We recently compiled a list titled Jim Cramer’s Top Stock Picks: 10 Stocks with High Potential. In this article, we will have a look at where Eaton Corporation plc (NYSE:ETN) ranks among the 10 stocks with high potential.

In a recent episode of Mad Money, Jim Cramer explains the current split between tech stocks and other sectors, noting that they often move in opposite directions. For instance, on a day when the Dow Jones Industrial Average gained 228 points and the S&P 500 rose by 0.13%, the NASDAQ—which is heavily weighted with tech stocks—fell by 0.52%.

“How did we get to this bizarre dichotomy between tech stocks and pretty much everything else, where the two groups now almost always seem to move in opposite directions? Take today: the Dow Jones Industrial Average gained 228 points, the S&P advanced 0.13%, but the NASDAQ—with all that tech in it—dropped a bomb. Yes, it fell 0.52%. How could there be such a schism?”

As a result, large institutions must shift investments between sectors since they can’t invest in both simultaneously. This situation is driven by market mechanics rather than fundamental news. When stocks are already performing well, attracting new investment is challenging, especially when safer investments offer decent returns. Consequently, either tech stocks or other sectors will perform well, but not both at the same time.

“It’s because there’s not enough money coming in from the sidelines, so these big institutions have to swap out of one group if they want to buy stock in another. Yet this action has nothing to do with fundamentals; it’s not about the news, it’s about pure market mechanics. When stocks are already red hot, it’s hard to attract new capital from the sidelines, especially when you can get a cozy 4% return for doing nothing. So, either tech wins or everything else wins, but there’s not enough cash for both of them to win at the same time.”

Market Shuffle: Winners vs. Losers and the Fed’s Big Decision

Cramer points out that this scenario leads to clear winners and losers instead of a spectrum of performance on a positive day. This is happening alongside uncertainty about whether the Federal Reserve will cut interest rates by 25 or 50 basis points in their upcoming meeting.

“What happens? We get winners and losers—not big winners and smaller winners, as you would normally expect on an up day like today. This is all against the backdrop of the big question: will the Fed cut rates by 25 basis points or 50 when it meets on Wednesday?

Now, you know me, I try to refrain from this parlor game of guessing the Fed’s next move based on the strength of the economy. Last week, when *The Wall Street Journal* indicated the Fed may actually be leaning toward 50 basis points, we saw this great migration into cyclicals, especially anything related to housing. Of course, last week, there was just enough good news to propel the entire market, which is why it was the best week of the year.”

Cramer also mentions that despite his tendency to avoid speculating on the Fed’s actions, recent market movements have been influenced by expectations about rate cuts. For instance, when The Wall Street Journal suggested that the Fed might opt for a 50 basis point cut, there was a significant shift toward cyclical stocks, especially those linked to housing. This shift, combined with other positive news, led to the best week of the year for the market.

“This leads me to this newfound great divide between tech and non-tech, because that’s how this market seems to be trading. It’s a big reason why I’m out here in Silicon Valley this week. Today, we saw a market that doesn’t believe in AI, AI, or tech in general, for that matter. It’s a market that believes a 50-basis-point rate cut will shift money from semiconductors to housing and anything housing-related, and people want to get ahead of that.”

“Anything But Tech”

Jim Cramer observed that Monday’s market saw a broadening of winners. Healthcare stocks, retailers, and consumer packaged goods companies all performed well. Even oil stocks, which have been struggling, are making a comeback. This is unusual because typically when cyclical stocks rally, sectors like healthcare and consumer products would decline. However, Cramer attributes this trend to a broader market shift he refers to as “ABT,” which stands for “anything but tech.” In other words, today’s market focus is on sectors outside of technology.

“Today, the winners broadened out. The healthcare stocks got jiggy, retailers worked, and consumer packaged goods companies outperformed. Even the much-maligned oils are rallying. It’s crazy—healthcare and consumer products should be selling off when cyclicals rally, but that’s not what’s happening because it’s *ABT*. No, I’m not talking about the symbol for Abbott Labs. ABT means “anything but tech,” and that’s what today’s market was about.”

Our Methodology

This article provides a summary of Jim Cramer’s latest Morning Thoughts, where he reviewed several stocks. We’ve chosen the ten most noteworthy companies he mentioned and ranked them according to how much they are owned by hedge funds, starting with the least owned and moving to the most owned.

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).

Eaton Corporation plc (NYSE:ETN)

Number of Hedge Fund Investors: 93

Jim Cramer shared that Citi has started covering Eaton Corporation plc (NYSE:ETN), a Club holding, with a buy rating and a price target of $348 per share, suggesting about a 14% potential increase from Friday’s closing price. Citi analysts believe Eaton Corporation plc (NYSE:ETN) is set for significant earnings growth due to rising demand for data centers and other large projects. They also noted that internal improvements have boosted Eaton Corporation plc (NYSE:ETN)’s profitability.

“Industrial analysts at Citi initiated coverage of Club holding Eaton with a buy rating and price target of $348 a share, implying about 14% upside from Friday’s close. Analysts said the electrical equipment supplier is well-positioned for outsized earnings growth in the years ahead due to booming data center demand and other megaprojects. Internal actions have improved profitability as well, Citi said.”

Eaton Corporation plc (NYSE:ETN) is a strong investment choice due to its impressive financial performance, raised guidance, and growth potential in electrification, energy transition, and industrialization. In Q2 2024, Eaton Corporation plc (NYSE:ETN) reported a record-setting 33% year-over-year increase in earnings per share (EPS) to $2.48, with adjusted EPS rising 24% to $2.73. Eaton Corporation plc (NYSE:ETN) also saw a 9% rise in organic sales and achieved a record $946 million in operating cash flow.

Eaton Corporation plc (NYSE:ETN) has upgraded its full-year 2024 guidance, forecasting 8-9% organic growth, segment margins of 23.3%-23.7%, and EPS between $9.38 and $9.48, reflecting an 18% increase from the previous year. Its focus on power management and energy-efficient technologies positions it well to benefit from the global shift towards energy transition and electrification.

Additionally, strong growth in its Electrical and Aerospace segments supports a positive outlook. Analysts generally recommend Eaton Corporation plc (NYSE:ETN) as a “Buy,” making it an appealing investment in the industrial sector.

Ave Maria World Equity Fund stated the following regarding Eaton Corporation plc (NYSE:ETN)  in its first quarter 2024 investor letter:

“Eaton Corporation plc (NYSE:ETN) is an intelligent power management company. The company is a long-term beneficiary in the trend towards electrification, energy transition and digitalization. Eaton is also benefiting from unprecedented global stimuli such as the Inflation Reduction Act, Infrastructure Investment and Jobs Act, the Chips and Science Act and the EU recovery plan known as the NextGenerationEU.”

Overall ETN ranks 4th on our list of Jim Cramer’s stock picks with high potential. While we acknowledge the potential of ETN 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 ETN 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 on Insider Monkey.