Jim Cramer, host of Mad Money, recently reflected on how investors often overlook obvious opportunities, particularly with cult stocks, which in hindsight appear to be clear success stories. He discussed how, sometimes, the fundamentals that guide traditional investing can hold investors back from seizing these opportunities.
Cramer acknowledged that many investors, himself included, have missed out on these types of stocks and emphasized that it’s important to examine why these opportunities were missed to avoid making the same mistake again. He mentioned that, early on, he and others mistakenly believed that fundamentals were always the key to making sound investments, only to realize that in certain situations, that’s not the case.
Cramer highlighted that in the case of cult stocks, the stock price can sometimes move independently of the company’s underlying performance. These stocks can experience long-term growth due to a fiercely loyal shareholder base, and as a result, they may not follow traditional market behavior. He explained that while meme stocks might follow similar trends, cult stocks have staying power and can defy expectations.
“There’s a lesson here and it is a brutal one. Sometimes conventional methods of valuation are completely worthless, and you need to embrace the dynamics of cult stocks. The trick is to recognize when we’re in one of those moments. In 2025, let’s strive to find the stocks of companies that do defy orthodoxy.”
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Shifting the focus to the healthcare sector, Cramer noted that although the market has seen significant gains in recent weeks, it has become increasingly difficult to find promising investment opportunities. However, he believes that healthcare could be the place to look as 2025 approaches. Cramer explained that healthcare stocks have significantly underperformed this year, trailing behind the broader market, which has created an opportunity.
“Now, it’s hard to bet on healthcare when the Fed’s cutting rates because these are textbook slowdown stocks and thrived when the economy was not doing so hot, but the election was also a clear negative catalyst for the group.”
He noted that President-elect Trump’s potential appointment of Robert F. Kennedy Jr. to head the Department of Health and Human Services is a major concern for the industry, especially given Kennedy’s reputation as a vaccine skeptic. Cramer also warned that if the second Trump administration attempts to dismantle Obamacare, it could lead to many Americans losing access to affordable health insurance, which would add further risk to healthcare stocks.
Despite these concerns, Cramer believes that, at some point, all the negative factors will be factored into healthcare stocks, and that moment is fast approaching. He stated that the damage done to healthcare stocks, particularly in biotech and pharmaceuticals, has been severe, but he sees an opportunity as these stocks have become too cheap relative to their long-term potential.
“With so many groups hitting new highs, I think it’s worth taking a step back and putting money to work in one of the most hated groups out there, healthcare. These stocks have simply gotten too cheap given its prospects, especially Eli Lilly, Vertex Pharma, and Bristol-Myers.”
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Our Methodology
For this article, we compiled a list of 6 stocks that were discussed by Jim Cramer during the recent episode of Mad Money on December 16. We listed the stocks in ascending order of their hedge fund sentiment as of the third quarter, which was taken from Insider Monkey’s database of 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).
6 Stocks Jim Cramer Talked About This Week
6. Palantir Technologies Inc. (NYSE:PLTR)
Number of Hedge Fund Holders: 43
Cramer called Palantir Technologies Inc. (NYSE:PLTR) a “renegade company” and highlighted its fast-paced growth.
“Then there’s Palantir. Now this enterprise software/defense contractor is a real company. I mean like totally real. It has a tremendous business model. It could change the entire defense department budget. But in some ways, Palantir is a renegade company playing by its own rules… The CEO actually caters not to Wall Street, but to Main Street, individual investors. The difference is that when it comes to enterprise software, you don’t use price-to-earnings models, you use this difficult-to-understand Rule of 40 where you add the revenue growth rate to the EBITDA margin. If the sum is above 40, then you got a winner.
Most companies that are losing money can’t reach that number, but some can if they have incredible revenue growth. Palantir appeared to be losing money hand over fist but it passed the Rule of 40 tests with flying colors. Since then, the growth’s been accelerating rapidly. The profits are exploding. It’s among the fastest growers in the entire industry. Top of the Rule of 40.
… So why didn’t we see it? Because the CEO was too brash and the actual business too opaque? By nature what they do is secretive but there are plenty of renegade traders and investors, see, they saw it. The kind who made money and got out of AMC near the high when the CEO sold. The kind who made 100 or 200 bucks on GameStop. These people bought Palantir on CEO, Alex Karp’s say so. To them, it was worth a lot more than anything else, even as it was worth nothing to the Wall Street analysts who covered it.
Now Palantir’s made a major breakout. It is up 340% for the year. Seems obvious in retrospect, but it was anything but at the time. A stock that’s been gunned by retail that now, because it’s about to have a real earnings breakout, is finally being beloved by institutions? Oh, and the individuals who still like it, they start their buying at 4:00 AM and they walk it up right into the opening… You don’t even have to worry. They do the same thing at 4:00 PM. Right after the closing bell, they take it up maybe like 30 cents, 50 cents, usually about a buck.”
Palantir (NYSE:PLTR) is a software company that develops advanced data platforms and is known for serving government agencies with tools for data analysis and decision-making. In a recent interview with investor Stanley Druckenmiller, CEO, Alex Karp, discussed his upcoming book, The Technological Republic.
In the book, Karp argues that the technology sector must collaborate with governments to address urgent issues, particularly in the context of the AI arms race. He also expressed optimism about the incoming administration, highlighting the talent that he believes will help address governmental challenges.
Palantir (NYSE:PLTR) has also been delivering strong financial performance. In the third quarter, the company reported a 30% year-over-year revenue growth, reaching $726 million. Of this, the U.S. segment saw a notable increase, with revenues growing 44% to $499 million. The company’s adjusted free cash flow for the period was $435 million, further reflecting its solid financial standing.
5. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)
Number of Hedge Fund Holders: 55
Cramer likes Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) and highlighted the company’s catalysts, including its non-opioid painkillers that are under development.
“Oh, next, how about Vertex Pharma? Vertex Pharmaceuticals, which has evolved over the past decade or so from a promising biotech company focused on cystic fibrosis to a diversified pharmaceutical company with a $120 billion market cap. Not long ago, that market cap was much higher. I like Vertex because they’re working on developing non-addictive painkillers, with some potential FDA approvals and product launches on the horizon. While Vertex is only about 10% or so from its all-time high right after the election, in part that’s because it reported a great quarter the day before the election.
After a couple of days of post-quarter gains, the stock has pulled back hard for reasons frankly that aren’t really apparent to me. Frankly, it just looks like run-of-the-mill profit-taking for a stock that is up 113% since the end of 2021, fueled by the market’s apathy toward pharma. But with the core cystic fibrosis business humming and some major painkiller catalyst coming, I think you should buy the dip here.”
Vertex Pharmaceuticals (NASDAQ:VRTX) develops and commercializes therapies for cystic fibrosis (CF), and has a pipeline of treatments in clinical trials for various conditions. It recently raised its 2024 revenue forecast after exceeding third-quarter estimates, largely driven by strong demand for its CF treatments. The company now expects product revenue between $10.8 billion and $10.9 billion, up from the previous forecast of $10.65 billion to $10.85 billion.
This growth is attributed to the continued success of its CF therapies, particularly TRIKAFTA, which saw sales rise over 13% to $2.59 billion during the quarter. In addition to CF treatments, the company is also advancing its efforts in pain management with VX-548, a non-opioid drug for acute and neuropathic pain.
The drug works by blocking pain signals before they reach the brain, targeting only peripheral nerves, and avoiding the addiction risks associated with opioids. Vertex Pharmaceuticals (NASDAQ:VRTX) VX-548 is currently under review by the U.S. Food and Drug Administration (FDA), with a decision expected by January 30, following the agency’s acceptance of the new drug application in late July.