We recently compiled a list of the 10 Stocks Jim Cramer Can’t Stop Talking About. In this article, we are going to take a look at where Martin Marietta Materials Inc. (NYSE:MLM) stands against the other stocks Jim Cramer can’t stop talking about.
In a recent episode of Mad Money, Jim Cramer advises that worrying about what others are concerned about or getting excited about what everyone anticipates is generally futile for investors. When most investors expect something to happen, it’s often already factored into stock prices.
“You want to know the single most useless thing you can do in this business? Oh, that’s easy. The most useless thing you can do as an investor is to worry about what everyone else is worrying about. The flip side of this is also true: there’s no point in getting excited about something that everybody else is eagerly anticipating. Why? Because when the vast majority of investors agree that something’s going to happen, that thing is already priced into the stock market.”
The stock market reacts quickly to the consensus of hedge fund and mutual fund managers, so by the time the majority agrees on an economic trend, it’s already reflected in stock values. Cramer points out that while the real economy moves at a steady pace—through borrowing, manufacturing, transporting, and selling—stocks adjust almost instantly to new information. This rapid adjustment means that, once big institutional investors align on a particular economic outlook, it is already embedded in the market.
“While the real economy moves at its own steady pace—for example, you have to borrow money to build out equipment, then use that equipment to manufacture goods, transport them to retail outlets, and wait for customers to buy them—the stock market has no such limitations. Stocks don’t quite travel at the speed of thought, but they come pretty close. So, the moment a preponderance of hedge fund and mutual fund managers decide that the economy is slowing, speeding up, or flatlining, stocks start trading like that’s already the case.
Usually, it takes some time to build that kind of consensus, which is why you rarely see these moves happening instantaneously. But once the big institutional portfolio managers are on the same page about something, you can be pretty darn confident that it’s baked into the averages.”
The Efficient Markets Hypothesis
Jim Cramer points out that understanding some basic economics can be quite useful for managing investments, even though economists often use complex models that don’t always align with real-world data. Economists can be too focused on their theories and may ignore conflicting data, but basic economic principles can still offer valuable insights. One key concept Cramer highlights is the Efficient Markets Hypothesis.
This theory suggests that stock prices at any given moment already include all available information. When new data comes out, stock prices quickly adjust to reflect this updated reality. Index fund advocates use this theory to argue that it’s nearly impossible for stock pickers to outperform the market, as all known information is already factored into stock prices.
“This is some basic economics 101 stuff. Now, I don’t have a ton of use for economists as professionals on this show—they tend to take a totally ivory-tower approach to their discipline, meaning they have all sorts of models for how the economy is supposed to work (often very boring models, by the way). But they rarely let empirical facts get in the way of a good theory. If the data conflicts with the model, economists have a bad habit of throwing away the data, not the model. However, as long as you keep that caveat in mind, some basic economics is incredibly useful when you’re trying to manage your own money.
For example, let’s take something a little bit difficult, but we’re going to get through this together: what’s known as the Efficient Markets Hypothesis. This theory says that, at any given moment, stock prices already reflect all the relevant information that’s out there. When some new piece of data emerges, stocks immediately adjust to reflect the new reality. You often hear index fund purists citing this theory to explain why it’s impossible for stock pickers to get any kind of edge. According to them, whatever you know about a company should already be baked into its share price. As far as they’re concerned, markets are so efficient that investing in individual stocks is basically the same as gambling.
Jim Cramer explains that if all possible information about a stock is already reflected in its price, then doing detailed research may not give you an edge. In this view, the only factors that can move a stock’s price are new, unexpected pieces of information. If such information were known to anyone, it would already be factored into the stock price.
“If everything you could possibly know is already priced into the stock, that means your homework is meaningless, and the only thing that can push a stock higher or lower is some random new piece of information nobody knows about. It has to be something totally unknown because, if anyone did know, they would have already acted on it, and thus it would be baked into the share price.”
Essentially, they believe that only completely new, unknown information can influence stock prices, which makes individual stock investing seem like a gamble. Cramer acknowledges that while economists and their theories might seem detached from practical investing, understanding concepts like market efficiency can help investors navigate the complexities of stock investing.
“This means that, under the extreme version of the Efficient Markets Hypothesis, the only things that can move stocks are “unknown unknowns,” to use the parlance of former Defense Secretary Donald Rumsfeld. And if you’re merely betting on unknown unknowns, you might as well just be playing roulette—it’s more fun.
That’s why index fund advocates adore the Efficient Markets Hypothesis. This theory tells them that it’s impossible for individual investors to consistently beat the averages. So if you want equity exposure, the only smart way to do it is by putting your money into a nice, low-cost index fund that mirrors the S&P 500.”
Our Methodology
This article looks at a recent episode of Jim Cramer’s Mad Money, where he discussed several stocks. We’ve selected ten notable companies from his mentions. The article also explores how hedge funds perceive these stocks and ranks them according to their level of hedge fund ownership, 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 large construction project with cranes and forklifts in action, demonstrating the company’s building materials business.
Martin Marietta Materials Inc. (NYSE:MLM)
Number of Hedge Fund Investors: 45
Jim Cramer suggests that Martin Marietta Materials Inc. (NYSE:MLM) is a solid investment because it focuses on essential building materials for new housing developments. However, Cramer notes that the real gains for Martin Marietta Materials Inc. (NYSE:MLM) will come later after homebuilders fully commit to new construction projects. This means Martin Marietta Materials Inc. (NYSE:MLM)’s performance might improve significantly once the construction of new homes picks up speed.
“The more tangible plays are going to be Martin Marietta Materials, which represent the basics of building out new housing developments. But those really start winning later on, once the homebuilders fully embrace new construction.”
Martin Marietta Materials Inc. (NYSE:MLM) is an appealing investment because of its leading role in the construction materials industry, its ability to benefit from infrastructure investments, and its strong financial performance. As a major supplier of aggregates, cement, and ready-mixed concrete, Martin Marietta Materials Inc. (NYSE:MLM) is well-positioned to take advantage of the ongoing demand for infrastructure development across the United States.
In Q2 2024, Martin Marietta Materials Inc. (NYSE:MLM) reported a 10% increase in revenues year-over-year, reaching $1.82 billion. This growth was driven by strong demand in both public and private construction sectors, bolstered by federal and state infrastructure funding, price increases, and effective cost management. Martin Marietta Materials Inc. (NYSE:MLM) is also expanding its operations through strategic acquisitions, which enhance its geographic reach and production capacity.
With a strong balance sheet and a disciplined approach to capital allocation, Martin Marietta Materials Inc. (NYSE:MLM) is well-equipped to pursue growth opportunities and return value to shareholders through dividends and share repurchases. Given the U.S. government’s ongoing investment in infrastructure, including the Infrastructure Investment and Jobs Act, Martin Marietta Materials Inc. (NYSE:MLM) stands to benefit significantly from increased spending on transportation and public works, reinforcing its potential as a worthwhile investment.
Overall MLM ranks 6th on our list of the stocks Jim Cramer can’t stop talking about. While we acknowledge the potential of MLM 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 MLM 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.
