Jim Cramer, the host of Mad Money, discussed how “froth” is currently affecting the market, explaining that trend-driven stocks need to experience a decline before more stable stocks can begin to recover.
“The fad stocks, they need to go down before non-fad stocks can triumph. That’s what’s happening. It’s just a fact of life in this business.”
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After a rough week marked by a significant downturn in trendy stocks, Cramer pointed out that it is a rare positive sign in an otherwise negative environment that the trend seems to be running its course. Cramer reflected on the market’s performance, mentioning that the Dow managed to inch up by 33 points, while the S&P 500 fell by 0.5%. However, the Nasdaq dropped by 1.21%, turning negative for the year.
He also stressed that the decline primarily occurred toward the end of the trading day, which he found unusual and concerning, though he was not sure about the specific cause of the abrupt drop. “It was pronounced, it was nasty,” Cramer remarked, highlighting the sharpness of the downturn.
“Now, nobody wants anybody to lose money, including me, but there’s a thing called froth, and we gotta talk about it as froth is the enemy of prudence. Smart investing requires a degree of prudence, something that’s highly incompatible with froth.”
He explained that smart investment strategies require a certain degree of caution, which frothy market conditions cannot support. He pointed out that for a period, the market had been filled with froth but lacked prudence, especially evident during the turbulent trading seen late last week. However, Cramer noted that as the froth subsides, investors are turning to assets with more durability and longevity. He specifically mentioned that drug stocks have been performing well recently.
“So here’s the bottom line: Once these frothy momentum stocks come in enough, then we will finally be in a much more straightforward world, a world where what tends to rally is not the sizzle, but the steak.”
Our Methodology
For this article, we compiled a list of 8 stocks that were discussed by Jim Cramer during the episode of Mad Money aired on February 24. We listed the stocks in the order that Cramer mentioned them. We also provided hedge fund sentiment for each stock as of the fourth quarter of 2024, which was taken from Insider Monkey’s database of over 1,000 hedge funds.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Jim Cramer Thoughts on 8 Stocks As He Discussed Market Froth
8. D-Wave Quantum Inc. (NYSE:QBTS)
Number of Hedge Fund Holders: 15
D-Wave Quantum Inc. (NYSE:QBTS) was commented on during the episode and here’s what Mad Money’s host had to say about the company:
“Now I know there are real people who work at Rigetti or D-Wave…. They, they, they probably, they go to work, they, they talk with, about qubits and developing quantum materials that have never been ever seen before… Very compelling stuff but it doesn’t tell you much about the earnings power, which is what I care about.”
D-Wave Quantum (NYSE:QBTS) provides quantum computing systems, software, and services, such as the Advantage quantum computer and the Leap cloud platform. Additionally, the company offers D-Wave Launch, a service designed to help businesses integrate quantum solutions. The company stock gained more than 223% over the past year.
7. Rigetti Computing, Inc. (NASDAQ:RGTI)
Number of Hedge Fund Holders: 17
Talking about forth in the market, Cramer mentioned Rigetti Computing, Inc. (NASDAQ:RGTI) and said:
“Now I know there are real people who work at Rigetti or D-Wave…. They, they, they probably, they go to work, they, they talk with, about qubits and developing quantum materials that have never been ever seen before… Very compelling stuff but it doesn’t tell you much about the earnings power, which is what I care about.”
Rigetti (NASDAQ:RGTI) specializes in the development and creation of quantum computers and superconducting quantum processors. Expressing skepticism about the company in January, Cramer stated:
“But then for example, when I look at Rigetti Computing, it’s a $5.6 billion company, professes to be a leader in quantum computers and superconducting equipment, I grow concerned. Rigetti is a multiple-year money loser with just $11.9 million in revenues in the last 12 months.
This stock was at 66 cents four months ago. Now it’s at 20 bucks, up over 30% just today. Its big break occurred at the end of November when it sold 50 million shares at two bucks. The stock was off the races ever since then. Hey, it’s a quantum GameStop, okay?”