On Thursday, Jim Cramer, host of Mad Money, pointed out that Wall Street often overlooks the importance of strong leadership in a company, and how a new CEO can significantly impact a company’s valuation, even in the face of broader macroeconomic challenges.
“When we value stocks in this environment, we tend to think of how they’ll fare in the world of rising long-term interest rates… how they perform under the new presidential regime… We care about the sector and how it’s behaving but how about the companies? How about the people who run them?”
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Cramer emphasized that too often, the conversation about the individuals running companies gets sidelined. While not every leadership change leads to success, he believes that in certain situations, the right CEO can make all the difference in driving a company’s growth. He urged viewers to consider how a great leader can transform an entire business, suggesting that investors might want to look beyond the usual sector battles and instead focus on companies with fresh, capable leadership.
He added that the ability of a skilled CEO to steer a company in the right direction is an often overlooked but powerful factor. He commented:
“The transcendence of the enterprise, thanks to the leadership of a great CEO, why not celebrate it? Hey, stop denigrating it at least… It may pay to think bigger instead of just being in the tech battleground out here every day.”
Cramer expressed his frustration with the constant debates surrounding the tech sector, stating that he finds the ongoing arguments tiresome. This, he explained, was part of the reason he wanted to shift the conversation and focus on companies led by new executives. “I’m tired of tech just sitting there and people arguing about it all the time. It’s getting boring to me,” he said.
“So here’s the bottom line: Not all publicly traded companies are hostages to forces beyond their control… Sometimes when you bring in a great new CEO… they can turn around the whole business giving the investors spectacular gains even when tech blinds us like mustard gas.”
Our Methodology
For this article, we compiled a list of 6 stocks that were discussed by Jim Cramer during the episode of Mad Money on January 30. We listed the stocks in the order that Cramer mentioned them. We also provided hedge fund sentiment for each stock as of the third quarter of 2024, 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. International Business Machines Corporation (NYSE:IBM)
Number of Hedge Fund Holders: 56
Cramer praised International Business Machines Corporation’s (NYSE:IBM) Arvind Krishna and noted that the stock’s gain is “sustainable”.
“Finally, let’s give IBM’s Krishna his due. When he took over at IBM, he didn’t know what it was at anymore. Who knew what it was anymore and the stock traded around 110? Krishna took it from a hardware outfit with a consulting arm, spun off the legacy business as Kyndryl… and guns this stock to $258 as of today. Now it’s almost 50% software gusher cash flow. Darn think shot up 13% in response to a great quarter. What a winner. Best of all, I think that gain is sustainable.”
International Business Machines Corporation (NYSE:IBM) provides integrated services and solutions, such as hybrid cloud and AI platforms, along with server and storage options for hybrid cloud implementations. Since Krishna took over as the CEO in April 2020, IBM stock has shot up more than 120%.
5. V.F. Corporation (NYSE:VFC)
Number of Hedge Fund Holders: 30
Cramer explained that Bracken Darrell transformed V.F. Corporation (NYSE:VFC) by selling off an important brand.
“Hey, one more. How about this one? Bracken Darrell, he left Logitech for the challenge of turning around the broken clothing company, VF Corp, a little over a year and a half ago. Stock was trading around 19 bucks. Heinous balance sheet. In July of last year, he sold off VF Corp’s hottest brand to EssilorLuxottica for $1.5 billion in cash. It was good, it was a good brand but he had to do it but Darryl, he needed cash. Sure enough, the company reported a great quarter last night and the stock shot up to almost 27 bucks.”
V.F. Corporation (NYSE:VFC) designs, markets, and distributes branded lifestyle apparel, footwear, and accessories for men, women, and children, offering a variety of products across several well-known brands, including The North Face, Timberland, and Smartwool.
Curreen Capital stated the following regarding V.F. Corporation (NYSE:VFC) in its Q4 2024 investor letter:
“Since then, the S&P has gone up strongly, while the ugly ducklings that we bought have largely remained out of favor, for longer than I would have expected. We continue to implement our investment strategy, paying attractive prices for good businesses that are increasing their value. This should be rewarded in the stock market over time, but lately that process has been particularly slow and uneven.
As another example, I would have expected both V.F. Corporation (NYSE:VFC)and Advance Auto to have performed well last year, as the company’s situations are similar, and both made good progress on their turnarounds. In each case, the fundamentals are solid or improving, and I would have thought that they all would rise.
VF Corp manages apparel brands, including Dickies, The North Face, Timberland, and Vans. Under its prior CEO, the company’s poor capital allocation (including overpaying for Supreme and maintaining a too-high dividend after spinning out Kontoor) forced it to pause its model of using excess free cash flow to acquire good brands and manage them well. The company has now cut its dividend (twice) to a reasonable level and brought on a new CEO who has a track record of successfully turning around businesses. I believe that the company has good brands, the skills to manage them well, and a management team that is righting the ship. VF Corp currently trades at an attractive upside-to-downside ratio.”
4. Palo Alto Networks, Inc. (NASDAQ:PANW)
Number of Hedge Fund Holders: 64
Cramer discussed how Nikesh Arora turned around Palo Alto Networks, Inc. (NASDAQ:PANW) and increased the company’s value since taking over in 2018.
“Let me give you another one, it’s kind of funny. This one is Nikesh Arora. When he took over at Palo Alto Networks, PANW, a once powerful cybersecurity company that had fallen behind the others, people thought turning this business around was too big a task. At best, he’d just be a deal maker and a so-so one at that. I knew Nikesh is [a] brilliant competitive guy whom I wanted to bank with, which is why we bought the heck outta the stock… Now, Palo Alto had a $19 billion market capitalization when Nikesh took over on June 6th, 2018, it’s now worth $123 billion. He created $104 billion in value.”
Palo Alto Networks, Inc. (NASDAQ:PANW) is a leading cybersecurity firm globally, offering an extensive range of security solutions. Since June 2018, PANW stock has seen a whopping gain of over 460%.
3. GE Vernova Inc. (NYSE:GEV)
Number of Hedge Fund Holders: 89
GE Vernova Inc. (NYSE:GEV) is an energy company that delivers solutions for electricity generation, transmission, and storage worldwide. Here’s what Mad Money’s host had to say about the company:
“Next, how about Larry Culp at the old General Electric? This company really stunk up the joint for so long, we almost had to believe GE was merely a practical joke played on the market. Larry Culp didn’t think it was all that funny though. He raised some cash by selling some good stuff because he knew every turnaround has to start with a balance sheet. Without a good balance sheet, the turn would be stillborn. Then he split the company into three separate businesses, GE HealthCare, GE Vernova, and GE Aerospace.”
Cramer recalled a lunch with Culp where he expressed his concerns to Culp about the struggling power business, predicting that the spinoff would fail. However, Cramer noted that Culp confidently assured him that securing an investment-grade rating would turn things around and make the company appealing to investors, leaving Cramer shocked by his optimism.
“I don’t know how far Larry can see around the corner but now GE Vernova is a beloved company, the hottest one with momentum traders can’t get enough of it precisely because it makes the turbines and windmills, … that you need to power all those new data centers. He appointed Scott Strazik to run what became GE Vernova. The stock started trading independently at $141 about 10 months ago. Now it’s at $383. Oh and don’t forget, it’s also gonna be the company that builds small modular nuclear plants that everybody loves so much.”
Fidelity Investments stated the following regarding GE Vernova Inc. (NYSE:GEV) in its Q3 2024 investor letter:
“Among individual holdings, the top relative contributor was an overweight stake in GE Vernova Inc. (NYSE:GEV). The company’s shares gained about 49% the past three months, as the power-generation business that split from General Electric on April 2 continued to fare well as a stand-alone entity. On July 24, the company reported quarterly earnings that were better than expected, boosted by its natural gas power-turbine business, and released an optimistic financial forecast for the rest of 2024.”
2. Starbucks Corporation (NASDAQ:SBUX)
Number of Hedge Fund Holders: 76
Discussing Starbucks Corporation (NASDAQ:SBUX), Cramer noted that the company’s menu is complicated and needs to be simplified.
“That’s what they have to do with Starbucks too… When this stock was beaten down to 77 bucks, the company announced that the old CEO was out and Brian Niccol, the incredible and creative executive who turned around Chipotle during its dark days, would now be taking over. Immediately the stock took off. I kept thinking Starbucks would go down at some point, Charitable Trust owns it and wanted to buy more, but it never did. That initial run, the high 90s never looked back.
In fact, when the company reported this week, the stock powered ever higher to the point where this very big… company is now up over 40% since the last CEO got fired. Why? Didn’t the media focus on how Starbucks missed its numbers? That’s what I heard… Here’s the answer: For Starbucks, the coffee might be good, but Starbucks, the company was really poorly run and Starbucks the stores? Disasters.”
Cramer commented that this is exactly the type of role Brian excels in. He pointed out that Brian’s success at Chipotle is a testament to his ability to thrive in such positions, adding that it almost seems like he was made for this job. After interviewing Brian recently, Cramer shared that Brian has spent the last three months identifying the issues at Starbucks (NASDAQ:SBUX) and already implemented changes to address them.
Some of these adjustments include putting names on cups, bringing back the condiments table, and offering porcelain cups to customers who stay. Cramer noted that these moves may seem symbolic to some, but he believes they are grounded in practical solutions.
Starbucks (NASDAQ:SBUX) is a leading global brand in coffee roasting, marketing, and retail, providing a wide variety of beverages, coffee beans, and food products in its locations.
1. Brinker International, Inc. (NYSE:EAT)
Number of Hedge Fund Holders: 41
Brinker International, Inc. (NYSE:EAT) owns, operates, and franchises casual dining restaurants, primarily under two brands: Chili’s Grill & Bar and Maggiano’s Little Italy. Here’s what Cramer said about the company:
“For instance, I want to start with someone we had on the show last night. He’s making more money for you than any company I’m talking about. I’m talking about Kevin Hochman. He’s the CEO of Brinker. Hey, just because it’s small doesn’t mean you can’t make money, there’s no rule. You may know them as the parent of Chili’s… It’s a chain of 1200 casual dining restaurants in the U.S.… A few years ago, Hochman departed a high-level job at Yum Brands where he ran KFC in order to take the helm of Brinker…
I always liked the price point… But I never liked the stock, nothing special, marginal, meaningless, and then less than three years ago, Hochman came roaring in as CEO and it’s never been the same. He simplified the menu that’s too hard… He gave you a value meal dinner under 11 bucks, an inexpensive, terrific mixed drink with real good tequila, special management, and… by the way, and a delicious dinner for everybody… The result? The stock’s now up more than 340% in just the past year.”
Cramer noted that if the Brinker (NYSE:EAT) stock reaches $200, it could potentially become a “10-bagger,” considering it’s already trading at $182. He referenced legendary investor Peter Lynch, who famously emphasized that hitting a 10-bagger is the ultimate goal for any investor. The term “10-bagger” refers to investments in the stock market that have grown ten times in value, as well as those with the potential to experience tenfold growth.
Cramer mentioned that Lynch, known for managing the Magellan Fund and for writing the widely regarded business book One Up On Wall Street, has long promoted this idea. Cramer believes that Brinker (NYSE:EAT), under the leadership of CEO Hochman, has the potential to achieve such a return for investors.
While we acknowledge the potential of Brinker International, Inc. (NYSE:EAT) 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 EAT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article was originally published at Insider Monkey.
