We recently published a list of Jim Cramer’s Top 10 Must-Watch Stocks for Savvy Investors. In this article, we are going to take a look at where Lululemon Athletica Inc. (NASDAQ:LULU) stands against Jim Cramer’s must-watch stocks for savvy investors.

Friday Madness

In a recent episode of Mad Money, Jim Cramer described September 6, Friday, as a dismal trading day following a critical non-farm payrolls report. Bulls hoped for weaker-than-expected hiring and steady wages to prompt the Federal Reserve to consider cutting rates. They got what they wished for, but this led to a surprising turn of events: instead of rallying, the market saw a sharp decline, with the Dow falling 410 points, the S&P dropping 1.73%, and the NASDAQ plummeting 2.55%.

“What an ugly day. Just hideous. We came into today knowing we’d have a critical non-farm payrolls report. If you were a bull, you wanted to see weaker-than-expected hiring with wages pretty much in line, because that’s what the Fed needs to see before it can start cutting rates. Voila, we got exactly what we wished for. Maybe we should have been careful, though, because as soon as we got what we wanted, the bulls vanished and the sellers came out of the woodwork, crushing practically everything. The Dow fell 410 points, the S&P plunged 1.73%, and the NASDAQ plummeted 2.55%.”

Cramer noted that September often brings significant profit-taking, making it historically the weakest month for the market. While this might seem like circular reasoning, it’s more plausible than suggesting that fear of a severe economic slowdown drives the sell-off. In fact, big tech companies, which are central to ongoing powerful trends like data centers and accelerated computing, should be seen as buying opportunities during market dips.

“This market has a September problem. Come September, we’re always hit with a tremendous amount of profit-taking, which is why it’s the weakest month of the year. I know that’s somewhat circular reasoning—we sell because we’ve always sold—but it makes more sense than saying people sold tech because they fear a hard landing. Tech, especially big tech, is something you buy, not sell, into weakness if you’re worried about a more severe slowdown.

Why? Well, because big tech is all about powerful secular themes that can keep going even during a recession—and we’re not getting one. I’m talking about the data center, accelerated computing—they’re not going anywhere. Nevertheless, when anything jars the big tech themes of the moment, the market’s reaction is swift, harsh, and horrible.”

Jim Cramer discussed the aftermath of NVIDIA’s recent report, noting that despite his belief that AI is not a bubble, the stocks related to AI have seen substantial gains, particularly in August. He pointed out that September often triggers increased selling, even when companies report results that meet expectations.

“Look at what happened after the company reported last night. I don’t believe AI is a bubble, but these stocks are still up a great deal, especially in August. And September tends to bring out sellers when you get just in-line numbers.”

The Upcoming Debate Between Harris and Trump

Jim Cramer also commented on the upcoming debate between Vice President Harris and former President Trump, scheduled for Tuesday night. He questioned how much the economy will be a focus, speculating that Trump might try to link Harris to recent inflation trends, while Harris may present herself as a more moderate alternative to President Biden.

“Tuesday night’s the great debate between Vice President Harris and former President Trump. I don’t know how much of a role the economy will play in the debate. If Trump’s on his game, he’ll try to tie Harris to the inflation we’ve experienced since COVID. I suspect that Harris will try to portray herself as more moderate than President Biden.

Either way, I doubt there’ll be anything specifically market-moving, even if the candidates say something newsworthy about their tax plans. Keep in mind that the winner in November likely won’t have the Senate votes to totally rework the tax code, whether we’re talking about Harris’s capital gains tax or Trump’s 19th-century-style tariffs.”

Jim Cramer Urges Investors: “Please Do Not Give Up the Ship Here”

Then he discussed the upcoming release of the Consumer Price Index (CPI) on Wednesday, which will provide another update on inflation. He emphasized that if inflation remains steady or decreases, the Federal Reserve will have more flexibility to lower interest rates and potentially avoid a recession, addressing concerns from many sellers. Cramer urged investors to stay confident and not to abandon their positions based on these uncertainties.

“Wednesday, we get another read on inflation—this time from the Consumer Price Index. What can I say? As long as inflation stays the same or goes lower, the Fed has plenty of leeway to cut interest rates and prevent a recession—the thing so many sellers are worried about. That’s why I keep telling you, please do not give up the ship here.”

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 Lululemon Athletica Inc. (NASDAQ:LULU)

Number of Hedge Fund Investors: 45

Jim Cramer discusses Lululemon Athletica Inc. (NASDAQ:LULU)’s recent performance, noting that the stock has fallen significantly from its highs last December, down by half. After Lululemon Athletica Inc. (NASDAQ:LULU)’s mixed earnings report a little over a week ago, which showed no real signs of improvement, the stock barely moved and has since declined further by more than 2% amid a weaker market. While Cramer is hopeful for Lululemon Athletica Inc. (NASDAQ:LULU)’s turnaround, he is not ready to endorse the stock as a buy at this time.

“Now, let’s talk about Lululemon. Going into last week’s earnings report, the stock had already been cut in half from its highs last December. When the company posted its numbers a little over a week ago, the results were mixed at best, with no real signs of a turnaround. The stock barely reacted to the numbers, but as the market weakened this week, Lululemon stock declined more than 2%.

The truly sad part is that, until late last year, Lululemon was one of the greatest growth stories of the past 15 years. You could have bought it for single digits during the Great Recession. Now, it’s at $253 and change, which is an incredible long-term move. But it’s a lot less impressive when you remember Lululemon was a $500+ stock about nine months ago.

So, is there any hope for a comeback? Given the company’s historic track record, I think we owe it to ourselves to take a look. Unfortunately, while there are some positives, they’re not enough to make me a believer again. Not yet. And you need to be a believer if you’re going to recommend a stock that’s been cut in half in less than a year. I just can’t do that, for several reasons.

You could argue that Lululemon is worth buying purely on the basis of valuation. It sells for roughly 18 times the midpoint of this year’s earnings estimates, and historically, the stock has sold for a whopping 43 times earnings over the past five years. But to make an argument based on valuation, you need to believe there won’t be any more cuts to the numbers. I can’t say that with confidence when it comes to Lululemon — at least not yet, not with this much competition.

Here’s the bottom line: I’m rooting for Lululemon to make a comeback, absolutely. But with so much lower-priced competition, I’m simply not ready to stick my neck out on this one. As much as I think Calvin McDonald is a total pro, this is still a “show-me” story.”

In its Q2 2024 earnings report, Lululemon Athletica Inc. (NASDAQ:LULU) reported $2.4 billion in revenue, a 7% increase from the previous year, but this was below analyst expectations, especially in the Americas where sales only grew by 1%. Despite this, Lululemon Athletica Inc. (NASDAQ:LULU) remains highly profitable, with earnings per share (EPS) projected between $2.68 and $2.73 for Q3 2024, and an annual EPS forecast of $13.95 to $14.15.

Lululemon Athletica Inc. (NASDAQ:LULU)’s growth strategy, called “Power of Three ×2,” aims to double its revenue from men’s products, e-commerce, and international sales by 2026, increasing from $6.25 billion in 2021 to $12.5 billion. Lululemon Athletica Inc. (NASDAQ:LULU) is in a strong financial position with $1.6 billion in cash and reduced inventory, setting the stage for continued expansion despite current challenges. Short-term issues, like the disappointing Breeze through leggings launch and increased competition from brands such as Alo Yoga and Vuori, have affected recent performance.

However, Lululemon Athletica Inc. (NASDAQ:LULU)’s focus on innovation and global growth suggests a strong long-term potential. Analysts have set an average price target of around $354.95, indicating a nearly 40% potential upside from current levels, making it an attractive investment for those with a long-term view.

Middle Coast Investing stated the following regarding Lululemon Athletica Inc. (NASDAQ:LULU) in its Q2 2024 investor letter:

“I mentioned last quarter and higher above that I like buying quality stocks on sale. Lululemon Athletica Inc. (NASDAQ:LULU), the 2nd worst performer in the S&P 500 this year, qualifies. I published a full thesis on the stock before its most recent earnings, but the basics: the yoga pants and clothing company has had an amazing post pandemic run that is approaching its end.

Its growth in the U.S. is slow/non-existent at the moment, but it is growing very fast in China and Europe. I think that international growth is likely to endure, and that its U.S. slowness is likely to be temporary. Lululemon shares are not ‘cheap’, but they are on sale for an average price, and I think the company will grow faster than average over the next five years. I would be wrong if Lululemon is a fad gone bust, or faces a huge post-pandemic hangover as people get used to leaving the house more. We’ll see.”

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