We recently compiled a list titled Jim Cramer’s Ultimate Stock Picks: 10 Hot Stocks to Consider. In this article, we will look at where RH (NYSE:RH) ranks among Jim Cramer’s 10 hot stocks to consider.
In a recent episode of Mad Money, Jim Cramer emphasized the unexpected strength in the market, pointing out that many companies are doing better than Wall Street realizes. He suggests that investors should stop second-guessing these companies every time negative news surfaces. Cramer praises the excellent management and execution by CEOs, which he feels often goes unappreciated.
“Suddenly, all is forgiven, or if not all, then at least most. I’m talking about the incredible resilience in this market, buoyed by a recognition that many companies are simply better than Wall Street gives them credit for. We need to stop turning against them every time there’s a seemingly bad data point. Every day I come to work, I’m dazzled by the resourcefulness of executives who do their best to create value for you, the shareholder. Lots of stocks went up on days like today when the Dow advanced 335 points, the S&P gained 75%, and the NASDAQ jumped 1.0%, all thanks to good management and excellent execution that often goes unnoticed.”
Jim Cramer acknowledges that while some CEOs might warrant skepticism, many are truly exceptional and deserve more recognition for their efforts. He criticizes the overemphasis on short-term economic indicators, arguing that great companies stay focused and aren’t thrown off by minor fluctuations.
“Listen, I’m not a pushover. I can hit CEOs with tough questions when needed, some of them deserve skepticism and scorn. But there are also plenty of brilliant, hardworking CEOs with incredible teams, and you ignore their hustle at your own peril. This often gets lost in the shuffle when we’re focused on the parlor game of guessing the Fed’s next move, a quarter point, half a point, quarter, half. You know what I say? Let’s get serious. Terrific companies don’t get caught up in that quarter-half shuffle.”
Cramer highlights Kroger CEO Rodney McMullen as an example of strong leadership. Despite facing challenges like opposition to its acquisition of Albertsons and a tough economic climate, McMullen has successfully managed to keep food costs down. Through strategies such as an effective loyalty program and improvements to regional stores, the company has performed well. After a strong earnings report, the stock rose more than 7%, reflecting a successful turnaround.
“CEO Rodney McMullen has managed to keep food costs down and deliver fantastic numbers, all while maintaining an expensive, unionized labor force in a very uncertain commodity environment. How? The company confounded critics by developing a superior loyalty program, regionalizing their stores, and creating some of the best private-label products out there, second only to Costco. Food is still expensive, but cooking at home is far cheaper than dining out. McMullen tells us that consumers are no longer flush with cash, especially his most budget-conscious clientele. He notes, “Budget-conscious customers are buying more at the beginning of the month to stock up on essentials, and as the month progresses, they become more cautious with their spending.”
Wow, that’s a tough environment! When I heard this, I thought back to the old company, the one that used to miss its numbers whenever the environment got a little tough. Everybody else remembers the old company too, which is why the stock was just sitting there waiting to be picked up, until this quarter’s report, after which it soared more than 7% in response to the fabulous results. Everyone thought the company would drop the ball, as they used to, but McMullen has finally whipped his supermarket into shape.”
In contrast, Cramer points out that the tech industry often suffers from misunderstandings due to its complex nature. He believes that Wall Street analysts frequently fail to appreciate the expertise and potential of tech CEOs who have a deep grasp of their businesses.
“We all need to eat, so it’s not hard to understand the grocery business. But it’s quite different when it comes to tech, where analysts constantly doubt the resolve and expertise of CEOs who simply know more about their businesses than the critics. In tech, the complexity often leads Wall Street to conclusions that have little to do with reality.”
Our Methodology
This article reviews a recent edition of Jim Cramer’s Morning Thoughts, where he covered different stocks. We have selected and analyzed the ten most notable companies mentioned, ranking them according to how much they are owned by hedge funds, from the least owned 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).
A customer happily browsing aisles of high-end furniture in a large showroom.
RH (NYSE:RH)
Number of Hedge Fund Investors: 39
Jim Cramer highlights that RH (NYSE:RH), known for its luxury home furnishings, has had an impressive quarter, with its shares rising nearly 20%. RH (NYSE:RH) reported better-than-expected revenues, earnings per share, and profit margins. Executives also forecast that demand will grow faster through the end of this year and into 2025. According to Cramer, RH (NYSE:RH) stands to gain from increased housing sector activity driven by lower interest rates.
“RH is back with a great quarter. Shares are jumping nearly 20%. The maker of luxury home furnishings reported better-than-expected revenues, earnings per share and margins. Notably, executives said demand trends are expected to accelerate throughout the rest of the year and into 2025. This is another stock that benefits from more activity in the housing sector spurred by lower rates.”
RH (NYSE:RH) is an attractive investment due to its strong recent performance, focus on the luxury market, and positive future outlook. In Q2 2024, RH (NYSE:RH) reported earnings per share (EPS) of $1.69 and revenue of $829.66 million, surpassing analyst expectations and showing a 3.6% increase from the previous year. This performance highlights RH (NYSE:RH)’s resilience amid economic challenges.
RH (NYSE:RH)’s focus on high-end luxury home furnishings gives it a competitive edge, as this market is less affected by economic fluctuations, providing stability against inflation and higher interest rates. RH (NYSE:RH)’s premium positioning allows it to maintain strong profit margins despite broader economic pressures. Analysts are optimistic, with Citigroup raising its price target to $355, citing strong demand and effective operations.
Baron Discovery Fund stated the following regarding RH (NYSE:RH) in its first quarter 2024 investor letter:
“During the quarter, we added to our position in RH (NYSE:RH), a high-end retailer of home furnishings and furniture that has a unique vision to transform from a domestic furniture company to a global luxury brand. Shares were pressured in the earlier part of the quarter due to shorter-term concerns regarding demand amid a volatile macroeconomic environment.
Despite these short-term pressures, we remain confident in RH’s ability to gain market share in the fragmented high-end furnishings market, and we see a multi-year growth pipeline driven by store expansion around the globe. We also believe that RH will see improvements in profitability as the brand returns to a fuller-priced sales environment, and as it begins to scale its early international investments.”
Overall RH ranks 8th on our list of Jim Cramer’s ultimate stock picks. While we acknowledge the potential of RH 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 RH 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.