We recently compiled a list of the Jim Cramer’s Latest Lightning Round: 10 Stocks to Watch. In this article, we are going to take a look at where Littelfuse, Inc. (NASDAQ:LFUS) stands against the other stocks to watch according to Jim Cramer.
The host of Mad Money, Jim Cramer, shared his insights on the persistent issue of inflation. He emphasized that companies need to lower their prices to entice consumers in today’s economic climate. Cramer pointed out the hesitation many companies exhibit in reducing prices.
Cramer said:
“Companies are so reluctant to take prices down because they don’t want to hurt their treasured gross margins but I think it may be time for a giant reset.”
While prices may have stabilized and no longer surged as they once did, Cramer warned that this does not imply they are decreasing. He believes many companies are failing to recognize the necessity for price rollbacks.
He gave a few examples from the liquor industry, where some producers have said that declining sales shifts are because of consumer preferences toward healthier lifestyles rather than acknowledging high prices.
Cramer went on to say:
“Funny enough, if you keep prices low, you can indeed make it up in volume because the consumer is a lot smarter than some of these companies are ever willing to admit.”
Cramer mentioned that both consumers and Wall Street are responding positively to companies that have opted for discounts or price reductions. He talked about the decision by McDonald’s to extend its $5 value meal, which has successfully attracted lower-income customers, and it led to an increase in its stock value.
Cramer mentioned that giants like Amazon, Costco, and Walmart have seen substantial stock gains this year. Cramer believes that businesses willing to reduce prices can compensate for their margins through increased sales volume.
Cramer speculated:
“I think we’ll look back on 2024 as the year when consumers took matters in their own hands and actually said no to inflated prices.”
He warned that companies that fail to adapt may face dire consequences, including leadership changes and plummeting stock prices. Talking about the consequences, he said:
“The result? Fired CEOs and crushed stock prices for all those who refused to heed the thunder, the thunder of those angry consumers who finally just said no to the scourge of inflation.”
Our Methodology
For this article, we compiled a list of 10 stocks that Jim Cramer talked about during the lightning rounds of his Mad Money episodes on October 1 and 2. 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).
A close-up of a technician’s hands installing a circuit protection device.
Littelfuse, Inc. (NASDAQ:LFUS)
Number of Hedge Fund Holders: 30
Littelfuse, Inc. (NASDAQ:LFUS) designs and manufactures electronic components. Within the Electronics segment, it produces a wide range of products, including fuses and diodes, catering to critical markets such as automotive and telecommunications.
Its Transportation segment specializes in circuit protection solutions specifically for heavy-duty vehicles and agricultural applications. Meanwhile, the company’s Industrial segment is dedicated to safety devices aimed at improving renewable energy systems and factory automation processes. It serves over 100,000 end customers across various industries.
The stock is trading at a forward PE multiple of 31, an over 30% premium compared to its sector median. With regards to the company, Cramer said:
”…It’s got a huge multiple for its growth rate, and that is worrisome to me. I’m going to have to say we got to come back with something that is less expensive.”
While the stock is expensive, Littelfuse (NASDAQ:LFUS) reported an operating cash flow of $69 million in the second quarter, contributing to a year-to-date free cash flow generation of $92 million, which shows a remarkable conversion rate of 98%.
The company has also effectively managed its inventory, reducing both inventory days and dollar amounts, which has positively impacted its cash flow. Management has a strong focus on financial health, hence the company ended the quarter with $562 million in cash and maintained a net debt-to-EBITDA ratio of 1.6 times.
Management continues to emphasize achieving a 100% free cash flow conversion rate for the year, which is in line with their long-term strategic goals. Littelfuse (NASDAQ:LFUS) plans to prioritize free cash flow for acquisitions while also returning capital to shareholders through dividends and share buybacks.
In the first half of 2024, the company has already returned $73 million to shareholders. Since its inception in 1927, it has demonstrated a strong capacity for cash generation, evidenced by a consistent 12% compounded annual growth rate in its dividend.
Overall LFUS ranks 6th on our list of the stocks to watch according to Jim Cramer. While we acknowledge the potential of LFUS 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 LFUS 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.
