We recently compiled a list of Jim Cramer’s 10 Stock Picks You Shouldn’t Miss. In this article, we are going to take a look at where DuPont de Nemours Inc. (NYSE:DD) stands against Jim Cramer’s other top stock picks.
Jim Cramer reacted to Monday’s market by questioning if there’s any money left to invest and why mutual funds aren’t holding enough cash. The S&P 500 fell 17.77 points, or 0.3%, to 5,616.84. The Dow Jones Industrial Average rose 65.44 points, or 0.2% to 41,240.52. The Nasdaq composite fell 152.03 points, or 0.9%, to 17,725.76.
“What do we do if we’re out of money? Don’t mutual funds have enough cash? That’s my reaction to today’s market action. Right now, mutual funds know they have to pivot out of consistent growth stocks, especially tech stocks like software and semiconductors, which don’t benefit from rate cuts. They need to swap into companies that can supercharge their earnings as the Fed lowers rates. We all recognize that cyclical stocks, the ones that benefit from lower rates, can go higher, maybe much higher.”
Cramer pointed out that mutual funds now need to shift away from consistent growth stocks, particularly in tech sectors like software and semiconductors, which don’t benefit from interest rate cuts. Instead, they should move towards companies that can boost their earnings as the Federal Reserve reduces rates.
“What’s painful for many of you are the declines in stocks of companies with consistent earnings. These companies, especially tech firms, don’t really need lower rates, and they’re selling off as money managers raise capital to rotate into the rate-cut winners.
So, why don’t we go over the winners and talk about the losers? The rate-cut winners are divided into two camps: stocks with high dividend yields and cyclical companies with earnings that should go higher because lower rates will bolster various industries, especially housing.”
Cramer explained that cyclical stocks, which tend to perform better with lower rates, are likely to rise, possibly significantly. However, the decline in stocks of companies with stable earnings, especially in tech, is troubling for many investors. These stocks are being sold off as money managers raise capital to invest in those poised to benefit from rate cuts.
Cramer emphasized that it’s important to understand who the winners and losers are in this situation. The winners include two groups: high-dividend-yield stocks and cyclical companies expected to see earnings growth from lower rates, particularly in the housing sector.
Cramer noted that housing stocks, which had seen significant gains, were down on Monday because hedge funds and mutual funds had bought heavily before the Federal Reserve’s Jackson Hole meeting. While mutual funds are holding on, hedge funds are cashing in their profits, as these stocks had sharp increases before the event. For traders, taking profits after such a successful trade is standard practice.
“Let’s start with the most direct beneficiaries: housing. These stocks were all down today because hedge funds and mutual funds bought them aggressively ahead of Friday’s Jackson Hole verdict. Mutual funds are staying long, but hedge funds are ringing the register furiously because they’ve made so much money. Housing stocks had parabolic moves going into the Fed’s Jackson Hole conference, so now these portfolio managers are just taking profits. That’s what you’re supposed to do with a successful trade if you’re a trader.
Remember, these guys are traders, not investors. So, the housing trade is over, but what about the housing investment? I believe Toll Brothers, which just reported a stellar quarter last week, can go higher, maybe much higher. But this reversal is going to constrain the stock because people do not like the technical trends we just saw. We’ve seen multiple long-term reversals after these kinds of moves, and they rarely turn out to be buyable, even though in theory, this should be a great moment for the stock of all the homebuilders.”
Cramer believes that while the housing trade may be over for traders, the housing investment story isn’t finished. He also warned that the recent reversal in housing stocks could limit their potential, as investors are wary of the technical trends.
“It doesn’t matter, though. This kind of reversal I’m talking about can be hideous. Some of these stocks are very close to their highs, and I don’t like that.”
Cramer cautioned that these kinds of reversals can be severe and might discourage new buyers. He reminded everyone that by the time the Federal Reserve signals a clear path forward, it might be too late to buy the most obvious rate-cut winners. According to Cramer, it’s better to wait for these stocks to pull back and recharge before making a move.
“Those who have them can hold on, but they flew too close to the sun to attract new buyers. Remember, I’ve said all along that by the time the Fed gives the all-clear, it may be too late to buy the most obvious rate-cut winners. You have to let them recharge, let them come down, and then you can pull the trigger.”
Our Methodology
In this article, we analyzed a recent episode of Jim Cramer’s Mad Money and picked the ten notable stocks he mentioned. We also explore what hedge funds think about these stocks and rank them based on how many hedge funds own them, from the fewest 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 closeup of a hand manipulating a complex piece of machinery in a semiconductor factory.
DuPont de Nemours Inc. (NYSE:DD)
Number of Hedge Fund Investors: 58
DuPont de Nemours Inc. (NYSE:DD) is a global science and technology company known for its innovations in materials science, electronics, and specialty products. Jim Cramer highlights DuPont de Nemours Inc. (NYSE:DD) as one of his top picks. DuPont de Nemours Inc. (NYSE:DD) is in the process of splitting into three separate companies, with one of these—classic DuPont—holding Tyvek, a well-known product used in housing construction. Cramer believes this division, which is owned by the Trust, has significant potential for further gains.
“One of my favorites, though, is DuPont, which is splitting into three companies, one of which—classic DuPont—has Tyvek, the obvious housing play. The Trust owns it, and I think it could rally much further, especially if it gets bids for its water division, which is technically for sale.”
DuPont de Nemours Inc. (NYSE:DD)’s recent performance reveals strong growth prospects, driven by strategic actions and improved financial results. In the second quarter, DuPont de Nemours Inc. (NYSE:DD) achieved a 2% increase in net sales, reaching $3.2 billion. This growth was supported by the Spectrum acquisition, despite facing a 2% negative impact from currency fluctuations. DuPont de Nemours Inc. (NYSE:DD)’s emphasis on productivity, operational efficiency, and cost-saving measures from recent restructuring efforts is fueling growth in sales, margins, and cash flow.
Here’s what DuPont de Nemours Inc. (NYSE:DD)’s CFO, Antonella Franzen has to say in their latest earnings call:
Our second quarter results were clearly encouraging. Volume recovery is a key driver of our improved Q2 financial performance. Additionally, our ongoing commitment to drive productivity and operational excellence as well as continued savings from restructuring actions announced last November are also contributing to top line growth, margin expansion and cash flow improvement. Net sales of $3.2 billion increased 2% versus the year ago period, as a favorable portfolio benefit of 4%, reflecting the Spectrum acquisition was partially offset by a 2% currency headwind.
Organic sales were flat as a 2% increase in volume was offset by a 2% decrease in price. Higher volume was driven by broad-based growth in electronics markets within semi and interconnect solutions with year-over-year reported volumes up more than 20% and mid-teens, respectively. These gains were partially offset by year-over-year declines in China within Water Solutions as well as Tyvek Medical packaging. However, we did see sequential improvement in these areas, as Lori mentioned. On a segment view, E&I organic sales inflected to grow 8% while W&P organic sales decline moderated to 6%. Organic sales in corporate decreased 5% versus the year ago period. From a regional perspective, Asia Pacific delivered 3% organic sales growth versus the year ago period with growth driven by China, where organic sales were up 8%, led by strong growth in E&I.
In other regions, the North America was down 2% and Europe was down 7%. Second quarter operating EBITDA of $798 million increased 8% versus the year ago period as volume gains, lower product costs, Savings from restructuring actions and the earnings contribution from Spectrum were partially offset by higher variable compensation. Operating EBITDA margin during the quarter was 25.2%, up 130 basis points versus the year ago period and up 190 basis points sequentially from first quarter. Additionally, I am very pleased with our cash flow performance as we reported another quarter of strong cash generation and conversion. On a continuing operations basis, cash from operations of $527 million, less capital expenditures of $102 million, resulted in adjusted free cash flow of $425 million.” (Click here to see more…)
Overall DD ranks 5th on our list of Jim Cramer’s top stock picks. While we acknowledge the potential of DD 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 DD 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.
