alone are now falling hard. Even the prospect of Fed intervention isn’t enough to prevent this decline. The selling might be exaggerated because the Fed is set to speak in Jackson Hole, and Wall Street has already factored in the possibility of a September rate cut—beyond that, it’s unlikely the Fed will announce multiple rate cuts, as some bulls hope.”
Cramer dismisses the first two explanations for the current market weakness: the idea that the Fed’s actions are too late or that the Fed can’t fix the economy. He believes the Fed’s interventions still have a significant impact, although companies with poor balance sheets might struggle.
“There are also concerns that the Fed might be too late to make a difference, or that traders fear a potential Democratic sweep in November could lead to higher corporate tax rates—bad for earnings—and increased scrutiny on price gouging in supermarkets and drugstores.
I don’t fully buy into the first two explanations. Not everything can be saved by the Fed, as some companies aren’t very sensitive to economic changes. Also, it’s never too late for a rate cut; delays might occur, but the turn is not canceled, except for companies with poor balance sheets. Those companies, burdened with debt, deserve to struggle if they can’t manage their obligations effectively.”
The third explanation, political concerns, seems more plausible to Cramer. He points out that investors initially saw President Biden as less favorable to the stock market due to his pro-labor stance. However, recent discussions suggest that a potential Harris presidency might be even more challenging for businesses. Harris is seen as critical of companies raising prices and could push for measures against price gouging, which might be difficult to achieve.
“The third, politics-is-trickier. Before this week, many investors saw President Biden as unfavorable to the stock market due to his pro-labor stance. However, Vice President Harris, coming from California with ties to the tech industry and connections like her brother-in-law Tony West, General Counsel at Uber, was thought to be more business-friendly.
Recent discussions suggest that a Harris presidency might be even tougher on businesses than Biden’s administration. There is a strong focus on criticizing food and drug companies for raising prices, even though the Biden administration attempted to control the prices of some heavily used drugs. Harris’s potential efforts to curb price gouging might face challenges, as large retailers like Walmart and Costco have already done a great job of pushing suppliers to reduce prices to pre-COVID levels.”
Cramer is also concerned about a recent prediction from market expert Larry Williams, which adds to his apprehension about the market’s future.
“On the campaign trail, Harris might not recognize the distinction between good and bad actors, opting instead to broadly criticize big businesses for taking advantage of the pandemic. These factors might explain some of today’s market weakness, but what concerns me most is a recent prediction from market expert Larry Williams. I respect Larry’s insights and prefer not to contradict him.
Jim Cramer said Larry Williams predicted that the rally was “kaput.” This term, implying that the rally might be over, is especially worrying considering it was used after the eighth day of gains. Despite this winning streak, the market didn’t surpass its previous highs. Larry’s charts also indicated that the S&P 500 might face difficulties in the coming week, particularly due to Nvidia, which he considers a crucial stock in the market.
“Larry sent us his thoughts on Monday, and he used a term that made me concerned. He said that the rally was “kaput.” Mind you, this was on the eighth day. The word “kaput” has some ominous connotations, right? Especially because we didn’t take out the highs of the averages despite the 8-day win streak. Worse, Larry’s charts showed tough sledding for the S&P 500 next week, led by the most important stock in the entire market—maybe the most important stock I’ve ever seen.”
Jim Cramer notes that with the market currently overbought—reflected in the S&P short-range oscillator reading of plus five—Larry’s view that the rally could be over seems plausible. Wall Street’s favorite GPU maker experienced a sharp drop recently, despite its strong performance leading up to the quarter. The stock’s sudden reversal was difficult to watch.
“Given that the market’s overbought—plus five on the S&P short-range oscillator that I follow—the idea that the rally is kaput has some resonance. It doesn’t help that Nvidia ran up rapidly into the quarter and expectations have gotten out of hand. The stock did a horrible reversal today—just painful to watch.”
Our Methodology
In this article, we analyze a recent episode of Jim Cramer’s Mad Money, where he highlighted ten stocks. We also review hedge fund opinions on these stocks and rank them based on hedge fund ownership, from the least to the most.
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 customer buying a used car with the help of a finance specialist.
Carvana Co. (NYSE:CVNA)
Number of Hedge Fund Investors: 61
Jim Cramer recently discussed Carvana Co. (NYSE:CVNA), highlighting its recent price movement. He noted that Carvana’s stock had experienced a “bad island reversal,” where the stock price surged and then dropped back down. Despite this, Cramer emphasized the potential strength of Carvana Co. (NYSE:CVNA)’s CEO, Ernie Garcia, stating that Garcia is a powerful force in the industry.
“Okay, today it had what’s known as a bad island reversal—went all the way up and then came back down. Now, I’ll tell you this: Ernie Garcia is kind of an unstoppable force, and as rates go lower, he will do even better. Do not buy this stock right here at 153. Let it come in. It’s been hanging here for a couple of weeks. If you can get this stock in the 140s, I would start picking some up.”
Carvana Co. (NYSE:CVNA)’s recent performance indicates a strong bullish outlook for the company. In Q2 2024, Carvana Co. (NYSE:CVNA) achieved a significant turnaround, reporting a net income of $48 million, a marked improvement from earlier profitability challenges. Carvana Co. (NYSE:CVNA) saw a 33% increase in retail units sold, reaching 101,440 units, and a 15% rise in revenue to $3.41 billion. These results highlight Carvana Co. (NYSE:CVNA)’s solid market position and its ability to scale effectively in the competitive used car market.
A standout achievement was Carvana Co. (NYSE:CVNA)’s record Adjusted EBITDA of $355 million with a 10.4% margin, setting a new benchmark for public automotive retailers. This reflects Carvana Co. (NYSE:CVNA)’s strong operational efficiency and successful execution of its strategies, including national vehicle acquisition, a proprietary fulfillment network, and an in-house lending platform.
Looking forward, Carvana Co. (NYSE:CVNA)’s management is optimistic, projecting full-year 2024 Adjusted EBITDA between $1.0 and $1.2 billion, a significant increase from the previous year. Carvana Co. (NYSE:CVNA)’s ongoing efforts to improve customer experience, expand inventory, and enhance logistics position it well for future growth. Carvana Co. (NYSE:CVNA)’s stock has surged over 180% year-to-date, showcasing strong investor confidence in its potential to capture a larger share of the still-developing automotive e-commerce market.
Here’s what Carvana Co. (NYSE:CVNA)’s CFO, Mark Jenkins, has to say in their latest earnings call:
“The second quarter was an exceptional quarter for Carvana and reinforce the significant and sustainable progress we have made and continue to make in our current multiyear phase of driving profitable growth. For the second consecutive quarter, we generated positive net income and we set new company records for adjusted EBITDA, adjusted EBITDA margin and GAAP operating income. For the first time, quarterly adjusted EBITDA margin approached the midpoint of our long-term financial model EBITDA margin range of 8% to 13.5%, and we see meaningful opportunities for fundamental gains to drive towards the higher end of that range over time. Moving to our second quarter results.
Unless otherwise noted, all comparisons will be on a year-over-year basis. Q2 again demonstrated the strength of our differentiated business model. Retail units sold increased 33% despite continued focus on unit economics and profitability initiatives as the strong demand we experienced in Q1 continued into Q2. Revenue increased by 15%. Revenue grew less than retail units, primarily due to industry-wide declines in retail and wholesale vehicle average selling prices. In Q2, our operational teams focused on increasing production capacity to increase selection to more optimal levels for our customers. The teams met their production targets in the quarter, but we still remain below our target available website inventory due to continued strong demand.
In the near term, we will continue to increase production across the country. Our strong profitability results in Q2 were driven by meaningful fundamental improvements in GPU and SG&A expenses. In the second quarter, non-GAAP total GPU was $7,344, an increase of $314 and a new company record. Non-GAAP retail GPU was $3,539, an increase of $677 and a new company record. Our strength in retail GPU continues to be driven by fundamental gains and consistent performance in several areas, including uveal cost of sales, customer sourcing, inventory turn times and revenues from additional sources. Year-over-year changes were also driven by higher spreads between wholesale and retail market prices, partially offset by higher retail depreciation rates and a lower retail inventory allowance adjustment.” (Click here to see more…)
Overall CVNA ranks 5th on our list of the stocks with Jim Cramer’s attention. While we acknowledge the potential of CVNA 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 CVNA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
