We recently published a list of Jim Cramer’s Must-Watch List: 10 Stocks to Look After. In this article, we are going to take a look at where e.l.f. Beauty, Inc. (NYSE:ELF) stands against other Jim Cramer’s must-watch stocks.

In a recent episode of Mad Money, Jim Cramer explained that with the economy slowing down, the Federal Reserve is poised to ease its policies. He anticipates that the Fed will decide to cut rates, but the exact size of the cut, whether 25 or 50 basis points, remains uncertain. This upcoming decision is particularly important because it could significantly impact the market.

“At last, the economy has slowed enough that the Fed can take its foot off the brakes and step on the gas. That’s why we’re starting our game plan in the middle of next week when the Federal Reserve renders its verdict: 25 or 50 basis points. We don’t typically have a lot of drama in this business, but this one counts as a nail-biter because we really don’t know how big the rate cut will be. We just know they’re going to cut.”

Cramer highlighted Friday’s market performance, where the Dow gained 297 points, the S&P rose by 0.54%, and the Nasdaq increased by 0.65%. This strong performance marked the best two weeks of the year for the S&P and the Nasdaq. The rise in these indices suggests that the market might be expecting a substantial rate cut, potentially 50 basis points. Cramer noted that stocks sensitive to interest rates, especially those related to housing, surged in anticipation of this.

“Today’s rally saw the Dow gaining 297 points, the S&P advancing 0.54%, and the Nasdaq climbing 0.65%, capping off the best two weeks of the year for both the latter two indices. The S&P and the Nasdaq suggest the Fed might actually go for 50. That’s a double rate cut. I know this because the stocks most sensitive to interest rates, particularly housing and housing-related names, soared today.”

Using an analogy from NFL fantasy football, Cramer compared the market’s optimism to waiting for a major play from the Fed. Despite this, he personally bets on a 25 basis point cut rather than 50. He argues that while a larger cut could help the slowing economy, particularly affecting lower-income groups, it also risks reigniting inflation and causing panic. A 50 basis point cut might signal severe economic problems, which could lead to unnecessary anxiety.

“To use a little NFL fantasy football lingo, they soared presumably in anticipation of something huge from Jay Powell and company. All aboard! I still find myself betting on a quarter-point cut, though. It’s not that we don’t need a half-point cut, as the economy is slowing pretty quickly, especially for the lower-income cohort. However, I’ve always believed that the Fed should be measured when it cuts rates at this stage of the business cycle.

The biggest risk is that inflation might flare up again if you cut too much, and a 50 basis point cut all at once makes that a lot more likely. Plus, a double rate cut signals that something may be very wrong with the economy—something we don’t know about, something lurking. So going for 50 could inspire panic, and there’s simply no reason for the Fed to take that chance when it can simply hit us with a series of thoughtful 25 basis point cuts that neither reignite inflation nor cause panic.”

Cramer also cautioned that if the housing market rally continues, it could lead to a sell-off if only a 25 basis point cut is announced. He pointed out that traders are currently pricing in a higher chance of a 50 basis point cut, according to the CME Group’s FedWatch tool. If the Fed opts for a smaller cut, traders who bought in anticipation of a larger reduction might sell off their stocks, potentially causing market volatility.

“Now, if the housing rally continues at this pace, these stocks run the risk of being too hot to handle for a mere 25 basis point cut, and we’ll get a sell-off in response. Keep in mind how the CME Group’s FedWatch tool, which tracks interest rate expectations based on the Fed Funds Futures Market, indicates that traders are now pricing in a much higher probability of a double rate cut, currently at 45%. That’s much higher than it was a week ago. These traders could indeed be disappointed if the Fed decides to be more measured. They could be your enemy come Wednesday at 2 p.m. as they dump what they bought incorrectly, and that is what happens. That’s what traders do, they let the stocks go.”

Jim Cramer Sees Market Turnaround: This Week’s Gains Signal Future Upside

Finally, Jim Cramer believes that this coming week marks a significant moment for the market. He advises that if the market declines following a 25 basis point rate cut, investors should keep in mind the strong performance of this week. He suggests that this week’s gains are a sign of more positive developments to come as the Federal Reserve continues to ease monetary policy.

“When I look at next week, I can only conclude that we’re finally at the moment we’ve all been waiting for. So let me give you the bottom line: if we sell off on a 25 basis point rate cut, remember this phenomenal week, because there will be plenty more like it as the easing process continues and progresses.”

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e.l.f. Beauty Inc. (NYSE:ELF)

Number of Hedge Fund Investors: 40

Jim Cramer discussed e.l.f. Beauty, noting that it is heavily shorted, meaning many investors are betting against it. He observed that these short sellers have put pressure on the stock, causing concern among investors. He also highlighted the broader struggles in the cosmetics industry, mentioning that Estée Lauder (NYSE:EL) has been declining almost daily and Ulta Beauty (NASDAQ:ULTA) has also been weak.

“Okay, a couple of things: one, e.l.f. is a heavily shorted stock, and I thought the shorts came in and leaned on it, which scared a lot of people. Secondly, you’ve got to understand that Estée Lauder seems to go down almost every single day, and Ulta has been very weak. So the cosmetics group is doing terribly. E.l.f. is the best house in a bad neighborhood, and that’s not a place to be.”

e.l.f. Beauty, Inc. (NYSE:ELF) is an appealing investment due to its impressive financial performance, strategic growth efforts, and market leadership. In fiscal year 2024, e.l.f. Beauty, Inc. (NYSE:ELF) saw a 77% increase in net sales, surpassing $1 billion in annual revenue, and a 101% rise in adjusted EBITDA. e.l.f. Beauty, Inc. (NYSE:ELF) achieved a 71% jump in fourth-quarter net sales, becoming the second-largest brand in its category, outpacing competitors like L’Oréal Paris and Maybelline. e.l.f.’s success is driven by its focus on product innovation, digital marketing, and expanding partnerships with major retailers such as Ulta Beauty (NASDAQ:ULTA).

Additionally, its recent expansion into international markets like Mexico supports a positive growth outlook for fiscal year 2025, with projected net sales growth of 20-22%. The strong earnings performance, with a Q1 2025 EPS of $0.87—well above the expected $0.67—reinforces its solid financial outlook. Overall, e.l.f. Beauty, Inc. (NYSE:ELF)’s market share gains, international expansion, and effective cost management make it a compelling investment with strong growth potential.

Overall ELF ranks 7th on our list of Jim Cramer’s must-watch stocks. While we acknowledge the potential of ELF 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 ELF 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.