In this article, we discuss the 5 stocks that Jim Cramer was right about. If you want to read about some more stocks that Jim Cramer was right about, go directly to Jim Cramer Was Right About These 10 Stocks.
5. Northrop Grumman Corporation (NYSE:NOC)
Number of Hedge Fund Holders: 39
Percentage Increase in Share Price Over Past Month: 7.33%
Northrop Grumman Corporation (NYSE:NOC) is an aerospace and defense firm. Cramer gave the company a Buy recommendation during the Featured Stock segment of his show on May 19, urging investors to take note of the boom in the defense sector in the wake of the Russian invasion of Ukraine that was a “game-changer” for the sector.
On May 12, Argus analyst John Eade kept a Buy rating on Northrop Grumman Corporation (NYSE:NOC) stock and raised the price target to $495 from $420, noting that the valuations of the stock were attractive with the P/E ratio remaining below the midpoint of the historical range.
At the end of the first quarter of 2022, 39 hedge funds in the database of Insider Monkey held stakes worth $940 million in Northrop Grumman Corporation (NYSE:NOC), up from 33 in the preceding quarter worth $561 million.
In its Q1 2022 investor letter, LRT Capital Management, an asset management firm, highlighted a few stocks and Northrop Grumman Corporation (NYSE:NOC) was one of them. Here is what the fund said:
“Based in Virginia, Northrop Grumman Corporation (NYSE:NOC) is one of the world’s largest defense contractors with annual revenue of more than $30 billion. The company operates in a cozy oligopoly, that after decades of consolidation has resulted in the US defense market being controlled by five large companies: The Boeing Company (BA), General Dynamics Corporation (GD), Lockheed Martin Corporation (LMT), Northrop Grumman Corporation (NOC), and Raytheon Technologies Corporation (RTX).
Industry barriers to entry are immense, government procurement cycles are extremely long, and the consolidated industry structure reflects this. This has allowed Northrop Grumman Corporation (NYSE:NOC) to earn stable mid-teens returns on invested capital (ROIC) and grow earnings per share at a rate of over 13% per year in the past decade, despite a topline that has grown only in-line with inflation. Even after the recent run-up in the stock price, it trades at approximate 15x next year’s earnings estimates, far below the S&P 500 index, despite being an above average company. While nominally, there are five major defense contractors, the true industry concentration is even higher because not all companies compete in all possible business segments. General Dynamics’ submarine division, Electric Boat, is the sole supplier of nuclear power submarines in the United States. Lockheed Martin is the sole supplier of the F-18, the F-35 and the F-22. Northrop was the sole bidder on the contract to develop the next generation of intercontinental ballistic missiles; Raytheon dominates missile systems; and so on.
Northrop’s revenue growth over the past decade has been mediocre but even that has led to impressive shareholder returns that have far outpaced the S&P500. What’s more, we believe that revenue growth may accelerate in the next few years. A lot of ink is spilled every year about the “massive” U.S. defense budget that critics claim is “out of control”. Given this, you might be surprised to hear that U.S. defense spending as a share of GDP is at the lowest level in recorded history, at a mere 3.8%. In other words, U.S. military spending could double and not be out of line with historical norms. While we are not calling for a new Cold War, given the global instability we are witnessing, it is not unreasonable to expect U.S. defense spending to grow faster than GDP over the next decade.”
4. Marathon Oil Corporation (NYSE:MRO)
Number of Hedge Fund Holders: 43
Percentage Increase in Share Price Over Past Month: 24.53%
Marathon Oil Corporation (NYSE:MRO) is an independent oil and gas exploration and production firm. The former Goldman Sachs employee was bullish on the energy industry during the Lightning Round segment of his show on May 18, giving Marathon a Buy recommendation as well.
On April 21, Truist analyst Neal Dingmann maintained a Buy rating on Marathon Oil Corporation (NYSE:MRO) stock and raised the price target to $41 from $34, urging oil and gas firms to focus on efficiencies and costs in order to take advantage of continued strong commodity prices.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm DE Shaw is a leading shareholder in Marathon Oil Corporation (NYSE:MRO) with 4.5 million shares worth more than $113 million.
In its Q4 2021 investor letter, Harding Loevner highlighted a few stocks and Edwards Lifesciences Corporation (NYSE:EW) was one of them. Here is what the fund said:
“Innovation can foster growth in Health Care fields other than drug discovery. Edwards Lifesciences Corporation (NYSE:EW) makes minimally invasive devices to treat heart disease or for critical care monitoring. Its transcatheter heart valve, SAPIEN, is the most-implanted aortic heart valve in the world. Having settled a lawsuit with Abbott over alleged patent infringement, Edwards Lifesciences Corporation (NYSE:EW) is now moving ahead with a newer product line called PASCAL to treat elderly or frail patients—for whom currently available treatments are ineffective—for mitral and tricuspid disease. PASCAL is the fruit of the company’s ongoing investment in research and development. Between PASCAL and its next-generation SAPIEN valve, the company expects to double its addressable market to approximately US$20 billion by 2028.”
3. Valero Energy Corporation (NYSE:VLO)
Number of Hedge Fund Holders: 47
Percentage Increase in Share Price Over Past Month: 13.04%
Valero Energy Corporation (NYSE:VLO) markets transportation fuels and petrochemical products. During the Lightning Round segment of his show on May 18, the former hedge fund manager gave the company a Buy recommendation. The bullish outlook extended to the energy sector in general as the war in Ukraine and supply chain problems helped oil climb to record highs in the past few months, with analysts predicting the prices to stay at these levels till 2023.
On May 23, Piper Sandler analyst Ryan Todd maintained a Buy rating on Valero Energy Corporation (NYSE:VLO) stock and raised the price target to $135 from $121, noting that there were more “legs” to the refining investment case than the market believes.
Among the hedge funds being tracked by Insider Monkey, New York-based firm Renaissance Technologies is a leading shareholder in Valero Energy Corporation (NYSE:VLO) with 1.3 million shares worth more than $139 million.
2. The Goldman Sachs Group, Inc. (NYSE:GS)
Number of Hedge Fund Holders: 71
Percentage Increase in Share Price Over Past Month: 5.85%
The Goldman Sachs Group, Inc. (NYSE:GS) provides a range of financial services. On May 2, during the Discussed Stock segment of his show, Jim Cramer was bullish on the firm, giving it a Buy recommendation, per the Mad Money Stock Screener. Cramer has been largely constructive on the finance sector, especially large banks, in the context of rising interest rates. As these rates rise, the earnings of the banks increase literally overnight.
On May 3, Oppenheimer analyst Chris Kotowski maintained an Outperform rating on The Goldman Sachs Group, Inc. (NYSE:GS) stock and lowered the price target to $519 from $545, noting that “loan growth and rising interest rates are good for the banks”.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Eagle Capital Management is a leading shareholder in The Goldman Sachs Group, Inc. (NYSE:GS) with 3.4 million shares worth more than $1.1 billion.
In its Q4 2021 investor letter, Ariel Investments, an asset management firm, highlighted a few stocks and The Goldman Sachs Group, Inc. (NYSE:GS) was one of them. Here is what the fund said:
“Rising interest rates, after a surprisingly long period of low absolute rates and negative “real” rates, will create a headwind. While there has been much debate about the cause of these low rates, we believe the most important factor has been the $120 billion in monthly federal reserve open market bond purchases and the accumulation of an $8 trillion balance sheet. The former will end, and the latter will shrink. It is not just the Fed that has aggressively purchased bonds, bidding up prices and lowering yields. Bond traders and hedge fund managers have added to positions, confident that being on the same side as the Fed was the wise place to be. Now as the Fed is about to become a seller of bonds rather than a buyer, Wall Street’s “smart money” is likely to follow suit. Against this backdrop, fixed income securities and bond substitutes such as high dividend paying utilities and absolute return hedge funds are substantially overpriced and are not likely to produce attractive returns going forward.
This expectation of a reversion to the mean for interest rates helped 2021 performance, though not as much as we had hoped. The yield on the U.S. 10-year Treasury did indeed increase from +0.92% at the beginning of the year to +1.52% at year-end. An underreported story was the poor performance of bonds last year. The Barclays Aggregate Index declined -1.67% for the year ending December compared to a return of +28.71% for equities as measured by the S&P 500. Interest rates have continued to climb in 2022 with the 10-year Treasury at +1.79% as we go to print. This move higher in rates has contributed to our good, early start to 2022. The Goldman Sachs Group, Inc. (NYSE:GS) jumped +47.59% for the year and +1.73% in the quarter.”
1. Citigroup Inc. (NYSE:C)
Number of Hedge Fund Holders: 88
Percentage Increase in Share Price Over Past Month: 10.08%
Citigroup Inc. (NYSE:C) is a diversified financial services firm. Cramer gave the stock a Buy recommendation during the Discussed Stock segment of his show on May 17, terming it a “must-have” stock in the present macroeconomic environment and also because legendary investor Warren Buffett had just invested in the firm as well.
On May 3, Oppenheimer analyst Chris Kotowski kept an Outperform rating on Citigroup Inc. (NYSE:C) stock and lowered the price target to $93 from $100, noting that should a recession hit, banks “would handle it better than any recession in history”.
At the end of the first quarter of 2022, 88 hedge funds in the database of Insider Monkey held stakes worth $8.1 billion in Citigroup Inc. (NYSE:C), compared to 97 the preceding quarter worth $6.6 billion.
In its Q1 2021 investor letter, Artisan Partners Limited Partnership, an asset management firm, highlighted a few stocks and Citigroup Inc. (NYSE:C) was one of them. Here is what the fund said:
“We fully exited position in Citigroup Inc. (NYSE:C). Global financial services company Citigroup Inc. (NYSE:C) made a $900 million clerical error and received a public reprimand from federal regulators. This, after a decade focused on process control, information technology and risk systems, makes the error substantially more costly than just the $900 million mistake. Regulators believe the company’s risk management improvements have fallen short of expectations. To rectify the situation, a process and technology spending surge could negatively affect 2021-2022 profits by 10% to 20%. Trust and confidence are important in large financial institutions, and this incident combined with the CEO’s sudden retirement shook ours.”
You can also take a peek at 10 Best Medical Stocks Under $10 and 15 Best Warren Buffett Stocks to Buy Now.
