Jim Cramer, the host of Mad Money, recently expressed concern that some investors are overlooking potential market opportunities by fixating on the Federal Reserve’s next moves regarding interest rates. He emphasized that, over the years, many in the investment community have become overly reliant on the Fed’s actions rather than focusing on individual companies and their profitability.
“Everyone who’s obsessed with the Fed’s next foray is basically investing with blinders on, and as a result, they’re missing out on some of the greatest moves I’ve ever seen in my life. Moves coming from the most unlikely of stocks. And I don’t want to see you ignoring these opportunities anymore.”
Cramer said that he is an admirer of Fed Chair Jay Powell, but he recognizes the limits of the Fed’s influence. He noted that while Powell wields significant power, he cannot dictate the performance of high-quality companies that are less affected by economic cycles. According to Cramer, when a company is not tied to the business cycle, it is less susceptible to the whims of the Fed. However, many traders still seem oblivious to this reality.
“… I needed to say something because over the past couple of decades, so many people in this business have become creatures of the Fed, not of companies and the profits that they make. Unless the Fed’s happy… unless it has its pound of flesh, these Fed watchers won’t pull the trigger and buy stocks, even stocks of companies have almost nothing whatsoever to do with our central bank and are doing really well.”
He highlighted that fear of the Fed often extends to stocks that appear pricey based on earnings multiples, particularly when investors worry that the Fed might have to abandon rate cuts to combat inflation. This fear, he noted, can drive investors away from promising sectors, like semiconductors. While Cramer acknowledges the importance of being aware of the Fed’s actions, he insists that it should not become an obsession. He believes that although the Fed has considerable influence, it is not all-powerful.
He clarified that he does not claim the stock market will never decline during periods of Fed easing, but he maintains that there are limits to the Fed’s impact.
“I’m not saying the stock market will never go down when the Fed’s easing… I am saying there are limits to what the Fed impacts. And I swear by the managers who know a lot about business, and who don’t cower when Jay Powell grabs the mic to talk about the pace of rate cuts.”
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Our Methodology
For this article, we compiled a list of 7 stocks that were discussed by Jim Cramer during his episode of Mad Money on October 17. 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).
7. The Travelers Companies, Inc. (NYSE:TRV)
Number of Hedge Fund Holders: 38
Cramer discussed The Travelers Companies, Inc. (NYSE:TRV) in light of the behavior of many investors who religiously follow the Fed rather than focusing on a company and its profits. and more. Here is what Mad Money’s host had to say:
“Consider just this one-day snapshot, Travelers, the giant insurance company, reported earlier this morning, I saw sellers swarm. Why? I think they saw that retail sales were too strong, which made them think that bond yields would shoot up, which is exactly what they did. But these sellers were too clever by half. Travelers’ been raising its premiums and making a ton of money in the premiums. So what happens to the sellers? They lost their French collared shirts today as the stock of this Dow component overtly soared 9% to a new all-time high.
There’s nothing static about Wells Fargo’s Charlie, like Blackstone’s Schwarzman and Gray, like Alan Schnitzer at Travelers, really knows how to do business in any environment. If you own their stocks, you don’t need to obsess over the Fed’s next move. You just need to know that these brilliant executives are steering their ships with the brains that got them to the top in the first place. They are not pitiful, helpless giants cowering in the face of the Fed. They’re intimidatingly smart people.”
The Travelers Companies (NYSE:TRV) is a provider of commercial and personal property and casualty insurance products and services to businesses, government entities, associations, and individuals through its various subsidiaries. In its recent third-quarter result, the company reported a strong set of financial results that stand out in the current earnings season. Revenue for the quarter rose by 12% year-over-year, reaching $11.9 billion. The core income saw a remarkable increase, nearly tripling to exceed $1.2 billion. Both of these figures surpassed analysts’ expectations, highlighting the company’s effective performance during this period.
The Travelers Companies (NYSE:TRV) also experienced a 10% increase in net written premiums, totaling $10.7 billion, which significantly contributed to a remarkable 102% rise in earnings per share, reaching $5.24. It not only represented a substantial gain but also exceeded consensus estimates by a wide margin. The impressive earnings were largely driven by a successful underwriting quarter, reflected in a combined ratio of 93.2%. It showed a marked improvement in underwriting results compared to the previous year, with a significant 7.8-point decrease from Q3 2023. Additionally, the company recorded a net favorable development of $126 million.
6. BlackRock, Inc. (NYSE:BLK)
Number of Hedge Fund Holders: 47
Cramer’s Charitable Trust recently initiated positions in two stocks, one being BlackRock, Inc. (NYSE:BLK). He said:
“I chose technology and financials… The latter, BlackRock, we bought that one, too, demonstrated such success with this quarter that I wanted the Trust to own shares right alongside CEO Larry Fink.”
BlackRock (NYSE:BLK) is an investment management firm that offers global risk management and advisory services. The firm provides a wide range of investment products designed to meet the needs of various clients. In the third quarter, it achieved a record high in assets under management, reaching $11.48 trillion, a substantial increase from $9.10 trillion a year prior and represents a rise from $10.65 trillion in the previous quarter. The growth was owed to significant inflows into the company’s exchange-traded funds (ETFs) and a significant equity rally, which positively impacted the value of clients’ investments.
Net income for BlackRock (NYSE:BLK) rose to $1.63 billion or diluted EPS of $10.90, compared to $1.60 billion and $10.66 per share in the same period last year. In terms of inflows, the firm registered $160 billion in long-term net inflows during the third quarter, contributing to total net inflows that reached a record $221.18 billion, a significant increase from just $2.57 billion in the prior year. ETFs were a major driver of this growth, attracting $97.41 billion, while fixed-income products saw inflows of $62.74 billion.