Recently, Mad Money’s host, Jim Cramer addressed what he called a “ridiculous plethora of sell-side downgrades,” noting that the Dow Jones Industrial Average fell by 0.94%, the S&P 500 decreased by 0.96%, and the Nasdaq Composite dropped by 1.18% on Monday. While he acknowledged the session’s poor performance, he cautioned that paying too much attention to downgrades can be detrimental for long-term investors.
Cramer urged investors not to get overly influenced by the negative sentiment on Wall Street and emphasized the importance of staying committed to strong companies, even when their stock prices experience volatility. He recounted the history of the bull market, stating:
“When I look at the history of this incredible bull market, and it has been an incredible bull market, it’s littered with buy-to-hold, hold-to-sell, buy-to-hold, hold-to-sell. These downgrades scare you out of amazing stocks at levels that may temporarily be too high, but will recover later. If you listen to the downgrades, though, you’ll never recover with it.”
In discussing the challenges investors face, Cramer pointed out that many get rattled by analyst downgrades and might sell their shares in solid companies, which can make it difficult to buy back in later.
“In the last decade, the toughest thing to do is to hold on to good stocks. But analysts and commentators love to take aim at big long-term winners. Their jeremiads have scared so many people out of some amazing gains.”
He observed that complacency can be prevalent on Wall Street, with bullish investors often overlooking risks while bearish ones miss out on potential opportunities. For those considering action based on a downgrade, Cramer advised waiting for a bounce to sell, but he noted that timing such moves is “incredibly hard,” even for seasoned traders.
Cramer emphasized that when analysts downgrade stocks that have already taken a hit and overlook positive aspects, it can create a challenging environment. However, he believes it is still possible to profit. Here’s what he said:
“I need you to understand that when analysts downgrade after stocks have already been hammered, when really good investors ignore the positives, then, it may be a grim time. But not so grim that we can’t make money by focusing on the fundamentals of the companies. And not just the economy, the Fed, interest rates and oil.”
Jim Cramer on Netflix and Other Stocks
Our Methodology
For this article, we compiled a list of 15 stocks that were mentioned by Jim Cramer during his episodes of Mad Money on October 7 and October 8. 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).
15. LendingTree, Inc. (NASDAQ:TREE)
Number of Hedge Fund Holders: 17
LendingTree, Inc. (NASDAQ:TREE) runs an online platform in the United States that offers a range of financial services. Through its operations, the company provides consumers with access to mortgages, home equity loans, various credit products like credit cards and personal loans, as well as insurance options. When a viewer asked if they should continue to hold the stock, Cramer said:
“Yeah, you can continue to own it. Doug Lebda really kind of done a really good job there… Kind of an untold story and it’s a very good one. I’ve known him [Lebda] for many, many years and he’s doing quite well. I think you’re in good shape with that one in the future earnings. This current has not been that good, but I think going forward is going to be better.”
In the second quarter, LendingTree (NASDAQ:TREE) reported a solid performance with consolidated revenue reaching $210.1 million. The growth was significantly driven by the Insurance Segment, which experienced a 15% increase in revenue compared to the same period last year. The company’s GAAP net income for the quarter was $7.8 million, or earnings of $0.58 per diluted share.
On July 30, Oppenheimer raised the price target on LendingTree (NASDAQ:TREE) to $65 from $55 and kept an Outperform rating. The firm pointed to an accelerating trend within the insurance market, anticipating that consumer revenue will benefit from site conversion initiatives and lower interest rates in the latter half of the year. Oppenheimer also expects continued growth in the Insurance Segment through 2025, driven by strong demand in housing and recent approvals for premium rate increases in larger states like California.
14. SoFi Technologies, Inc. (NASDAQ:SOFI)
Number of Hedge Fund Holders: 29
SoFi Technologies, Inc. (NASDAQ:SOFI) has brought forward innovation in the financial services sector, providing a diverse range of offerings, including lending, banking, insurance, and investment solutions, all accessible through a single online platform. Cramer likes the stock and does not agree with the bears and the short sellers. He particularly likes the company’s CEO and made a point about him telling a good story.
“There are people who genuinely hate this company and it has a very big short position. But how many times have I asked Anthony Noto to come on and defend it? And every time he does and every time he tells a cogent story. So I am not backing away from Noto. I like the stock.
Hey listen, you can say, you know what Cramer, you’re just soft on Noto. Go check my record. Anthony and I would be the first to agree that that has not always been the case, right? Listen to me, this beautiful bull market is littered with analyst downgrades. So a lot of times if you listen to them, the stocks will just end up recovering but without you. Yes, they could go down but then they go back up. My advice is don’t let them go.”
SoFi Technologies’ (NASDAQ:SOFI) lending segment remains its largest area. However, it has successfully broadened its offerings beyond loans. Its white-label financial services infrastructure, known as Galileo, is noteworthy. The company’s offerings have attracted millions of members at a remarkable pace. The second quarter reported a 41% year-over-year increase in membership, bringing the total to nearly 8.8 million, with product offerings rising by 36%.
Despite facing challenges from a higher interest rate environment, SoFi Technologies’ (NASDAQ:SOFI) performance remains noteworthy. In the second quarter, the company achieved a revenue of $599 million, a 20% increase compared to the previous year. The growth, while slower than in previous periods, still highlights the company’s resilience and adaptability in a competitive financial industry.
13. Palantir Technologies Inc. (NYSE:PLTR)
Number of Hedge Fund Holders: 44
Palantir Technologies Inc. (NYSE:PLTR) specializes in developing and deploying advanced software platforms primarily for the intelligence community, focusing on counterterrorism investigations and operations. When Cramer was asked about the stock, he highlighted that it is owned and loved by individuals. He advised staying long and observing what comes next.
“Here’s the way I feel about Palantir. It’s a cold stock. Journalists called it that. I didn’t have to do that. But here’s what you know. This is owned by individuals. They love it, they walk it up every time it gets hit, they’re buyers. These things happen periodically. It happens to be a good company. I wouldn’t buy it up here, but the cold buyers can’t get enough and they take it higher seemingly every day. Stay long and see what happens.”
Over the past year, Palantir Technologies (NYSE:PLTR) has reported significant financial progress. In the second quarter, the company experienced a significant increase in its customer base, with a growth rate of 41%. Alongside this expansion, the average expenditure per customer rose by 14%, contributing to a revenue increase of 27%, which amounted to $678 million.
It marked the fourth consecutive quarter of accelerating revenue growth. Additionally, non-GAAP earnings per diluted share surged by 80%, reaching $0.09. The U.S. commercial segment has also shown remarkable performance, with revenue soaring by 55% year-over-year in the last quarter. The growth can be attributed in part to its boot camps, which are five-day sessions designed to educate potential customers on effectively utilizing artificial intelligence in critical operations. They have proven successful, as evidenced by an 83% increase in U.S. commercial customers during the second quarter.
In light of these positive developments, Palantir Technologies (NYSE:PLTR) management has revised its full-year guidance, now projecting a revenue increase of 23% for 2024, up from an earlier forecast of 21%. The adjustment reflects strong execution and performance surrounding the company’s Artificial Intelligence Platform (AIP), which has positively influenced its revenue trajectory.
12. Carnival Corporation & plc (NYSE:CCL)
Number of Hedge Fund Holders: 53
Carnival Corporation & plc (NYSE:CCL) is a prominent provider of leisure travel services, operating on a global scale. It is recognized for its diverse portfolio of cruise brands, which includes Carnival Cruise Line, Princess Cruises, Holland America Line, Seabourn, Costa Cruises, AIDA Cruises, P&O Cruises, and Cunard. When Cramer was asked by a caller if he liked the stock, he commented he liked Viking and Royal Caribbean better.
“Well, look, I don’t know about the actual weather forecast and where things are going to go. I do know that I do prefer Royal Caribbean. I think it’s got better balance sheets, got more momentum. But Carnival’s good… Look, these cruise stocks are really driven. They’re all good, but Royal Caribbean is my favorite. I also like Viking.”
It should be noted that in recent quarters, Carnival Corporation (NYSE:CCL) has seen a significant resurgence in business activity, with ships once again filled to capacity and bookings reaching unprecedented levels. The company reported remarkable results in its fiscal third quarter, achieving record figures in multiple categories. Revenue reached $7.9 billion, a 14% increase compared to the previous year. Additionally, operating income soared to $2.2 billion, marking a 34% rise year-over-year.
Adjusted EBITDA also experienced strong growth, totaling $2.8 billion, a 25% increase from the same quarter last year. Total customer deposits reached $6.8 billion, which points to strong future business prospects. For the upcoming fiscal fourth quarter, Carnival Corporation (NYSE:CCL) forecasts adjusted EBITDA to increase by 20%, projecting a figure of approximately $1.14 billion.
Additionally, the company expects adjusted EPS of $0.05, alongside a 3% growth in capacity compared to the prior year, with available lower berth days (ALBDs) estimated at 24 million. Furthermore, new yields are anticipated to rise by 7%, highlighting the company’s ongoing recovery and demand for cruise experiences.
11. RTX Corporation (NYSE:RTX)
Number of Hedge Fund Holders: 54
RTX Corporation (NYSE:RTX) is an aerospace and defense company. It offers a variety of systems and services tailored to meet the needs of commercial, military, and government clients both in the United States and globally. The company offers its services and products through three businesses, Collins Aerospace, Pratt & Whitney, and Raytheon. Cramer called the stock a winner and said to hold on to it, highlighting that it is not expensive.
“It only sells at 22 times earnings. It did hit an all-time high today, but you know what, it’s not expensive. It’s got a 2% yield. Here’s what I would do… You can try to cut the position back a little if it’s too big for you, but otherwise, you hold on. It’s a winner and nothing there shows me that it won’t continue to be so.”
Recently, RTX (NYSE:RTX) announced a quarterly dividend of $0.63 per share, payable by December 12 to shareowners of record on November 15. The company has consistently paid cash dividends on its common stock since 1936, highlighting a long-standing tradition of shareholder return.
During the second quarter, RTX (NYSE:RTX) showed substantial operational achievements, including a 10% increase in organic sales. The company also experienced adjusted margin growth across all three segments, complemented by an impressive $2.2 billion of free cash flow. Management highlighted its substantial backlog totaling $206 billion and commented that there is an unprecedented demand for its offerings. The company is concentrating on fulfilling customer commitments, driven by its CORE operating system, which facilitates efficient execution and management of operations.
10. DuPont de Nemours, Inc. (NYSE:DD)
Number of Hedge Fund Holders: 58
DuPont de Nemours, Inc. (NYSE:DD) is a technology-driven company that specializes in materials and solutions across various sectors. Cramer mentioned that Barclays dislikes the company. Cramer expressed that following analysts would have led to missing out on profits and likely selling shares before the three-way breakup orchestrated by Chairman Ed Breen, whom he regards as a top breakup strategist.
“Why does Barclays do this? Why did they downgrade it? Well, it took it to sell after a really nice run that you wouldn’t have caught a penny of if you listened to the analysts. You’d be selling it right now, before the three-way breakup masterminded by Chairman Ed Breen, one of the greatest breakup artists to ever play the game. Seems crazy to me. But I guess Barclays feels that Breen doesn’t know what he’s doing. I wouldn’t take that bet. I say buy DuPont.”
In May, DuPont de Nemours (NYSE:DD) announced plans to separate into three publicly traded companies. It included the divestiture of its Electronics and Water businesses, while the New DuPont continues to operate as a diversified industrial firm.
The new entity includes the Water & Protection segment (excluding Water Solutions), a majority of the Industrial Solutions segment, where healthcare is included, and certain businesses categorized under Corporate, such as adhesives. The combined businesses generated around $6.6 billion in net sales, with an operating EBITDA margin of approximately 24% in 2023.
Moreover, DuPont de Nemours (NYSE:DD) has revised its guidance for the full year 2024, indicating an optimistic outlook for net sales, operating EBITDA, and adjusted earnings per share. Management forecasts net sales to reach approximately $12.45 billion, with an operating EBITDA of around $3.085 billion and adjusted EPS estimated at $3.75.
As for the third quarter, the company expects to see organic sales growth return, driven by the Electronics & Industrial segment, with anticipated growth in both sales and earnings from Water & Protection starting in the fourth quarter.
9. Builders FirstSource, Inc. (NYSE:BLDR)
Number of Hedge Fund Holders: 59
Builders FirstSource, Inc. (NYSE:BLDR) is a manufacturer and supplier of building materials and construction services across the United States. Its extensive product line features manufactured components that play a vital role in various construction projects. Discussing the company, Cramer talked about hurricanes leading to renovation and remodeling and said:
“Builders First Source has some of that… The stock’s up a great deal. I like the company. It sells at 16 times earnings. It’s good.”
In the second quarter, Builders FirstSource (NYSE:BLDR) completed nearly $1 billion worth of share repurchases. Following this, in August, the company authorized an additional repurchase of up to $1 billion of its outstanding common stock. Since initiating the buyback program in August 2021, it has successfully repurchased approximately 93 million shares, representing 45% of its total shares outstanding, with an average purchase price of $76.65 per share, amounting to a total expenditure of about $7.1 billion.
For the full year of 2024, Builders FirstSource (NYSE:BLDR) forecasts net sales to fall between $16.4 billion and $17.2 billion. The company expects to maintain a gross profit margin ranging from 31.5% to 32.5%. This projected performance is grounded in several assumptions regarding market conditions.
Within its operational regions, single-family housing starts are expected to see a modest increase in the low single digits, while multi-family starts are predicted to decline by 25% to 30%. The company also forecasts that its remodeling and repair segment will remain flat compared to the previous year. Additionally, recent acquisitions completed within the past twelve months are anticipated to contribute an incremental net sales growth of 1.5% to 2.0%.
ClearBridge Investments stated the following regarding Builders FirstSource, Inc. (NYSE:BLDR) in its Q3 2024 investor letter:
“The Strategy has historically been underweight industrials and consumer discretionary sectors, but positioning moves over the last year have helped close these gaps and provided several new contributors this quarter. Builders FirstSource, Inc. (NYSE:BLDR), a supplier of building products, rose strongly in the quarter on optimism that rate cuts will improve demand for single family and eventually multifamily residential construction. Cintas, a uniform rental and facilities services company, put up solid results as cross-selling and margin expansion efforts continue to bear fruit. Starbucks also provided a lift as the stock reacted positively to the naming of a new CEO, industry veteran Brian Niccol, who is expected to reinvigorate operations.”
8. American Express Company (NYSE:AXP)
Number of Hedge Fund Holders: 68
American Express Company (NYSE:AXP) is a world-famous payments provider, extending a wide range of financial services that include credit and charge cards, banking solutions, and expense management services. In a recent episode of Mad Money, Cramer addressed JPMorgan’s recent downgrade of the stock from Buy to Hold, arguing that the company often rebounds quickly from such downgrades. He criticized the timing, given a potential rate-cutting cycle, and cautioned that selling now might lead to missing future gains. He said:
“.. JP Morgan downgrades the stock from buy to hold. America’s best, they say, ‘represents the asymmetric risk associated with a stock trading near the high end of its valuation range with limited upside to estimates.’ So they say, go elsewhere.
Do you know how many times Amex has been downgraded and gotten right off the canvas a few days later? Do you know how many times it’s bounced back almost immediately? This is the premium global credit card company in the world, and you’re downgrading ahead of a rate-cutting cycle. How about some history, for heaven’s sake?
I say if you sell it at $276, I hope you can get back in, I don’t know, at $264. If it reports a so so quarter, maybe you can do that. You might leave it, but you may never get back in. And therefore you might miss a much bigger bevy of points, which is what I’m worried about.”
Renowned for its prestigious brand, American Express (NYSE:AXP) has cultivated a reputation that appeals particularly to affluent consumers. Many individuals are willing to pay substantial annual fees for the privilege of carrying an American Express card, drawn in by the premium benefits and exclusive services associated with the brand.
In the second quarter, American Express (NYSE:AXP) reported a significant 44% increase in net income compared to the same period last year, which points to strong financial performance. The company achieved a record revenue of $16.3 billion, which marked an 8% rise in growth. Adjusted earnings per share also saw an impressive 21% increase, reaching new heights amidst a backdrop of favorable trends.
The positive trajectory has instilled confidence in management regarding future performance, leading to revised revenue forecasts for the full year. The company forecasts revenue growth between 9% and 11%, with adjusted EPS expected to range from $13.30 to $13.85, a significant upgrade from earlier estimates.
7. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 86
The Home Depot, Inc. (NYSE:HD) is a leading home improvement retailer. The company provides a diverse selection of products, including building materials, home improvement items, lawn and garden supplies, décor, and facilities maintenance products. Cramer likes the company, especially with the mortgage rate rising. He commented:
“Well, I think that Home Depot.. is really the sweet spot because you also have the remodel renovate that happens when you have these terrible hurricanes… A more pointed way to be involved right here with that mortgage rate back up is indeed with Home Depot.”
In response to changing consumer behaviors, particularly as rising costs have led many to postpone home improvement projects, The Home Depot (NYSE:HD) has pivoted its focus towards serving contractors and professionals in the field. A key move in this direction was the acquisition of SRS Distribution for $18 billion in June.
The acquisition is expected to improve the company’s offerings in roofing, landscaping, and pool equipment. Management estimates that this deal will significantly broaden the company’s market potential, expanding it to an estimated total of $1 trillion.
On October 9, Loop Capital upgraded The Home Depot (NYSE:HD) to Buy from Hold with a price target of $460, up from $360. The upgrade is owed to observations from store checks showing that demand in the home improvement sector may have stabilized after a period of decline, as per the firm.
Although the upcoming quarter may face challenges due to disruptions from hurricanes, the analyst suggests that investors are likely to remain optimistic about future demand growth. The swift resolution of the port strike has also contributed to this favorable outlook and the analyst is “pleased” with it.
Diamond Hill Capital stated the following regarding The Home Depot, Inc. (NYSE:HD) in its Q2 2024 investor letter:
“Other bottom Q2 contributors included Caterpillar and The Home Depot, Inc. (NYSE:HD). Similarly, home improvement retailer Home Depot faces growing concerns about the consumer spending environment — particularly for home improvement expenditures. However, we believe the company’s long-term prospects and multi-year fundamental outlook are unchanged.”
6. Dell Technologies Inc. (NYSE:DELL)
Number of Hedge Fund Holders: 88
Dell Technologies Inc. (NYSE:DELL) is known for designing, developing, manufacturing, marketing, and supporting a range of integrated solutions, products, and services. Mad Money’s host said that he likes Dell and said to go with the company’s stock and CEO.
“… Never bet against Michael Dell. I look at that stock every day and think if we didn’t have so many other AI-related semiconductor and hardware names, Dell would be top of my list. Michael Dell is working very closely with Jensen Huang to be able to make it so that if you want to integrate Nvidia into your operation, you go to Michael Dell. I think you should be going to Michael Dell and be a buyer of more stock in Dell.”
In the second quarter of fiscal 2025, Dell (NYSE:DELL) reported remarkable activity in its AI-optimized server orders, totaling $3.2 billion. The strong demand contributed to an ending backlog of $3.8 billion, which points to the company’s capacity to meet future needs.
The Infrastructure Solutions Group (ISG) demonstrated particularly strong performance during this period, achieving a record revenue of $11.6 billion, which was a substantial 38% increase year-over-year. Within the ISG, sales of servers and networking equipment experienced a surge, rising by 80% year over year to reach $7.7 billion.
Scout Investments, Inc. stated the following regarding Dell Technologies Inc. (NYSE:DELL) in its Q2 2024 investor letter:
“Dell Technologies Inc. (NYSE:DELL) was a top contributor despite reporting disappointing first-quarter earnings results, because investors looked through the near-term disappointment and expected strong growth from AI-related servers and personal computers. We expect Dell to participate in the growth of artificial intelligence hardware, especially as enterprises invest more aggressively. We like the company’s depth and breadth of products and services, as well as its focus on keeping costs low.”
5. The Walt Disney Company (NYSE:DIS)
Number of Hedge Fund Holders: 92
The Walt Disney Company (NYSE:DIS) is a significant force in the global entertainment industry and offers its services in various sectors including film and television production, streaming services, and theme park management. Cramer weighed in on the company and expressed a desire to buy the stock. He believes the stock is performing better than many realize and feels it deserves more recognition. Despite analysts being critical, he encouraged buying more shares of the company stock.
“It’s come down quite a bit. It sells at 18 times earnings. It’s down today because of I think the storms, but you know what? Disney is doing much better than people realize. And it’s about time, people started giving a little more respect. I’m a buyer of it. The analysts are dumping all over it. They’re dumping all over it now. I say buy more Disney.”
In the third quarter, Disney (NYSE:DIS) reported impressive financial performance, with revenues rising to $23.2 billion, up from $22.3 billion in the same period the previous year. The growth was attributed to strong results in both the entertainment segment and direct-to-consumer (DTC) services.
It achieved profitability across its combined streaming operations for the first time, a significant milestone that was reached ahead of prior expectations. The DTC segment, which has seen improvements, generated a positive operating income of $47 million in this quarter.
Disney (NYSE:DIS) is focused on its experiences segment, as this area plays a major role in the company’s competitive position. Recognizing its importance, the company has announced plans to invest $60 billion over the next decade to expand and advance its offerings in this segment. Additionally, the company updated its adjusted EPS growth target for the full year to an ambitious 30%.
Meridian Hedged Equity Fund stated the following regarding The Walt Disney Company (NYSE:DIS) in its Q2 2024 investor letter:
“The Walt Disney Company (NYSE:DIS) operates a diversified entertainment business with theme parks, media networks, and streaming services. We own Disney because we believe its strong brand, valuable IP, and expanding streaming offerings will drive sustainable long-term growth. The company’s stock, however, underperformed in the quarter due to concerns about a slowdown in growth at its theme park division. While park revenue still grew by 10% year-over-year, management’s commentary suggested a moderation in post-pandemic demand and rising costs, leading to a disappointing outlook for park operating income in the second half of the year. This overshadowed the positive news that the company’s streaming segment, driven by strong subscriber growth at Disney+, reached profitability ahead of schedule. We held our position and will continue to monitor the performance of the theme park division.”
4. Netflix, Inc. (NASDAQ:NFLX)
Number of Hedge Fund Holders: 103
Netflix, Inc. (NASDAQ:NFLX) is one of the biggest names in the entertainment industry. It delivers a wide range of content that includes TV series, documentaries, feature films, and games. Cramer discussed Barclays recently downgrading Netflix due to concerns about slowing growth and margin erosion, while Piper Sandler upgraded it, creating a divide among analysts. Cramer said:
“We got a genuine analyst gunfight over the stock of Netflix. Barclays downgraded the stock from equal weight to underweight. That’s actually hold to sell while keeping their very low price target at $550. At the same time, Piper Sandler upgraded Netflix from neutral to overweight, hold to buy, and took the price target from $650 to $800.”
Talking about Barclays’ downgrade, Cramer said:
“These argue, and I’m gonna quote, ‘Netflix’s premium valuation is predicated on revenue growth being at least in the low double digits for some time’. But they think it’s going to be hard for the streaming giant to hit those numbers. In fact, Barclays argues that even if Netflix hits its revenue targets, the stock’s current valuation pretty much assumes the company can more than double its subscriber base, which is a pretty tall order. As they see it, Netflix is now a slowing growth story like, it trades like a steady growth story. In their view, while the company still has levers that can boost growth, these all come with serious trade-offs… Barclays actually believes that Netflix will find it harder and harder to keep delivering, which is a problem because the stock now trades at over 30 times next year’s earning estimates. Barclays also argues that as Netflix moves from a pure subscription-based system to something more of a hybrid subscription and advertising model and the company invests in things like video games [and] live events, its margin expansion will slow.”
Cramer called the analysis “grim” and moved on to the bull case from Piper Sandler.
“Interestingly, this upgrade’s also based on valuation but in a much different sense. Right at the top of the note, Piper explains, ‘Our prior neutral stance was centered around valuation, but now we appreciate the company is expensive for a reason.’ Then they continue, ‘There are still levers to be pulled in the ads-free business, particularly around pricing while the ads tier has been largely de-risked heading into next year.’
In direct contrast [to] the Barclays downgrade, the Piper analyst says, ‘Consensus margins could also prove to be conservative in 2025 and 2026 based on the incremental margins over the last few quarters.”
Cramer added Piper also likes the upcoming slate and so does he. He went on to say:
“The Piper Sandler analysts argue, ‘Netflix still has levers to drive non-ads business.’.. They still think though that there’s room for subscriber growth. But more importantly, Piper claims that Netflix has more pricing power, which means they can generate double-digit revenue growth without adding as many new people. In fact, they expect a price increase soon on the back of a very strong content ramp.
… the last time Netflix reported, they had an incredibly strong demand from advertisers. Management decided to approach the space carefully. Piper thinks there’s room for some upside surprise in the ad front going forward. The work I’ve done on this shows you that they can target ads better than almost anybody in the world… As the pivot continues to streaming, we gotta expect the company’s gonna maintain its leadership position, particularly as it adds more and more live content.”
Cramer remains optimistic about the company, noting that since he last was bullish on the stock in April, it has increased over 26%, outpacing the S&P 500.
“I flat-out disagree with Barclays’ bearish assertion [that] Netflix can’t hit the revenue estimates. After a period in 2022 and 2023, where Netflix did indeed miss sales numbers several times, they’ve now beaten top-line expectations for four straight quarters.
More importantly, with their ad business now ramping plus additional revenue from paid sharing plans, the company has more optionality than ever when it comes to how they’re gonna hit those revenue targets. And with Netflix no longer giving quarterly subscriber metrics starting next year, I think they can focus solely on hitting revenue expectations. That’s the new key metric.”
Talking about the margin debate, Cramer expounded:
“Barclays is very negative here. Piper Sandler argues that even if Netflix can’t keep expanding margins like it did this year, that doesn’t mean it can’t keep putting out more gradual growth. And we agree with that line of thinking.”
Covering the valuation debate, Cramer concluded:
“… Barclays argues that the stock’s premium valuation requires the company to do certain things. And Piper Sandler says that Netflix is expensive for a reason… Maybe I’m wrong to be so blunt, but I honestly wouldn’t get too hung up on the price-to-earnings multiple for this company. It’s never pointed you in the right direction of the stock.
What’s more important is whether or not Netflix makes the numbers. If the company beats the earnings expectations as it has in 10 of the last 12 quarters, then we don’t need to worry about a stock’s premium valuation because the share price will look a lot cheaper in retrospect. If the company can’t make the numbers, then the stock’s got no reason to be expensive and it’s going to get hit.
But the bottom line, until we hear of anyone canceling the Netflix subscriptions, maybe because of price or about any real troubles with the advertising business, which we don’t, or about the out-of-control cost and video games or live events, none of which has happened then I think Netflix deserves the benefit of the doubt and that’s why I’m sticking with the bullish side of this trade. The bear thesis? I don’t know. Too hypothetical.”
Recently, Netflix (NASDAQ:NFLX) reported a good quarter, with a revenue growth of 17% and an increase in margins by 5% year-over-year. It has led to the growth of its streaming paid memberships, which now total 278 million, a 17% rise from the previous year.
Earlier this year, Netflix (NASDAQ:NFLX) achieved a significant milestone with its ad-supported tier, surpassing 40 million members, highlighting the platform’s ability to diversify its offerings and appeal to a broader audience. The company is now aiming for a full-year operating income margin of 26%, an improvement from the previously stated 25%.
3. Visa Inc. (NYSE:V)
Number of Hedge Fund Holders: 163
Visa Inc. (NYSE:V) is a well-known name in the global payment technology industry, operating extensively in both the United States and abroad. When a caller inquired about increasing their position in the stock, Cramer highlighted that its current valuation at 27 times earnings makes it prudent to wait for a better buying opportunity. He affirmed that the stock is a solid long-term investment and said:
“… Look, it sells at 27 times earnings. I’m waiting for Visa to come down at a discount. You don’t have that. Right now, I have to tell you, Mastercard is actually doing a little better than Visa. But no, no need to add a position on that. That’s not the right basis. Just keep looking. It’s a great long-term stock and I think it always will be as long as this is well run as it is now.”
Visa (NYSE:V) holds a significant portion of the U.S. credit card market. The market dominance is seen in the vast scale of operations, with more than 4 billion active credit and debit cards linked to its network. Over the past year, the company processed an astounding payment volume exceeding $3 trillion, evidence of its critical role in the financial ecosystem.
On September 26, Visa (NYSE:V) announced that it entered into a definitive agreement to acquire Featurespace, a company specializing in real-time AI solutions aimed at preventing payment fraud and mitigating financial crime risks.
The acquisition is set to advance its existing suite of fraud detection and risk-scoring tools that serve clients globally. By integrating Featurespace’s expertise, the company wishes to increase its capability to address fraud in real-time, and eventually provide added protection to the payments ecosystem through innovative AI-driven approaches.
The company’s commitment to security and technology investment is evident, with billions of dollars allocated over the past five years to improve its infrastructure against fraud and network security. The transaction, expected to finalize in fiscal year 2025, is expected to offer considerable advantages to financial institutions, consumers, and the broader payments industry.
Aoris Investment Management stated the following regarding Visa Inc. (NYSE:V) in its Q2 2024 investor letter:
“Visa Inc. (NYSE:V) operates the world’s largest payments network, which facilitates the movement of money between merchants, financial institutions, consumers, businesses, and governments.
The company is best known for enabling consumers to make debit and credit card payments. In the year to September 2023, 4.3 billion Visa cardholders made 213 billion transactions on its network, to a total value of US$12.1 trillion.
Compared to cash and cheques, which are still widely used around the world, Visa’s network is a more convenient, secure, and ubiquitous way for consumers to pay. Visa has invested to reduce friction and fraud in the payments experience, to the benefit of both merchants and consumers…” (Click here to read the full text)
2. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 184
Apple Inc. (NASDAQ:AAPL) is a prominent designer and marketer of a diverse range of consumer electronics, including smartphones, personal computers, tablets, and wearables. Cramer discussed Jefferies’ recent downgrade of the stock, which included a mixed assessment.
He discussed that while the analysts expressed a long-term positive view of the company’s unique ability to integrate hardware and software for affordable AI services, they also highlighted that the smartphone hardware needs significant updates for advanced AI, potentially delaying progress until 2026 or 2027. Talking about the analysts’ report, he said:
“Listen to this: ‘We like Apple Intelligence long term as Apple is the only hardware-software integrated player that can leverage proprietary data to offer low-cost, personalized AI services.’
So far so good, right? Then, though, quick pivot to the negative: ‘Smartphone hardware needs rework before being capable of serious AI with likely timeline of 2026/27.’… Jeffries claims the high expectations for the iPhone 16 and 17 are premature and the price-to-earnings multiple is near an all-time high. And you know what? That’s all true.
Apple really is facing some near-term headwinds. The hardware may not be ready, but all this tells me is what everybody else has been saying for weeks now, real issues for the 16. When everyone knows there are real issues, though, you’re going to have a limited window to buy the stock after the expected post-quarter weakness. Unless you believe that nothing good will happen until 2026/27… If you believe that, it means that you think Tim Cook’s authorizing the sale of phones that he knows are substandard. It’s almost as though the entire history of Apple refusing to issue hardware before its time never happened. I mean, it’s like you can’t trust the guy. I say that’s some Joseph Stalin-level revisionist history for you. This downgrade is betting against Apple’s entire culture of excellence. Even when they argue that the valuation is too high, that presumes Apple’s service revenue stream gross margin bonanza will somehow taper off. I don’t buy it.”
Cramer also noted potential benefits from the Chinese government’s economic measures, given the company’s exposure to that market. He mentioned strong sales reported by T-Mobile and said:
“Oh, and by the way, let’s remember [the] Chinese government finally training the bazooka on their flailing economy. It looks like their consumers will get some free money. That’s huge because Apple’s got a ton of exposure to China… With all the talk about the iPhone 16 disappointing, does it matter that T Mobile, one of the biggest sellers of the thing, told me personally that sales are good? I think it should matter… I say own it. Don’t trade it too hard.”
In 2023, the iPhone achieved a significant milestone by becoming the leading smartphone in the market, surpassing Samsung for the first time, according to IDC. Despite this achievement, Apple (NASDAQ:AAPL) still held only 20% of all smartphone shipments last year, which points to considerable room for further growth. The introduction of new AI services and features could substantially increase the iPhone’s appeal and solidify its position in the competitive smartphone market.
The company has shown strong profitability, generating $101 billion in profit from $385 billion in revenue over the past year. In the latest quarter, service sales grew by 14.1%, reaching $24.2 billion, with this category enjoying a much higher gross margin of 74% compared to the 35.3% margin for products.
Columbia Contrarian Core Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“Apple Inc. (NASDAQ:AAPL) – Despite the stock falling after announcing earnings in late May, Apple regained ground toward the end of the quarter, fueled by the company’s long-awaited AI announcement at its annual Worldwide Developers Conference (WDC). At the conference, the company showcased some of its new AI features powered by Apple Intelligence that would be coming to Apple products and also announced a partnership with ChatGPT. Investors greatly welcomed the announcement of Apple’s AI strategy and the stock surged, passing Microsoft as the world’s most valuable company (although this hallmark wouldn’t last). Beta testing of these new features will be coming later this summer, but the initial promise and excitement looks to be a potential catalyst for an upgrade cycle, as the company looks to persuade users who have had the same smartphone for years to consider an upgrade.”
1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 308
Amazon.com, Inc. (NASDAQ:AMZN) is a global powerhouse in the retail industry, offering a wide array of consumer products through both online and physical platforms. Recently, Jim Cramer discussed Wells Fargo’s downgrade of Amazon. He noted the stock’s drop from $184 to $161 but its recent rise to $186. He said:
“First downgrade, Amazon by Wells Fargo titled “Positive Revision Story on Pause Reducing to Equal Weight”. Totally get it, lots of headwinds, stock’s abused from the so-called bad quarter when Amazon fell from $184 to $161. Since then, it’s traded as high as $195, but it’s $186 as of last week. It’s time to sell? I’m not so sure.
What do these analysts fear? Amazon spending a lot on a ton of initiatives, worries about Walmart impact. So there’s a slight estimate cut, too. Wait a second. I say. How many times, how many times has Amazon been up against headwinds? Do you know how many times the company’s made some inexplicable moves? This is nothing new. Yet Amazon has always come back. It’s in their culture. It’s in their DNA. It always does.”
Cramer emphasized that the company has historically faced challenges and always rebounded. He suggested that while the stock may dip, he believes it will recover again. He added:
“I remember a year and a half ago when I was screaming at them because Amazon Web Services was underperforming. Came right back. Last time they reported, I was in disbelief at the Olympics and the attempted assassination of Donald Trump led to a light third-quarter sales guide. I was apoplectic at the Alexa losses and what happens? Comes right back.
So I say knock yourself out and sell it if you have to. Let me ask you, did you sell Amazon at $161 after that last supposedly bad quarter? How did it feel when the stock didn’t bounce to $195? Once again, I think it’s just a matter of time before Amazon bounces back. As usual. No hurry. Stock does seem to be headed lower, I’ve no doubt about that. I get it. But sell to buy it lower? Can you really get back in that? Too hard.”
While Amazon (NASDAQ:AMZN) generates a significant portion of its revenue from its retail operations, it finds a substantial share of its profits through Amazon Web Services (AWS), which stands as one of the largest cloud infrastructure providers worldwide. This segment operates with considerably higher margins compared to retail.
The ability to provide discounts, free shipping, and affordable hardware options for Prime members has been pivotal in Amazon’s (NASDAQ:AMZN) growth strategy. With over 200 million Prime subscribers globally, the company has cultivated a loyal customer base. As of the second quarter of 2024, AWS commanded a significant 33% share of the cloud infrastructure market.
It reported mixed outcomes in its second-quarter earnings report. The company saw revenue rise by 10% to reach $148 billion, which fell slightly short of analysts’ expectations. However, it reported a notable increase in GAAP net income, which surged 94% to $1.26 per share, exceeding forecasts.
While we acknowledge the potential of Amazon.com, Inc. (NASDAQ:AMZN) 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 AMZN 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’.
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