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.”
Jim Cramer on Taiwan Semiconductor Plus Others
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.
5. Blackstone Inc. (NYSE:BX)
Number of Hedge Fund Holders: 58
Cramer discussed Blackstone Inc.’s (NYSE:BX) position post-rate cutting and emphasized the brilliance of the company’s leadership and the effectiveness of its strategies.
“What about Blackstone, the enormous private equity firm that invests in everything from real estate to data centers? The knee-jerk Fed worshippers hear the name Blackstone, they think investments, and to them, any company that’s all about investments is a company that lives and dies by the Fed. If retail sales are too strong, rates shoot up, as they did this morning. These eccentric stooges run from Blackstone. Never mind that Blackstone reported one terrific quarter, one that eventually sent the stock up more than 6%, new all-time high.
In the end, Blackstone is less levered to the Fed and more levered to the brains of its brilliant executives. When you buy shares in Blackstone, which I wanted to do so badly for my Charitable Trust, but didn’t get a chance to, you’re not buying the musings of the Fed chief during a strange, stilted Q&A session with reporters. You’re buying the life’s work of some of the smartest people in the business world. If you remember that, you will indeed profit from it.”
Blackstone (NYSE:BX) is a leading alternative asset management firm, with expertise in real estate, private equity, hedge fund solutions, credit, secondary funds of funds, public debt and equity, and multi-asset class strategies. On October 17, the firm reported its financial results for the third quarter, which showed growth across various segments. Total revenue increased by 5% year-over-year, reaching $2.43 billion, largely driven by an influx of $40 billion in capital deployment.
Additionally, distributable earnings per share rose by 7%, hitting $1.01. The company’s assets under management also reached an all-time high of $1.11 trillion, a 10% increase compared to the previous year. The rising value of its funds further shows the firm’s effective investment strategies and strong market positioning.
For the future, Blackstone (NYSE:BX) management expressed a commitment to expanding into private wealth channels, alongside a focused approach toward infrastructure and credit markets in Asia.
4. CrowdStrike Holdings, Inc. (NASDAQ:CRWD)
Number of Hedge Fund Holders: 69
Cramer recently mentioned that his Charitable Trust initiated a position in CrowdStrike Holdings, Inc. (NASDAQ:CRWD) and said:
“… I chose technology and financials. The former, CrowdStrike, is a high flyer that sells for 85 times earnings. That’s supposedly the kiss of death if you’re worried about what you’ll hear from the Fed heads when they come on television and speak at some austere civic organization…”
CrowdStrike Holdings (NASDAQ:CRWD) offers cybersecurity solutions, serving clients both domestically and globally. The company’s unified platform provides comprehensive, cloud-based protection for endpoints, cloud workloads, identity, and data. In July, a significant IT outage because of a glitch within its software led to considerable disruption across various sectors. However, the company’s swift response played a crucial role in managing the situation.
The company took immediate responsibility and quickly rolled out a fix. The proactive approach demonstrated a commitment to maintaining the integrity of its software and prioritizing long-term reputation over short-term consequences.
At the Fal.Con conference in September, CEO George Kurtz highlighted CrowdStrike Holdings’ (NASDAQ:CRWD) resilience in the wake of the incident. He reported a remarkable 98% gross spending retention rate. Furthermore, he noted that the company’s pipeline generation had rebounded to levels seen prior to the outage, suggesting that the incident did not significantly hinder its business operations. Furthermore, the company’s leadership has previously stated an ambitious target of reaching $10 billion in annual recurring revenue in a few years.
3. Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Holders: 83
Cramer said that the Charitable Trust owns Wells Fargo & Company (NYSE:WFC) and commended the CEO on his well-thought strategies. Here’s what he said:
“Then there’s Wells Fargo. We’ve gotten a series of strong economic numbers of late, which makes the Fed watchers assume that we’re looking at a series of slow and deliberate rate cuts. Nothing fast. Maybe we won’t even get one in November.
What happens to Wells Fargo then? We own this for the Charitable Trust. And if you really believe the rate cuts will slow to a crawl, I think it’s reasonable to be concerned. But what if, heaven forbid, the CEO set up Wells Fargo’s portfolio precisely for this moment? And that’s what CEO Charlie Scharf told us on Tuesday, we went up to see him. Turns out Scharf’s just real smart. He figured this stuff out. You weren’t levered to a group of Fed officials who were playing with dots… You’re dealing with someone smarter than you are…”
Wells Fargo (NYSE:WFC) is a major global financial services institution, offering a range of banking, investment, mortgage, and financing solutions. With assets exceeding $1.9 trillion, the company plays a significant role in the financial sector.
On October 11, the company shared its financial results for the third quarter, reporting a net income of $5.11 billion. The figure marks a decrease from the $5.77 billion recorded in the same quarter last year, although it exceeded analysts’ forecasts. Revenue for the quarter amounted to $20.37 billion, also down compared to the previous year, yet slightly above expectations. Additionally, the company has a history of returning excess capital to shareholders, highlighted by a 14% increase in the common stock dividend for the third quarter and the repurchase of $3.5 billion in common stock during this period. Over the first nine months of the year, the total stock repurchased exceeded $15 billion, which was a more than 60% increase compared to the same timeframe last year.
In an appearance on Mad Money on October 15, Wells Fargo’s (NYSE:WFC) CEO Charles Scharf discussed the current economic landscape. He noted a gradual rise in consumer spending across both debit and credit transactions and confirmed that deposit balances remain solid, with credit quality continuing to perform well. Scharf expressed admiration for the Federal Reserve, acknowledging its effective management of the economy amid challenging conditions.
While Scharf emphasized the importance of quarterly results, he remarked that the market tends to focus excessively on these reports compared to management’s perspective. He highlighted the stock’s performance, which fell after the previous quarter’s results but rebounded following the latest announcements, despite trends and business strategies remaining largely unchanged.
2. Netflix, Inc. (NASDAQ:NFLX)
Number of Hedge Fund Holders: 103
Jim Cramer called Netflix, Inc. (NASDAQ:NFLX) “pretty good” and said that it is one of the companies whose performance is tied to its executives’ strategies. He commented, “Tonight we got excellent numbers from Netflix. They have that advertising tier, of course, it’s working”.
On October 17, Netflix (NASDAQ:NFLX) unveiled its financial results for the third quarter, showing strong performance despite some ongoing challenges in maintaining membership growth and monetizing its ad-supported tier effectively. During this quarter, the company experienced a 15% increase in revenue compared to the same period last year, coupled with the addition of over 5 million new subscribers. The operating margin reached 29.6%, an improvement from 23% a year prior, which points to its effective cost management strategies. Additionally, net income saw a significant jump of 41%, which translated to diluted EPS of $5.40, marking a 45% increase year over year.
The revenue surge was largely fueled by new memberships in international markets, alongside the improvement of operating margins. There was a 35% quarter-on-quarter growth in the ad-supported tier’s memberships, even as Netflix (NASDAQ:NFLX) navigated some difficulties in ad monetization. The company has acknowledged these challenges and is actively investing in technology aimed at improving its advertising capabilities.
For the fourth quarter, management projects a 14.7% increase in revenue year-over-year, alongside a target operating margin of 21.6%. Additionally, projections for 2025 show expected annual revenue between $43 billion and $44 billion, driven by ongoing membership growth and increases in average revenue per subscriber.
1. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of Hedge Fund Holders: 156
In a recent episode of Mad Money, Cramer was a big proponent of Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) as he explained why the semiconductor giant is important in today’s landscape.
“… If you didn’t listen to Taiwan Semi’s conference call last night, you missed out on a performance that explains so much of what’s going on in this market, in the world.
I’m talking about the off-the-charts demand for chips that enable artificial intelligence. Those are almost all manufactured by Taiwan Semi, which is the crucial cog in the semiconductor machine. That’s how you know this move is for real.
This company is the biggest and the best. Last night was a tour de force show, especially for one customer, Nvidia. They might as well have entitled the conference call in praise of Nvidia because Nvidia is crushing it in partnership with this amazing Taiwanese company. I talk about Nvidia a great deal, but I don’t say much about Taiwan Semi, which is wrong. See, like most American semiconductor companies, Nvidia is actually more of a designer. Taiwan Semi is the company that builds the product.. You can’t have Nvidia without Taiwan Semi.”
Cramer discussed the company’s focus on AI-related operations and its position in the AI industry, saying:
“How close are they? Let me quote from Doctor C. C. Wei, he’s a PhD and chairman and CEO of Taiwan Semi ‘So one of my key customers said the demand right now is insane.’ Well, the key customer is Nvidia. And like Nvidia’s redoubtable, implacable CEO Jensen Huang, Wei says that the demand for AI chips ‘is real, and I believe it is just the beginning of the demand.’
Bingo. There it is. Unlike ASML, the semiconductor equipment maker that gave you a sob story about the whole industry the other night, with the exception of AI, Taiwan Semi’s focused on the cutting edge of the industry. That’s what they are. They know it because they use it. As Wei said, ‘We have our real experience. We have been using AI and machine learning in our fab and R&D operations. By using AI, we are able to create more value by driving greater productivity, efficiency, speed, qualities.’
He goes on to explain that Taiwan Semi’s customers would say the same thing. What a contrast to the lame ASML call that caused so many people to sell Nvidia. Panic, panic, and once again revved up the chip obituary machine.”
Taiwan Semiconductor (NYSE:TSM) is engaged in the production, packaging, testing, and distribution of integrated circuits and various semiconductor components. As a key player in the industry, it is responsible for the majority of the global supply of advanced high-end semiconductors, which are essential for powering many artificial intelligence applications.
The company announced third-quarter results on October 17 and reported revenue of 759.7 billion New Taiwan dollars (1 New Taiwan Dollar = $0.031), a significant increase of 39% compared to the same period the previous year. The company also experienced a noteworthy rise in earnings per share, which climbed to NT$12.54, which is a 54% year-over-year improvement. According to CFO Wendell Huang, these strong results are because of heightened demand in both smartphone and AI-related markets.
Among Taiwan Semiconductor’s (NYSE:TSM) revenue streams was its high-performance computing segment, which includes chips utilized in AI technologies. It experienced a remarkable growth of 51% year-over-year. The surge highlights the increasing reliance on advanced computing capabilities to support AI innovations. Additionally, the recovery in smartphone sales contributed to the company’s overall performance, with revenue from this sector increasing by 34%.
While we acknowledge the potential of Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) 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 TSM 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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