We recently compiled a list titled Jim Cramer’s Ultimate Stock Picks: 10 Hot Stocks to Consider. In this article, we will look at where Adobe Inc. (NASDAQ:ADBE) ranks among Jim Cramer’s 10 hot stocks to consider.
In a recent episode of Mad Money, Jim Cramer emphasized the unexpected strength in the market, pointing out that many companies are doing better than Wall Street realizes. He suggests that investors should stop second-guessing these companies every time negative news surfaces. Cramer praises the excellent management and execution by CEOs, which he feels often goes unappreciated.
“Suddenly, all is forgiven, or if not all, then at least most. I’m talking about the incredible resilience in this market, buoyed by a recognition that many companies are simply better than Wall Street gives them credit for. We need to stop turning against them every time there’s a seemingly bad data point. Every day I come to work, I’m dazzled by the resourcefulness of executives who do their best to create value for you, the shareholder. Lots of stocks went up on days like today when the Dow advanced 335 points, the S&P gained 75%, and the NASDAQ jumped 1.0%, all thanks to good management and excellent execution that often goes unnoticed.”
Jim Cramer acknowledges that while some CEOs might warrant skepticism, many are truly exceptional and deserve more recognition for their efforts. He criticizes the overemphasis on short-term economic indicators, arguing that great companies stay focused and aren’t thrown off by minor fluctuations.
“Listen, I’m not a pushover. I can hit CEOs with tough questions when needed, some of them deserve skepticism and scorn. But there are also plenty of brilliant, hardworking CEOs with incredible teams, and you ignore their hustle at your own peril. This often gets lost in the shuffle when we’re focused on the parlor game of guessing the Fed’s next move, a quarter point, half a point, quarter, half. You know what I say? Let’s get serious. Terrific companies don’t get caught up in that quarter-half shuffle.”
Cramer highlights Kroger CEO Rodney McMullen as an example of strong leadership. Despite facing challenges like opposition to its acquisition of Albertsons and a tough economic climate, McMullen has successfully managed to keep food costs down. Through strategies such as an effective loyalty program and improvements to regional stores, the company has performed well. After a strong earnings report, the stock rose more than 7%, reflecting a successful turnaround.
“CEO Rodney McMullen has managed to keep food costs down and deliver fantastic numbers, all while maintaining an expensive, unionized labor force in a very uncertain commodity environment. How? The company confounded critics by developing a superior loyalty program, regionalizing their stores, and creating some of the best private-label products out there, second only to Costco. Food is still expensive, but cooking at home is far cheaper than dining out. McMullen tells us that consumers are no longer flush with cash, especially his most budget-conscious clientele. He notes, “Budget-conscious customers are buying more at the beginning of the month to stock up on essentials, and as the month progresses, they become more cautious with their spending.”
Wow, that’s a tough environment! When I heard this, I thought back to the old company, the one that used to miss its numbers whenever the environment got a little tough. Everybody else remembers the old company too, which is why the stock was just sitting there waiting to be picked up, until this quarter’s report, after which it soared more than 7% in response to the fabulous results. Everyone thought the company would drop the ball, as they used to, but McMullen has finally whipped his supermarket into shape.”
In contrast, Cramer points out that the tech industry often suffers from misunderstandings due to its complex nature. He believes that Wall Street analysts frequently fail to appreciate the expertise and potential of tech CEOs who have a deep grasp of their businesses.
“We all need to eat, so it’s not hard to understand the grocery business. But it’s quite different when it comes to tech, where analysts constantly doubt the resolve and expertise of CEOs who simply know more about their businesses than the critics. In tech, the complexity often leads Wall Street to conclusions that have little to do with reality.”
Our Methodology
This article reviews a recent edition of Jim Cramer’s Morning Thoughts, where he covered different stocks. We have selected and analyzed the ten most notable companies mentioned, ranking them according to how much they are owned by hedge funds, from the least owned to the most owned.
At Insider Monkey we are obsessed with 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).
A team of engineers and scientists collaborating at a workstation surrounded by their applications and solutions.
Adobe Inc. (NASDAQ:ADBE)
Number of Hedge Fund Investors: 107
Jim Cramer reports that Adobe Inc. (NASDAQ:ADBE)’s stock is dropping because the company’s forecast for the current quarter was weaker than anticipated. The guidance provided was not very clear. Before the announcement, several analysts had raised their price targets for Adobe Inc. (NASDAQ:ADBE), but now some are starting to lower them.
“Adobe shares are tumbling after the software maker’s current quarter outlook was softer than expected. The guidance wasn’t really understandable. Multiple analysts had hiked their price targets ahead of the results. We’ve now seen a couple go the other way.”
Adobe Inc. (NASDAQ:ADBE) presents a strong investment opportunity due to its impressive financial performance, dominant market position, and promising growth in the AI sector. In Q3 FY 2024, Adobe Inc. (NASDAQ:ADBE) reported record revenues and a gross profit of $4.854 billion, largely driven by its subscription-based model, which accounts for over 90% of its income. Adobe Inc. (NASDAQ:ADBE) also boasts a 32% free cash flow margin and a 15% increase in adjusted EPS compared to the previous year, showcasing its financial health.
Adobe Inc. (NASDAQ:ADBE)’s strategic focus on AI, including its “Firefly” generative models and AI-powered tools like the Acrobat AI Assistant, is expected to drive significant revenue growth and improve profit margins. With a commanding 80% share in graphic design software and a strong presence in document processing, Adobe Inc. (NASDAQ:ADBE) is well-positioned to maintain its competitive edge.
Despite a recent drop in its share price, analysts view this as a buying opportunity, with price targets around $620 indicating potential for significant gains. Overall, Adobe Inc. (NASDAQ:ADBE)’s strong financials, market leadership, and growth potential in AI make it an attractive investment.
Polen Global Growth Strategy stated the following regarding Adobe Inc. (NASDAQ:ADBE) in its Q2 2024 investor letter:
“With Adobe Inc. (NASDAQ:ADBE), in some ways, we see it as a microcosm of the market’s “shoot first, ask questions later” approach to categorizing AI winners and losers. In the early part of last year, Adobe came under pressure with a perception that generative AI (GenAI) would represent a material headwind to their suite of creative offerings.
In short order, the company introduced its GenAI offering, Firefly, which shifted the narrative to Adobe as a beneficiary with a real opportunity to monetize GenAI in the near term. Earlier this year, that narrative was again challenged as the company reported a slight slowdown in revenue growth. Results in the most recent quarter were robust as the company raised its full-year forecast across a number of key metrics and showcased better-than-expected results.”
Overall ADBE ranks 2nd on our list of Jim Cramer’s ultimate stock picks. While we acknowledge the potential of ADBE as an investment, our conviction lies in the belief that under the radar 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 ADBE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.
