We recently compiled a list of the Jim Cramer Wants You to Watch Out For These 10 Stocks. In this article, we are going to take a look at where The Gap Inc. (NYSE:GPS) stands against the other stocks Jim Cramer wants you to watch out for.
Jim Cramer noted that Tuesday’s pullback was expected as the market had been rising for eight consecutive days, and a ninth would have taken it into rare territory, a streak not seen since 2004. The session was tough, with the Dow dropping 62 points and the S&P falling 2%, almost like a 33% loss. This raises the question of whether the market still has the momentum to keep climbing, especially since bad news finally caused stocks to drop, something that hadn’t happened much during the recent 8-day rally.
“We were due for today’s modest pullback—the S&P had been up for eight straight days, and nine straight would have put us in rarefied territory. We haven’t seen that kind of winning streak since 2004. Today’s session was rough, with the Dow off by 62 points and the S&P dipping 2%, like losing 33%. We have to wonder if the market still has the momentum to go higher because today we got bad news, and guess what—stocks actually went down. That didn’t happen much during the 8-day gain.”
Cramer observed an unusual trend during this winning streak. If a company reported better-than-expected earnings, the stock surged. Even if the results were only slightly better than feared, the stock still went up. And if a company posted disappointing earnings, the market shrugged it off, assuming it was the last bad quarter because the Fed might soon cut rates, so people kept buying anyway.
“You see, we had a very odd pattern during the winning streak. It was a bit of Pangloss and a nip of Camelot. When a company reported a better-than-expected quarter, it was great. When a company reported a quarter that was just better than feared, the stock still rose. And when a company reported a bad quarter, we decided that it was the last bad quarter because the Fed was about to cut rates, so it was no big deal—buy anyway. In other words, companies could do no wrong, but not today. Today, we had a bit of a reckoning, a dose of reality.”
Jim Cramer observed that the market had been enjoying a stretch where good performance boosted stocks, and even poor performance was cushioned by the belief that the Fed would step in to help. However, after seven consecutive days of gains, he pointed out that this optimistic pattern might be coming to an end. The market has now reached a level where stocks won’t automatically get the benefit of the doubt. Cramer explained that we’re back to a more typical environment where strong stocks rise and weaker ones fall. At these elevated levels, it’s no longer enough to dismiss the bearish outlook with a simple “heads I win, tails you lose” mindset.
“We’ve reached a point where the market is sufficiently elevated, and we’re back to business as usual—where the good stocks rise, and the bad ones fall. At these high levels, we can’t just dismiss the bears with “heads I win, tails you lose.” There’s a return to rationality, and rationality is the enemy of a market where everything rallies indiscriminately.”
Our Methodology
In this article, we reviewed a recent post of Jim Cramer and his latest insights on what to watch in the stock market for Tuesday. We highlighted ten stocks he mentioned and provided details on hedge fund sentiment for each. The stocks are ranked based on the number of hedge funds that own them, from lowest to highest.
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 young person confidently wearing a denim outfit and eyewear in the street.
The Gap Inc. (NYSE:GPS)
Number of Hedge Fund Investors: 39
Jim Cramer noted that Citi has initiated a positive catalyst watch for The Gap Inc. (NYSE:GPS), which owns brands like Banana Republic, Old Navy, and Athleta. The Gap Inc. (NYSE:GPS) has responded well, gaining 2.5%.
“Citi opened a positive catalyst watch for Gap, which also owns Banana Republic, Old Navy, and Athleta. The stock gained 2.5%. I am going to interview Gap CEO Richard Dickson when the retailer reports earnings on Aug. 29.”
The Gap Inc. (NYSE:GPS) has been strategically restructuring its business by closing underperforming stores and enhancing its online and digital platforms. This shift aims to boost profitability over time. The Gap Inc. (NYSE:GPS)’s strong brand portfolio, including Old Navy, Banana Republic, and Athleta, remains a significant asset with growth potential in both domestic and international markets.
Additionally, The Gap Inc. (NYSE:GPS) is well-positioned to benefit from the growing consumer preference for casual and athleisure wear, which aligns with its product offerings. This trend is expected to persist, especially as remote work and lifestyle changes continue. Furthermore, The Gap Inc. (NYSE:GPS)’s focus on sustainability and inclusivity resonates with modern consumers, potentially increasing brand loyalty and driving sales growth.
Overall GPS ranks 10th on our list of the stocks Jim Cramer wants you to watch out for. While we acknowledge the potential of GPS 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 GPS 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 is originally published at Insider Monkey.