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.”
READ ALSO Jim Cramer’s Lightning Round: 7 Stocks to Watch and Jim Cramer’s Game Plan for This Week: 8 Stocks in Focus
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.”
Jim Cramer on Tesla, Inc. and Others
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.
4. Bristol-Myers Squibb Company (NYSE:BMY)
Number of Hedge Fund Holders: 70
Cramer highlighted that Bristol-Myers Squibb Company (NYSE:BMY) is one of the cheapest pharmaceutical companies in the S&P 500. He commented:
“Finally, as I’ve been saying pretty regularly for the past few months, I think you should consider building a position for Bristol-Myers Squibb, which happens to be the newest position of my Charitable Trust… This stock has been hot since the summer as investors have bought into the new strategy put forward by CEO Christopher Boerner, who took over late last year.
Now, Boerner’s trying to build world-class franchises in cancer, cardiology, and neuroscience. His plan started paying off when Bristol-Myers got approval for the first and a totally new class of schizophrenia drugs back in September. Something they picked up from a recent acquisition, far fewer side effects than the competition. Doesn’t hurt that AbbVie’s working on a competing product that failed a major clinical trial last month. But after a nice pop on the AbbVie failure, Bristol-Myers has been pulling back this month to the point where it’s now down almost 9% from its mid-November highs.
As with Vertex, I can’t give you a good reason for that. Again, I think the pullback simply reflects concerns about the group, has nothing to do with Bristol-Myers specifically. Hey, by the way, even after rallying some 42% from its early July lows, this stock sells for just 7.9 times next year’s earnings estimates. Boy, you know, that’s the cheapest pharmaceutical company in the S&P 500, aside from the unprofitable Moderna. Bristol-Myers also supports a 4.4% yield. That’s the second best of the group. So to recap, the fundamentals improved dramatically in the second half of this year, the stock’s still dirt cheap and you’re even getting paid to wait with that juicy dividend, which was just boosted last week.”
Bristol-Myers (NYSE:BMY) is a major player in the biopharmaceutical industry, with a focus on developing treatments for a variety of diseases across multiple therapeutic areas. In September, the U.S. Food and Drug Administration approved the company’s schizophrenia drug, marking a significant achievement as the first new class of antipsychotic medicine in decades.
This approval followed the company’s $14 billion acquisition of Karuna Therapeutics in the previous year, through which the company obtained the schizophrenia treatment, Cobenfy (formerly known as KarXT). Cobenfy distinguishes itself from other schizophrenia medications in several ways. Its labeling does not carry a warning about the increased mortality risk in elderly patients, a concern commonly associated with other antipsychotic treatments.
Additionally, unlike many other medications for the disorder, Cobenfy does not lead to the typical side effects such as weight gain and movement disorders. These attributes make Cobenfy a notable addition to BMS’s portfolio of treatments. The company is also undergoing significant structural changes to streamline operations. The company launched a $1.5 billion restructuring initiative earlier in 2024 that is expected to run through 2025.
According to Bristol-Myers (NYSE:BMY) CEO Chris Boerner, BMS management is actively reviewing its overall spending to prioritize investments that will generate the best long-term returns. The company is on track to meet its $1.5 billion cost-saving target by the end of next year.
3. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 99
Discussing cult stocks, Cramer talked about Tesla, Inc. (NASDAQ:TSLA) and said:
“This rally since the election is one for the ages. It’s a movement, in retrospect, everyone should have seen coming, right? I mean, why not? Elon Musk has been all in with the winner of the presidential election. Their electric cars are doing much better than everyone else’s. Full self-driving could be around the corner. But now let’s look at what might have kept you out of the stock. If you go back in time to when we found out that Elon was a big-time Trump supporter, the media was filled with how long will that last chatter. The president-elect is famously mercurial while Elon Musk is obviously brilliant but equally arbitrary and capricious. The idea that these two could bond in any way before they clash seemed inevitable.
Plus, electric vehicle sales, they were sinking everywhere. We saw adoption slow for all EVs, including Tesla in the United States. The competition in China, it became cutthroat. Musk’s Tesla is a relatively high-cost producer. Numbers, the estimates, they kept going lower. Plus, there was this lawsuit about him getting his bonus where it wasn’t clear that he’d stick around as CEO if he lost… Now, of course, the reality turned out to be quite different, but it was easily missed by the numbers guys on Wall Street. First, the public is back into the stock market, bigger than ever. The public doesn’t listen to Wall Street research. Many don’t even know what it is. Others think it’s worthless.
The public knew one key thing that the analysts didn’t: Musk was incredibly close to Trump, spent hundreds of millions to helping them win. So as long as Trump won, Tesla was gonna be a huge winner. You had to be on board. You had to believe it was like a sports team. As it is, it turns out Tesla has more data on self driving than Google-backed competitor Waymo. Data that Trump will buy into maybe and crown Tesla the full self-driving winner versus the piecemeal city-by-city approach of Waymo. Maybe he gives him the whole interstate highway system, I don’t know.
It also helped that GM dropped out of the self-driving taxi business, making Musk’s view more of a reality. Tesla’s much more than just a vehicle company. It’s a tech company on wheels. Of course, Tesla’s up 86% for the year with nearly all of that coming after the election when we realized that not only is Musk tight with President-elect Trump, he is helping reform the government to Trump’s liking. Once you get a CEO with that kind of political influence, it’s easy for the faithful to imagine the unlimited possibilities, which means they’re no longer constrained by the price-to-earnings multiple. They’ll pay anything for Tesla, much higher than these prices. They’re actually insensitive to price. Oh, and did I mention that brokerage firm Mizuho just upgraded the stock from hold to buy off of an improving outlook under the Trump administration a few minutes after the market close?”
Tesla (NASDAQ:TSLA) stock has risen significantly after the U.S. presidential election, driven by strong financial growth and CEO Elon Musk’s relationship with President-Elect Trump. This was boosted by Musk’s appointment to a government efficiency role and reports that Trump’s team would focus on self-driving vehicle regulations. Tesla also made strides in autonomy with the release of version 13 of its Full Self-Driving software, moving closer to fully autonomous vehicles.
On December 16, Mizuho analyst Vijay Rakesh raised the stock’s rating to Outperform from Neutral, increasing the price target to $515 from $230. The firm believes Tesla’s autonomy software is advancing towards widespread commercialization and sees a more flexible regulatory environment as favorable for the autonomous sector’s growth. Additionally, the firm suggests that new policies under the Trump administration, such as the repeal of consumer EV tax credits, will benefit Tesla by providing a more competitive EV cost structure compared to its peers.
Gene Munster, managing partner at Deepwater Asset Management, mentioned in an interview with Business Insider that autonomous vehicles in Western markets are likely to be driven by only a few companies, with Tesla (NASDAQ:TSLA) being one of the primary players. According to Munster, one of its key advantages in this race is its ability to scale autonomous services, given that millions of Tesla cars are already on the road.
He highlighted that the company’s data collection capabilities, which are crucial to the development of autonomous technology, are likely to outpace any hardware disadvantages Tesla may face. Anthony Levandowski, who co-founded Google’s self-driving car program, known as Waymo, also expressed confidence in Tesla’s autonomous vehicle potential, stating that the company is in a stronger position than Waymo.
Tesla’s large fleet of semi-autonomous vehicles, continuously collects data to improve technology. Levandowski believes Tesla’s vast data advantage, with millions of vehicles feeding real-time information, will be a key differentiator, potentially gathering 10,000 to 1 million times more data than Waymo across various driving scenarios.
2. Eli Lilly and Company (NYSE:LLY)
Number of Hedge Fund Holders: 106
Cramer noted that Eli Lilly and Company (NYSE:LLY) is being careful with its promotion and predicted that the company will be back to its full strength soon enough.
“Eli Lilly is at the top of the list. Now we own this one for the Charitable Trust and it’s earned, it’s nearly [at] $740 billion market cap. But with the stock in the high $700s, it has pulled back almost 20% from its highs in late August. As recently as late October, this stock was still sitting in the low $900s. But Lilly got hit real hard after reporting a seemingly not-so-hot quarter. And then it got hit again after the election, reportedly on an idea that RFK Jr. is not a fan of GLP-1 weight loss drugs like Lilly’s Mounjaro.
Now I think these events are bad reasons to sell the stock. First, while Lily technically reported a miss, it was just technical and it’s technical that it just cut its full-year guidance. The reasons for this were important. The company cited wholesale destocking from Mounjaro and Zepbound for the softer numbers. Many investors took that to mean that the demand for the GLP-1 drugs has to be impaired. But I think Lilly was just being measured with its marketing and promotion at a time when supply was constrained. I don’t think there are any issues with demand whatsoever. These are miracle drugs. If anything, I say Lily’s guilty of poor communication, but that’s created a buying opportunity for anyone who’s missed the stock’s tremendous run. You can get back in.
As for the political risk angle, I got a chance to speak with RFK Jr. on air last week on the floor when President-elect Trump visited the New York Stock Exchange. I asked him directly about these GLP-1 drugs. He said basically that his preference is that people never need these drugs because they eat well and get plenty of exercise. I can’t argue with that. But as David Ricks, CEO of Lilly, has said on this show, diet and exercise, hard to stick to. And there’s plenty of people who need some additional help, which is why these wonder drugs can do.
Kennedy may not like it that we need these GLP-1 drugs, but it certainly doesn’t sound like some major crackdown is coming. I think that is completely false. So in the end, I see things going back to normal for Eli Lilly, assuming they can deliver some better numbers, which I think is a fair assumption. Now, we’ll be back to focusing on the incredible growth of these GLP-1s. By the way, next year we get the fresh phase 3 data for a pill version of Lilly’s GLP-1 treatment, which could be huge if that data’s any good. Basically, you’re getting a chance to buy Lilly at a Black Friday-style discount of nearly 20% year despite its tremendous prospect. What’s not to like?”
Eli Lilly (NYSE:LLY), a leading global pharmaceutical company, is recognized for its extensive range of treatments, particularly in the areas of diabetes and obesity. The company has gained significant attention for its diabetes medication Mounjaro and its companion drug for chronic weight management, Zepbound. These products have rapidly become key drivers of its growth.
Reporting its third quarter, the company stated that U.S. sales of both Mounjaro and Zepbound were impacted negatively due to a reduction in inventories within the wholesaler channel. It should be noted that the sales of both drugs were still strong. Mounjaro alone was responsible for 27.3% of the total revenue, reflecting a remarkable 121% growth compared to the same quarter in the previous year. Zepbound also made a substantial impact, accounting for more than 11% of the revenue in that period.
The company’s CFO, Lucas Montarce, mentioned during the earnings call that wholesalers had reduced inventories of diabetes and obesity medications, describing this as a temporary issue. Looking ahead to 2024, Eli Lilly (NYSE:LLY) revised its earnings forecast, expecting a non-GAAP EPS between $13.02 and $13.52, down from its prior projection of $16.10 to $16.60. This change is largely due to the acquisition of Morphic Holdings.
Lastly, the company is anticipating data from late-stage trials on its experimental obesity pill, orforglipron, with results expected in April 2025, according to a top executive at the company. The pill belongs to a class of medications called incretins, which are designed to replicate the effects of the GLP-1 hormone. This hormone helps control blood sugar levels, slows the rate at which food leaves the stomach, and reduces appetite.
1. Netflix, Inc. (NASDAQ:NFLX)
Number of Hedge Fund Holders: 121
Cramer noted that despite skepticism surrounding Netflix, Inc.’s (NASDAQ:NFLX) ad-supported tier, a series of successful shows and events kept loyal viewers engaged.
“Next up, Netflix. What the heck were we thinking when we didn’t own Netflix? Is there a week that goes by where we don’t talk about a Netflix show? The big linear TV networks like to do expensive shows about fires and hospitals and police… It’s been their formula since the 1970s. They just keep doing the same thing, failing each year. But Netflix, they come up with things like Jake Paul versus Mike Tyson and it did huge viewership numbers… Millions of people watched it… We watch all sorts of… programs from other countries because we’ve been taught by Netflix to like subtitles. It’s insane how good this company is. Honestly, convincing Americans to read subtitles, that may be the most important cultural event of the 21st century.
And yet Wall Street doubted Netflix the whole way when it came to the new ad-supported subscription tier. They didn’t get it perfect right out of the box and… many of these who followed the company presumed it was a bust. Oh, it was hardly a bust and it’s just gonna get bigger and bigger. It’s easy to say, of course, that… anyone could have had it. But those who spend their lives examining this company thought otherwise. They said, stay away and they’re the professionals. Who are we to doubt the professionals? They doubted the ad tier. Who are we to doubt them? And then there’s the multiple, the darn price-to-earnings multiple. Netflix was always selling for 50 times earnings, which is just too high for the people who care about valuation. But those people aren’t the general public. They aren’t the home gamers and the home gamers who love Netflix, they won. Cult stock that’s up 89% for the year.”
Netflix (NASDAQ:NFLX) is a leading global provider of streaming entertainment, delivering a wide range of movies, TV shows, and original content to millions of subscribers across the world. The company’s expansion into various regions has made it one of the most prominent entertainment platforms in the world, with 282.7 million memberships across its different subscription plans.
In 2024, Netflix made a significant mark in the sports streaming arena. The boxing match between former heavyweight champion Mike Tyson and YouTuber-turned-boxer Jake Paul, which aired on Netflix, became the most-streamed global sporting event ever, according to a Netflix release. The event attracted 65 million live concurrent streams, with a total of 108 million live viewers worldwide.
Furthermore, Netflix (NASDAQ:NFLX) has seen positive growth with its ad-supported subscription tier. Launched two years ago, the cheaper plan has already reached 70 million global monthly active users. In November, the company revealed that more than 50% of new sign-ups in countries where the ad-supported option is available are opting for this plan.
While we acknowledge the potential of Netflix, Inc. (NASDAQ:NFLX) 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 NFLX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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