In this article, we will take a detailed look at the 5 Best Industrial Stocks to Buy Before Rate Cuts According to Jim Cramer: 5 Other Stocks He’s Talking About.
Jim Cramer said in a latest program on CNBC that the NASDAQ has become an “annoying source of funds” for other indexes as mutual funds pull out of tech and growth stocks that would not benefit from rate cuts and funnel these funds into the companies that can “super-charge” their earnings amid the expected rate cuts in September.
Cramer said that the decline of tech stocks could be “painful” for many because while these companies do not benefit from rate cuts, their earnings are still strong. Cramer said there are two kinds of companies that will benefit from rate cuts: the ones with cyclical businesses that thrive during rate cuts and those with high dividend yields.
Cramer said that by the time the Fed would announce its first rate cuts, it would have been “too late” to buy the stocks that benefit from rate cuts.
“You have to let them recharge, let them come down and then you can pull the trigger,” Cramer said.
In a separate program a few days ago Jim Cramer specifically talked about five industrial stocks he’s bullish on before rate cuts. In this article we mentioned these five stocks along with a few other stocks Cramer is talking about during his programs these days. With each company we have mentioned the number of hedge fund investors. 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).
10. Dover Corp (NYSE:DOV)
Number of Hedge Fund Investors: 28
Jim Cramer said in a program on CNBC that Dover Corp (NYSE:DOV) used to be a “classic metal bender” but it has transitioned to become a less cyclical company which is why he owns the stock for his charitable trust.
“I am proud of this one. I think it’s gonna have a big run. The new Dover now sells into some of the best secular growth themes of our era. Think lower emissions, refrigeration cooling systems, think heat exchangers and thermal connectors. Think data centers.”
Cramer said that the stock has been trading “sideways” since March despite reporting two stronger-than-expected quarters consecutively.
“I think the market is underestimating Dover Corp (NYSE:DOV), hence why we’re building our position for the charitable trust.” Cramer added.
Dover Corp’s (NYSE:DOV) business offers products and services via five segments: engineered products, clean energy & fueling, imaging & identification, pumps & process solutions and climate & sustainability technologies. Each segment’s revenue is over $1 billion on an annual basis. In 2023 the company’s full-year free cash flow came in at $1.1 billion, nearly double the previous year’s figure. This increase was due to effective working capital management and reduced capital expenditures. The free cash flow conversion rate has risen above 90%.
What makes Dover Corp (NYSE:DOV) a promising data center stock? The company talked about that during its latest earnings call:
We are also benefiting from our exposure to data centers and the secular growth in infrastructure investment with the significant power requirements of next generation chips that support artificial intelligence adoption are now requiring liquid cooling methods. We are exposed to liquid cooling of data centers in both our heat exchanger business, which enables heat transfer within the coolant distribution units and in the connector business which provides leak free liquid connection points at the server racks and manifolds and now directly to the individual chip cooling cold plates. I’ll leave the data center infrastructure market forecast to our end customers further down the chain. For us, it’s clearly an area of robust growth in the foreseeable future as evidenced by our recent order trajectory and high profile specification wins with the chip OEMs. Importantly, we have proactively installed production capacity and are well positioned to meet any meaningful inflections in demand with industry best lead times.
Dover Corp (NYSE:DOV) has an astonishing dividend growth history, with over 50 straight years of dividend hikes.
Wall Street expects the Dover Corp (NYSE:DOV) earnings to grow 9.20% next year, while the average analyst price estimate on the stock is $195, about 6% higher than the current stock price. The stock’s forward P/E ratio of 20 looks attractive based on these factors.
9. Energy Transfer LP Unit (NYSE:ET)
Number of Hedge Fund Investors: 32
When asked about Energy Transfer LP Unit (NYSE:ET), Cramer said that he’s been “very impressed” with ET and the company has done a “very good job.” Cramer said that he used to be critical of the company’s management but it has delivered.
Mizuho also added the stock to its top picks list and gave an Outperform rating. The firm set a $20 price target on the stock, saying Energy Transfer LP Unit (NYSE:ET) improved leverage outlook should allow more aggressive capital return beyond the current 3- 5% distribution growth rate.
Energy Transfer LP Unit (NYSE:ET) is being pitched as an AI stock in the energy industry as the rise of data centers will increase energy demand, helping ET. According to an estimate, gas demand for electricity to run data centers is expected to increase by a whopping 8 billion cubic feet a day by 2030.
Bank of America published a list of stocks poised to benefit from the electrification theme of future technology, driven by AI, data centers and push for electrification. BofA picked Energy Transfer LP Unit (NYSE:ET) for this theme under the oil and gas category.
Energy Transfer LP Unit (NYSE:ET) remains one of the most notable players in the industry. During the March quarter, all segments of ET grew, with net income and adjusted EBITDA increasing by 11% and 13% on a YoY basis, respectively. Energy Transfer LP Unit (NYSE:ET) saw record volumes in its crude pipeline segment.
Energy Transfer LP Unit (NYSE:ET) bulls also argue that just 10% of ET business is exposed to the volatile commodities sector. Energy Transfer LP Unit (NYSE:ET) has also raised its full-year 2024 adjusted EBITDA guidance. Energy Transfer LP Unit (NYSE:ET) expects the metric to total in the range of $15.0 billion and $15.3 billion, compared to the previous range of between $14.5 billion and $14.8 billion.
Energy Transfer LP Unit’s (NYSE:ET) earnings are expected to grow 13% next year and 15% over the next five years on a per-annum basis. The stock’s forward P/E of 9.42 is still lower than the industry median of 11.88, which makes the stock undervalued given Energy Transfer LP Unit’s (NYSE:ET) growth projections.
8. Arm Holdings PLC – ADR (NASDAQ:ARM)
Number of Hedge Fund Investors: 38
Jim Cramer continues to like ARM. Here is what he said during a latest program:
“I think that Intel is getting whacked by AMD I think there is nothing that could lay a glove on Nvidia and I’ll tell you, I’d much prefer Arm Holdings PLC – ADR (NASDAQ:ARM).”
7. Cummins Inc (NYSE:CMI)
Number of Hedge Fund Investors: 38
Jim Cramer said that while Cummins Inc (NYSE:CMI) is known for making truck engines, the stock is a buy because of its energy transition solutions. Cramer said he likes low-carbon solutions made by the company. He also said Cummins is working on zero-carbon solutions for electric and hydrogen engines.
“I think they’ve been smart about working on green engines without abandoning the traditional mainstays that run on gas or diesel. More importantly, Cummins Inc (NYSE:CMI) has a thriving power systems business where they make generators and commercial power systems, including, yes, data centers.”
Cramer said had Cummins Inc (NYSE:CMI) been a pure-play trucking engines company he’d have stayed away from the stock. He highlighted that in the first half of 2024, sales of the Class 8 (top 8 truck companies) were down more than 16% year over year.
“We spoke to CEO Jennifer Rumsey on August 1 on Mad Money, and she explained that data centers have become a key source of growth for Cummins.”
Cramer also praised Cummins Inc (NYSE:CMI) latest quarterly results and said he was not expecting the strong growth of the power generation business.
Parnassus Value Equity Fund stated the following regarding Cummins Inc. (NYSE:CMI) in its first quarter 2024 investor letter:
“Cummins Inc. (NYSE:CMI), a leader in diesel and alternative fuel engines and generators, guided to a shallower-than-expected downcycle in 2024. New rules from the Environmental Protection Agency are expected to drive higher demand for the company’s truck engines in the coming years.”
6. Autozone Inc (NYSE:AZO)
Number of Hedge Fund Investors: 45
A caller recently asked Jim Cramer about his thoughts on Autozone Inc (NYSE:AZO), saying the company buys back a lot of its stock. Here is what Cramer said:
“The problem is that’s kind of all they are doing right now, they don’t have the old mojo, I’d admit that they lack the serious mojo per share number that I always like to have. But I will say this, they have hung in here pretty darn well.”
Cramer said that he would still buy the stock of Autozone Inc (NYSE:AZO) at the current levels ($3155).
Autozone Inc (NYSE:AZO) is an American retailer of aftermarket automotive parts and accessories. Bears used to argue that the company would have a tough time amid the rise of EVs since the demand for traditional auto parts would decline. However, ever since the EV demand slowed down, that argument fell apart. The traditional gasoline-powered cars still dominate U.S. roads, accounting for over 98% of all registered vehicles as of May 2024. Even if EV sales were to match those of internal combustion engine (ICE) cars, it would take a considerable amount of time for EVs to make a noticeable impact on the overall vehicle landscape.
5. Hubbell Inc (NYSE:HUBB)
Number of Hedge Fund Investors: 45
Cramer said he bought Hubbell Inc (NYSE:HUBB) about a “month ago”. The company makes equipment for utilities and large commercial uses of electricity.
“It’s a play on the monetization of the electrical grid and the overall need for more power to support the new manufacturing especially for the, yes, data centers.”
Cramer said that “Hubbell is also a renewable energy play because it helps to get power from solar panels or wind farms to the grid. That’s very good. I like Hubbell too.”
Cramer thinks that Hubbell Inc (NYSE:HUBB) is a “secular growth story.”
4. Devon Energy Corp (NYSE:DVN)
Number of Hedge Fund Investors: 52
When asked about Devon Energy Corp (NYSE:DVN), Jim Cramer said that Rick Muncrief (Devon CEO) has “put together a monster company.” Cramer recommended the stock with caution amid volatility in oil and gas prices.
“So, I’d own Devon Energy Corp (NYSE:DVN) but don’t get too excited.”
Upstream energy giant Devon Energy Corp (NYSE:DVN) is a notable dividend stock popular among hedge funds. During the first quarter, the company’s production beat its guidance by 4%, driven by strong activity in the Delaware Basin. Devon’s FCF hit $844 million, representing its 15th consecutive quarter of strong FCF generation. Devon Energy Corp (NYSE:DVN) also increased its 2024 production guidance to about 665 thousand barrels/day. Devon Energy Corp (NYSE:DVN) is allocating a whopping 30% of the FCF for shareholder returns, with a $3 billion share buyback authorization in place. Analysts believe Devon Energy Corp (NYSE:DVN)’s low net debt-to-EBITDAX of 0.7x and high growth estimates make it an undervalued play.
Devon Energy Corp (NYSE:DVN) is currently trading at a P/E multiple of 8.9, lower than Devon Energy Corp’s (NYSE:DVN) five-year average P/E of 10.84 as well as the industry mean of 10.73. Wall Street analysts have an average price target of $58.45 for Devon Energy Corp (NYSE:DVN), about 20% higher than the stock’s current levels. Devon Energy Corp (NYSE:DVN) has a $3 billion share buyback authorization in place, which is about 10% of its outstanding shares. In the first quarter alone Devon Energy Corp (NYSE:DVN) returned $430 million to shareholders through dividends and buybacks.
3. Parker-Hannifin Corp (NYSE:PH)
Number of Hedge Fund Investors: 67
Jim Cramer in a latest program praised Parker-Hannifin Corp (NYSE:PH) latest quarterly results, saying it was like “stars flying out of it.”
“Here is a company that makes motion and control systems along with filtration products, fluid connectors and engineered equipment for aerospace and defense, industrial equipment, vehicles, heating, ventilation and air conditioning – all the things that you probably don’t want to do but I don’t care because it’s really making a lot of money.”
Cramer said that Parker-Hannifin Corp (NYSE:PH) is also shaking its portfolio to benefit from secular growth “megatrends” including aerospace, infrastructure, clean energy, semiconductor manufacturing and again the data center.
Cramer said that Parker-Hannifin Corp (NYSE:PH) beat estimates on organic growth and EPS and gave a strong outlook.
Madison Investors Fund stated the following regarding Parker-Hannifin Corporation (NYSE:PH) in its Q2 2024 investor letter:
“Parker-Hannifin Corporation (NYSE:PH) is a leading diversified industrial manufacturer. The company continues to execute well with respect to improving margins and integrating the recent acquisition of Meggitt. However, the industrial economy is slowing, which weighed on investor sentiment.”
2. Eaton Corporation PLC (NYSE:ETN)
Number of Hedge Fund Investors: 93
Cramer highlighted in a latest program yet again that Eaton Corporation PLC (NYSE:ETN) is a part of his charitable trust’s portfolio. He said the company makes electrical power management systems as well as components for autos and aerospace.
“These guys benefit as the government makes major investments in the electric grid which you know cannot handle all the power that needs to be produced right now. You also need their equipment to move manufacturing back to the US, that’s a megatrend, and of course their power management systems are essential for, yes, the data center.”
Cramer said that stock was off to a good start this year but has “stalled big time” because of worries about a slowing economy. Cramer said this stock has been down a “huge amount” from its highs and it’s a good opportunity for investors to buy it.
Ave Maria World Equity Fund stated the following regarding Eaton Corporation plc (NYSE:ETN) in its first quarter 2024 investor letter:
“Eaton Corporation plc (NYSE:ETN) is an intelligent power management company. The company is a long-term beneficiary in the trend towards electrification, energy transition and digitalization. Eaton is also benefiting from unprecedented global stimuli such as the Inflation Reduction Act, Infrastructure Investment and Jobs Act, the Chips and Science Act and the EU recovery plan known as the NextGenerationEU.”
1. Micron Technology Inc (NASDAQ:MU)
Number of Hedge Fund Investors: 120
Jim Cramer said in a latest program on CNBC that Micron Technology Inc (NASDAQ:MU) could come down to $98 or $99 and the stock would be a buy “right there.”
Bank of America analyst Vivek Arya said in a latest note that if volatility dips in the semiconductor industry and the broader market sees a resurgence, Micron Technology Inc (NASDAQ:MU) would be one of the outperformers.
BofA Securities believes Micron Technology Inc (NASDAQ:MU) is one of the best beaten-down tech stocks presenting an attractive entry point following the latest selloff.
Bank of America analyst Vivek Arya recently also talked about the latest declines in semiconductor stocks. However, the analyst said most of the declines were due to temporary factors and fundamentals are still “intact.”
“AI still the strongest and most dependable area of capex, driven by domestic US tech companies with solid balance sheets, proven monetization and mission-critical imperatives…” Arya said.
Micron Technology Inc (NASDAQ:MU) posted quarterly results recently which came in better than expected but the market didn’t welcome the in-line guidance and rising expenses. However, this short-term view misses the fact that Micron Technology Inc (NASDAQ:MU) is investing heavily in high bandwidth memory (HBM) production that is expected to generate billions in sales by fiscal 2025 compared with just hundreds of millions in 2024.
After the earnings, Arya reiterated a Buy rating and gave a $170 price target on Micron Technology Inc (NASDAQ:MU).
“Mgmt emphasized both CY24 and CY25 volumes are now fully sold out with pricing generally secured, providing visibility to its healthy sales and margin expansions (HBM is GM accretive),” Arya said.
Here is what Micron Technology Inc (NASDAQ:MU) said about HBM during fiscal Q3 earnings call:
“Our HBM shipment ramp began in fiscal Q3, and we generated over $100 million in HBM3E revenue in the quarter, at margins accretive to DRAM and overall Company margins. We expect to generate several hundred million dollars of revenue from HBM in fiscal 2024 and multiple billions of dollars in revenue from HBM in fiscal 2025. We expect to achieve HBM market share commensurate with our overall DRAM market share sometime in calendar 2025. Our HBM is sold out for calendar 2024 and 2025, with pricing already contracted for the overwhelming majority of our 2025 supply. We are making significant strides toward expanding our HBM customer base in calendar 2025, as we design-in our industry-leading HBM technology with major HBM customers. We have sampled our 12-high HBM3E product and expect to ramp it into high-volume production in calendar 2025 and increase in mix throughout 2025.”
ClearBridge Value Equity Strategy stated the following regarding Micron Technology, Inc. (NASDAQ:MU) in its Q2 2024 investor letter:
“Stock selection in the IT sector proved to be the largest contributor to performance, particularly driven by the strong performance of Micron Technology, Inc. (NASDAQ:MU) The company, which designs, develops, manufactures and sells memory and storage products, continued its strong performance alongside other AI beneficiaries as the anticipated demand for new and additional storage essential for housing and training large language AI models continues to grow.”
While we acknowledge the potential of Micron Technology Inc (NASDAQ:MU), 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 MU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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