In this article, we’ll explore Jim Cramer’s 10 Go-To Stocks for Success.
In a recent episode of Mad Money, Jim Cramer offers a perspective on Nvidia and its recent market behavior on Wednesday’s episode of Mad Money, presenting a straightforward analysis of the company’s stock performance and the broader implications for investors. Cramer notes that owning the company’s stock was easier when the company was less well-known. As the company has become a major market focus, it’s attracted significant attention and criticism, which is evident after its recent financial report.
“Once you get this big, to the point where you become the focal point of the entire stock market, you’re going to have a target on your back. And that’s exactly what I think happened tonight to the stock after the firm reported a fine and dandy set of numbers. But fine and dandy is no longer enough for this incredible company.”
Despite reporting impressive numbers—122% revenue growth, a 152% increase in adjusted earnings per share, and a $50 billion buyback— the firm’s stock fell after hours. This reaction reflects high expectations that may have become unrealistic. The stock market as a whole suffered due to pre-quarter jitters surrounding the company, with declines in major indices like the Dow, S&P 500, and Nasdaq Composite. The drop in the firm’s stock price after the earnings report, coupled with concerns about its influence on the broader market, has led some to call this period the GPU maker’s “buzzkill quarter.”
“The Dow declining 59 points was bad, the S&P losing 0.6%, and the Nasdaq Composite 1.12%. And now, with the stock sinking after hours, we could be in for a hangover from what they’re already calling the company’s buzzkill quarter. But the people saying this might as well be having a watch party—yes, there was one—but there’s nothing to celebrate here. Move on.”
Cramer emphasizes that the company’s role in artificial intelligence is significant, but its overemphasis has become a burden on the market. The company’s market capitalization has skyrocketed from around $500 billion to over $3 trillion in just 18 months. Cramer suggests that the company’s immense importance might be overblown and that a recalibration might benefit the market.
“We know that artificial intelligence is the way of the future, and it’s the best bet on AI. But the company has become an albatross around the market’s neck because no one stock should be a proxy for the future of the S&P 500. Yet, that’s exactly what’s happened as the company has grown from around $500 billion in market cap just 18 months ago to more than $3 trillion now. Maybe after tonight, it will shed that millstone—like Apple did. You know what? That would be a godsend for all of us.”
Cramer expresses frustration with how quickly concerns about the company have spread to the broader tech sector, although he acknowledges that companies like Salesforce reported positive numbers. Cramer concludes by advising investors to diversify their portfolios beyond just tech stocks. He suggests that while diversification might seem less exciting, it is a crucial strategy to mitigate risks associated with over-reliance on a single sector or stock.
“It felt like insult added to injury when there was no injury to the company. It will muddle through and recharge at its next iteration. Blackwell goes boring, and we see renewed expectations. I hope they don’t get excessive like they were tonight.”
Our Methodology
This article reviews a recent episode of Jim Cramer’s Mad Money, where he discussed ten stocks he believes have significant growth potential. It also looks at how hedge funds view these stocks and ranks them based on their level of hedge fund ownership, starting with the least owned and moving 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).
Jim Cramer’s 10 Go-To Stocks for Success
10. Foot Locker Inc. (NYSE:FL)
Number of Hedge Fund Investors: 23
Foot Locker Inc. (NYSE:FL) remains a major player in the athletic footwear and apparel market, thanks to its strong partnerships with top brands like Nike Inc. (NYSE:NKE), Adidas (OTC:ADDYY), and Puma. Although the retail industry faces challenges, Foot Locker Inc. (NYSE:FL)’s strong market position and loyal customer base give it a significant edge over competitors. Foot Locker Inc. (NYSE:FL)’s efforts to remodel stores, improve digital systems, and enhance its supply chain are aimed at better serving customers and running operations more efficiently.
Jim Cramer believes that Foot Locker Inc. (NYSE:FL) is a turnaround story with significant potential, even though its stock fell 10% recently. Despite reporting stronger-than-expected results, including a return to same-store sales growth and improved gross margins, foot Locker Inc. (NYSE:FL) had already risen 45% before this earnings report. This prior increase, combined with skepticism about meeting full-year forecasts, likely contributed to the drop.
“Second down retailer hits too close to home. I’m talking about Foot Locker. As a former holding of the Charitable Trust, we bailed on in June. Absolute numbers here were not as strong as ANF’s. Foot Locker still firmly in turnaround mode under new CEO Mary Dillon. I should say relatively new, but they were still better than expected across the board. I actually like the quarter.
After five quarters of same-store sale shrinkage, Foot Locker returned to growth, up 2.6%. Handily beat the expectations. That should have been enough to keep the stock a little bit higher. Gross margins expanded. That should have been enough. Inventories decreased by 10%. That should have been enough. And they only lost 5 cents per share when Wall Street expected a 7-cent loss. But they still lost money.”
By focusing on expanding its online presence and omnichannel capabilities, Foot Locker Inc. (NYSE:FL) is well-positioned to benefit from the growing trend of online shopping. Foot Locker Inc. (NYSE:FL)’s efforts to control costs and streamline its store operations suggest that it could see better profit margins in the future. With its stock trading below historical averages, there is a potential buying opportunity for investors.
Furthermore, Foot Locker Inc. (NYSE:FL)’s attractive dividend yield provides steady income while waiting for the stock’s value to rise. As the economy recovers and consumer spending increases, Foot Locker Inc. (NYSE:FL) is set to gain from a rise in demand for athletic wear. The growing popularity of athleisure and interest in sports and fitness are likely to drive sales growth.
Here’s what Foot Locker Inc. (NYSE:FL)’s CFO, Mike Baughn, has to say in their latest earnings call:
“In the second quarter, starting with revenue, total sales increased 1.9% led by comps up 2.6%, which was slightly ahead of our prior guidance of flat to up slightly. Total revenues included an $11 million non-recurring charge associated with the rollout of the company’s enhanced FLX program, which impacted our total sales line and not comps within the quarter. In terms of monthly cadence, comps improved as we moved through the quarter, with May comps down low single digits, June comps up mid-single digits, and July the strongest month of the quarter with comps up mid-single digits and slightly ahead of June. Moving to margins, we were pleased to return to gross margin rate expansion in the quarter and accomplishing that while also improving our comp trajectory.
On a reported basis, gross margin for the quarter expanded 50 basis points to 27.6%. Merchandise margins were down 20 basis points. Occupancy as a percent of sales levered 70 basis points on the positive comp. To note, the quarter included an approximate 40 basis point impact related to the non-recurring FLX charge taken in the quarter. Excluding the FLX charge, gross margin increased approximately 90 basis points, including 20 basis points of merchandise margin expansion due to the reduced promotional levels year-over-year. Approximately $10 million of gross margin savings from our cost optimization programs also flowed through our cost of goods line. For the second quarter, our SG&A rate came in at 25.1%, representing deleverage of 130 basis points.
Investments in technology and brand building, as well as ongoing inflationary pressures, were partially offset by savings from the cost optimization program of approximately $10 million. Collectively, our cost optimization program generated total savings of approximately $20 million in the second quarter. Finally, our earnings loss per share was $0.13, and non-GAAP earnings per share landed at a loss of $0.05 per share. Included in both our GAAP and non-GAAP earnings per share results was an approximate $0.09 impact from our non-recurring FLX charge. Turning to the balance sheet, we ended the quarter with $291 million of cash and total debt of $445 million. At quarter end, inventories were down 10% versus last year, as we remained committed to keeping our inventories controlled, slowing product to better match demand, and improving our inventory turns in 2024.
Turning to cash flows. Cash flow from operations was $68 million in the quarter, while capital expenditures were $56 million, yielding a positive free cash flow of $12 million in the second quarter, a significant improvement as compared to the prior year. We are pleased to see positive free cash flow in the quarter and remain on track to generate positive free cash flow for the year, moving on to the changes towards international operations, as well as our corporate footprint, that were announced this morning. The further streamlining and optimization of our international footprint will impact approximately 30 stores and is expected to be completed by mid-2025. In 2023, these regions represented approximately 1% of global revenue and over $10 million in operating losses.” (Click here to continue reading…)
9. Kohl’s Corporation (NYSE:KSS)
Number of Hedge Fund Investors: 31
Kohl’s Corporation (NYSE:KSS) is well-positioned for growth due to its successful partnership with Sephora and plans to expand Sephora shop-in-shops within its stores. This expansion aims to enhance the shopping experience, attract more customers, and boost sales per square foot. Additionally, Kohl’s Corporation (NYSE:KSS) is improving its store layout and strengthening its omnichannel services, like buy-online-pickup-in-store (BOPIS) and curbside pickup, which are expected to increase both in-store and online sales.
Jim Cramer sees Kohl’s Corporation (NYSE:KSS) as a retailer with the potential for a turnaround under the leadership of its new CEO, Tom Kingsbury, who previously had success at Burlington. Despite a recent mild bounce in Kohl’s Corporation (NYSE:KSS)’s stock, Cramer believes this was more about the stock’s significant drop of 34% from its April highs rather than the earnings report alone.
“How about Kohl’s? The other retailer that gained ground today in response to earnings. These guys are trying to mount a comeback under the leadership of new CEO Tom Kingsbury. He’s a retail wizard, formerly of Burlington. Wow, what he did with that one. But I think the stock’s mild bounce today was more a reflection of the fact that Kohl’s was down 34% from its April highs as of last night’s close.
Although I like its total embrace of the fast-growing Sephora business, which is embedded in over 900 Kohl’s locations, at the end of the day, this was a mixed quarter for the department store chain. Kohl’s saw a 5.1% decline in same-store sales, worse than expected, and a significant revenue miss. Kingsbury said, and I quote, “”Customers exhibited more discretion in their spending, which pressured our sales,” end quote. That, of course, were pockets of strength like the aforementioned Sephora, along with home decor. That was nice. And gift and impulse purchases.”
The latest Q2 2024 earnings report shows Kohl’s Corporation (NYSE:KSS) net sales at $3.9 billion, a slight decrease from last year but still better than expected. Kohl’s Corporation (NYSE:KSS)’s adjusted earnings per share (EPS) of $0.52 exceeded forecasts, and its operating margin improved to 7.5% from 6.5% last year. As consumer spending shifts toward value-oriented retailers, Kohl’s Corporation (NYSE:KSS) is set to benefit from its wide range of products and strong brand selection.
With improving consumer confidence and increased spending, Kohl’s Corporation (NYSE:KSS) is expected to see growth in sales, particularly in apparel and home goods. Kohl’s Corporation (NYSE:KSS)’s focus on operational efficiency, including better inventory management and supply chain improvements, supports its long-term growth prospects. Recent initiatives, such as expanding the Sephora partnership by the end of 2024, enhancing e-commerce capabilities, and implementing cost-saving measures, all enhance Kohl’s Corporation (NYSE:KSS) investment potential.
8. Nordstrom Inc.(NYSE:JWN)
Number of Hedge Fund Investors: 34
Nordstrom Inc. (NYSE:JWN) is a leading American retailer known for its upscale department stores and robust e-commerce presence. Nordstrom Inc.(NYSE:JWN)’s commitment to personalized service and exclusive offerings, including Nordstrom Rack stores, helps maintain a loyal customer base and enhances its competitive position as consumers seek premium shopping experiences.
Jim Cramer is optimistic about Nordstrom Inc. (NYSE:JWN)’s recent performance, noting that the company exceeded expectations with both same-store sales and earnings, and has raised its full-year earnings forecast.
“Last night, Nordstrom delivered better-than-expected same-store sales and a substantial earnings beat, with management raising its full-year earnings forecast. Now, you might not think an expensive department chain would work here, but Nordstrom’s strength came from its off-price Nordstrom Rack business, with 269 stores around the country. As for the core department store, it got a boost from the company’s annual anniversary sale. More of that sale fell during the second quarter of the period this year, which really bolstered the numbers, even as it will hurt the current quarter.
Look, overall, I think Nordstrom should get credit for leaning into value. That’s what the customer needs and wants. Stock rallied over 4% today, but while that’s justifiable, I’m not willing to stick my neck out. I have to tell you, though, I think that this Rack is worth more than the whole chain, and that may be the conundrum people feel.””
Nordstrom Inc.(NYSE:JWN)’s significant investments in digital transformation and its omnichannel strategy have improved its e-commerce platform and integrated it with physical stores. This strategy provides a smooth shopping experience across both online and offline channels, supporting growth in online sales and leveraging data-driven marketing to personalize customer interactions.
In the latest Q2 2024 earnings report, Nordstrom Inc.(NYSE:JWN) recorded net sales of $3.77 billion, slightly down from $3.99 billion the previous year. However, Nordstrom Inc.(NYSE:JWN)’s earnings per share (EPS) of $0.84 surpassed expectations, showcasing effective cost management and operational efficiency. The gross profit margin improved to 35.2% from 34.5%, reflecting better inventory and pricing strategies.
Nordstrom Inc.(NYSE:JWN) is focusing on expanding its Nordstrom Rack stores, enhancing supply chain and inventory management, and boosting sales through promotional events like the Anniversary Sale. These efforts are designed to strengthen its market presence and improve responsiveness to consumer demand.
7. Rivian Automotive Inc. (NASDAQ:RIVN)
Number of Hedge Fund Investors: 37
Rivian Automotive Inc. (NASDAQ:RIVN) is solidifying its position as a leader in the electric vehicle (EV) market by focusing on adventure and off-road vehicles. Its flagship models, the R1T pickup truck and R1S SUV, cater to customers looking for rugged and high-performance electric options, giving Rivian Automotive Inc. (NASDAQ:RIVN) a competitive edge in this growing niche. Rivian Automotive Inc. (NASDAQ:RIVN)’s strong partnerships, especially with Amazon Inc. (NASDAQ:AMZN), have further strengthened its market position.
Jim Cramer sees Rivian Automotive Inc. (NASDAQ:RIVN) as a strong long-term investment due to the impressive quality of its products. He advises against writing off Rivian Automotive Inc. (NASDAQ:RIVN), especially now that it has a wealthy partner backing it.
“I think Rivian is a great long-term stock. Why? Because the actual product is so fabulous that I would be the last thing I want to do is write these guys off. Now that they have a deep-pocketed partner, does that mean you should own the stock? No. It means that you shouldn’t sell the stock necessarily, but it means the company’s sticking around, and that’s what really matters.”
Amazon Inc. (NASDAQ:AMZN)’s order for 100,000 electric delivery vans provides a significant revenue boost and supports Rivian Automotive Inc. (NASDAQ:RIVN)’s production scale. Rivian Automotive Inc. (NASDAQ:RIVN)’s ability to scale production at its Illinois factory and its plans for future expansions are designed to meet the increasing demand. Its strategy of vertical integration—managing its own battery production and software development—improves control over its supply chain and product quality.
In its latest Q2 2024 earnings report, Rivian Automotive Inc. (NASDAQ:RIVN) reported a notable revenue increase to $1.12 billion from $364 million the previous year, driven by higher production and deliveries. Rivian Automotive Inc. (NASDAQ:RIVN) delivered 12,640 vehicles in the quarter, surpassing expectations. Despite a net loss of $1.35 billion, this loss was smaller than expected, highlighting better operational efficiency as production ramps up. Rivian Automotive Inc. (NASDAQ:RIVN)’s technological advancements, such as its unique “skateboard” platform, enhance performance and off-road capabilities.
Rivian Automotive Inc. (NASDAQ:RIVN)’s focus on next-generation vehicles and improved autonomous driving features positions it well for future growth in the EV sector. Investor sentiment is positive due to Rivian Automotive Inc. (NASDAQ:RIVN)’s growth potential and strategic positioning. Rivian Automotive Inc. (NASDAQ:RIVN)’s emphasis on sustainability, a strong order backlog, and increasing consumer interest support its long-term growth. With plans for a new factory in Georgia and continuous software updates improving vehicle features, Rivian Automotive Inc. (NASDAQ:RIVN) is well-positioned to thrive in the global shift towards electric mobility, especially in the premium and adventure vehicle segments.
Baron Fifth Avenue Growth Fund stated the following regarding Rivian Automotive, Inc. (NASDAQ:RIVN) in its first quarter 2024 investor letter:
“Shares of Rivian Automotive, Inc. (NASDAQ:RIVN), a U.S.-based EV manufacturer, declined 53.3% in the first quarter. Despite substantial improvements in production and delivery volumes in 2023, as well as an improvement in unit economics, Rivian’s business remains constrained by its limited scale, which creates pressure on gross margins, and contributes to the company’s elevated cash burn. Additionally, Rivian expects to temporarily shut down its production facilities for upgrades, impeding anticipated production growth in 2024. Compounding these challenges is the potential for demand headwinds due to the continued complex macro environment, and the relatively small automotive segments that Rivian’s initial products target. Nevertheless, the recent unveiling of Rivian’s mass-market products, the R2 and R3, garnered enthusiastic responses, evidenced by over 68,000 pre-orders within the first 20 hours post-launch. In a strategic move, management opted to produce the R2 in Rivian’s existing facility, deferring the construction of a new factory. This decision should help reduce mid-term capital expenditure obligations while ensuring higher utilization of current facilities as the R2 ramps production in 2025. We remain shareholders.”
6. Builders FirstSource Inc. (NASDAQ:BLDR)
Number of Hedge Fund Investors: 59
Jim Cramer believes Builders FirstSource Inc. (NASDAQ:BLDR) has significant potential, suggesting it could rise substantially from its current level. He emphasizes that this type of stock is a good buy at this point in the market cycle and advises holding onto it for potential gains.
“This stock, 15 times, this thing can go higher. This is precisely the kind of stock you should be buying at this stage of the cycle. Hold on.”
Builders FirstSource Inc. (NASDAQ:BLDR) is a leading U.S. supplier of building materials and construction services, benefiting greatly from its large network and scale. This strong position enables Builders FirstSource Inc. (NASDAQ:BLDR) to capitalize on the high demand for new homes and home improvements, driven by limited housing supply and favorable demographics. Recent strategic acquisitions, such as BMC Stock Holdings, have broadened Builders FirstSource Inc. (NASDAQ:BLDR)’s product offerings and expanded its reach into high-growth regions. These acquisitions also allow Builders FirstSource Inc. (NASDAQ:BLDR) to offer valuable services, like off-site construction solutions, which are becoming more popular.
In its latest Q2 2024 earnings report, Builders FirstSource Inc. (NASDAQ:BLDR) reported revenue of $5.1 billion, a 6.4% increase from the previous quarter, thanks to strong sales growth in core products and services. Builders FirstSource Inc. (NASDAQ:BLDR)’s adjusted EBITDA of $907 million reflects improved profit margins due to better operational efficiencies and pricing.
Despite some market challenges, Builders FirstSource Inc. (NASDAQ:BLDR) has shown financial resilience and effective cost management. Builders FirstSource Inc. (NASDAQ:BLDR) is also investing heavily in technology and digital tools to improve construction efficiency and automation. This focus on innovation, including prefabricated components and advanced digital solutions, enhances its competitive edge and boosts profit margins.
With its stock trading at a lower valuation compared to peers, Builders FirstSource Inc. (NASDAQ:BLDR) offers a promising investment opportunity. Its solid cash flow supports ongoing growth investments, shareholder returns through dividends and stock repurchases, and a disciplined capital allocation strategy. Recent moves, such as acquiring Fulcrum Building Group and enhancing its digital platform, further strengthen its market position and long-term growth prospects.
Black Bear Value Partners stated the following regarding Builders FirstSource, Inc. (NYSE:BLDR) in its Q2 2024 investor letter:
“Builders FirstSource, Inc. (NYSE:BLDR) is a manufacturer and supplier of building materials with a focus on residential construction. Historically this business was cyclical with minimal pricing power as the primary products sold were lumber and other non-value-add housing materials. Since the GFC, BLDR has focused on growing their value-add business that is now 50%+ of the topline. The company has modest leverage and has been using their abundant free-cash-flow to buy in over 41% of the stock in the last ~3 years.
While mortgage rates are higher, they are not unusual versus history. The low rates of the last 5-10 years are the outlier. We have a structural shortage of housing in the USA. With existing homeowners locked into low-rate mortgages, the aspiring homeowner may increasingly need to find a home from a homebuilder.
Normalized free-cash-flow per share looks to be in the range of $13-$16 per year. Margins are structurally higher given their increased shift into value-add products. At quarter end pricing of ~$138 that implies a free-cash-flow yield of 9-12%. which does not reflect the long-term housing needs or their pricing power.”
5. Vertex Pharmaceutical Inc. (NASDAQ:VRTX)
Number of Hedge Fund Investors: 59
Vertex Pharmaceuticals Inc. (NASDAQ:VRTX) is a dominant force in the cystic fibrosis (CF) market, driven by its successful treatments like Trikafta, Kalydeco, and Symdeko. Trikafta has notably transformed CF treatment by targeting the disease’s root cause for many patients, providing Vertex Pharmaceutical Inc. (NASDAQ:VRTX) with a steady revenue stream and supporting its continued investment in research and development.
Jim Cramer praised Vertex Pharmaceuticals Inc. (NASDAQ:VRTX), highlighting its impressive work in treating fibrosis, a severe disease. He emphasized that Vertex Pharmaceuticals Inc. (NASDAQ:VRTX)’s efforts in the field of opiates are also noteworthy, adding to the company’s overall excellence. He considers Vertex Pharmaceuticals Inc. (NASDAQ:VRTX) a standout company with exceptional capabilities and believes it deserves more attention.
“I think Vertex is great. Look, its fibrosis franchise is incredible, and a terrible disease. But I also like the fact that what they’re doing in terms of opiates—look, this is a great company. No one ever talks about it. We’ve had them on. I think that they’re brilliant. Okay, per period. Down story.”
Vertex Pharmaceutical Inc. (NASDAQ:VRTX)’s financial health is strong, with Q2 2024 revenues of $2.49 billion, a 14% increase from the previous year due to robust sales of its CF treatments. Vertex Pharmaceutical Inc. (NASDAQ:VRTX) also reported a net income of $926 million and holds over $12 billion in cash and marketable securities, giving it significant resources for future growth. Vertex Pharmaceutical Inc. (NASDAQ:VRTX) is also expanding its focus beyond CF, developing promising new therapies for sickle cell disease, beta-thalassemia, type 1 diabetes, and pain management. Its collaboration with CRISPR Therapeutics on the gene-editing therapy exa-cel is particularly noteworthy, as it has the potential to broaden Vertex Pharmaceutical Inc. (NASDAQ:VRTX)’s market reach if successful.
In addition, Vertex Pharmaceutical Inc. (NASDAQ:VRTX)’s advancements in gene and cell therapies, including the acquisitions of Semma Therapeutics and ViaCyte, are progressing well. The positive interim results from the Phase 2 study of VX-880, a cell therapy for type 1 diabetes, highlight significant progress and could open new revenue opportunities. Investor sentiment towards Vertex Pharmaceutical Inc. (NASDAQ:VRTX) is favorable, reflecting confidence in its growth prospects.
Despite its strong performance and leadership in the CF market, Vertex Pharmaceutical Inc. (NASDAQ:VRTX)’s stock remains attractively valued compared to its biotech peers. Recent developments, such as the upcoming regulatory filings for exa-cel and the extension of its share repurchase program, further boost Vertex Pharmaceutical Inc. (NASDAQ:VRTX)’s investment appeal and future potential.
4. Chipotle Mexican Grill Inc. (NYSE:CMG)
Number of Hedge Fund Investors: 68
Chipotle Mexican Grill Inc. (NYSE:CMG) is a prominent leader in the fast-casual dining industry, known for its fresh, high-quality ingredients and customizable menu options. Chipotle Mexican Grill Inc. (NYSE:CMG)’s commitment to “Food with Integrity” attracts health-conscious customers, building strong brand loyalty and ensuring consistent traffic to its restaurants. This focus has solidified Chipotle Mexican Grill Inc. (NYSE:CMG)’s market position and financial performance.
Jim Cramer expressed confidence in Chipotle Mexican Grill Inc. (NYSE:CMG)’s future, citing a new product they have introduced: honey chicken. He noted that this new offering doesn’t seem like junk food but rather like a quality option. Based on this development, Cramer believes Chipotle Mexican Grill Inc. (NYSE:CMG)’s stock has likely hit its low and is poised for recovery. He views this innovation as a positive sign for Chipotle Mexican Grill Inc. (NYSE:CMG)’s prospects.
“I think you’re in great shape. Why? Because I am told—and I read a piece which says that they’ve got this new chicken that is the honey chicken—and I got to tell you, it doesn’t sound like junk food to me. It sounds like good food to me. And that’s why Chipotle is probably done going down, and I like it.”
Chipotle Mexican Grill Inc. (NYSE:CMG)’s investment in digital transformation has significantly boosted its success. In Q2 2024, digital sales made up nearly 40% of total revenue, thanks to the effective use of its app and website for delivery and pickup orders. Its loyalty program, with over 30 million members, enhances customer engagement, while advancements in automation, such as AI in kitchen operations, increase efficiency. Chipotle Mexican Grill Inc. (NYSE:CMG)’s financial results are strong, with Q2 2024 revenues reaching $2.51 billion—an increase of 13.6% from the previous year—driven by new store openings and a 7.4% rise in comparable sales. Chipotle Mexican Grill Inc. (NYSE:CMG)’s operating margin improved to 15.5% due to effective cost management and strong pricing power. Its earnings per share (EPS) of $12.65 exceeded expectations, highlighting its ability to handle inflationary pressures.
Looking ahead, Chipotle Mexican Grill Inc. (NYSE:CMG)’s expansion strategy is set for considerable growth. Chipotle Mexican Grill Inc. (NYSE:CMG) opened 53 new restaurants in Q2 2024 and plans to open between 250 and 285 new locations by the end of the year, including in suburban and smaller markets as well as internationally. The introduction of the Chipotlane drive-thru format further enhances customer experience and operational efficiency.
Innovation remains a core focus for Chipotle Mexican Grill Inc. (NYSE:CMG), with new menu items like Chicken al Pastor and seasonal offerings keeping the menu fresh and appealing. The recent “Farmers Market” campaign highlights its commitment to sourcing ingredients from local farmers, resonating well with consumers. Additionally, Chipotle Mexican Grill Inc. (NYSE:CMG)’s ongoing investment in digital and technology platforms, including AI and robotics, supports continued growth and operational improvements.
Pershing Square Holdings stated the following regarding Chipotle Mexican Grill, Inc. (NYSE:CMG) in its Q2 2024 investor letter:
“On August 13th, Chipotle Mexican Grill, Inc. (NYSE:CMG) announced that CEO Brian Niccol would be leaving the company to become the CEO of Starbucks. Brian has led a superb turnaround at Chipotle, which has put the company firmly on the path of sustainable long-term growth. While we are disappointed to see Brian go, one of the measures of a great CEO is the company that he leaves behind. Brian has built an extraordinary team at Chipotle that we expect will not lose a step in his departure. We are grateful to Brian for the extraordinary value he has created for CMG shareholders and Pershing Square.
Chipotle delivered outstanding results in the first half of 2024 as the brand’s industry-leading value proposition of fresh food, customization, and convenience at fair prices continues to resonate with customers. During the second quarter, same-store sales grew an impressive 11%, or 55% from 2019 levels. Successful marketing, including the return of the fan-favorite Chicken Al Pastor limited time offering, and faster throughput drove transaction growth of over 8%, with gains across all income cohorts. Although sales growth has moderated in the summer amid a broader deceleration in the restaurant industry, Chipotle continues to gain share. The launch of Smoked Brisket for a limited time starting in September, one of the company’s most requested menu items, should further improve trends….” (Click here to read the full text)
3. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Investors: 71
Costco Wholesale Corporation (NASDAQ:COST)’s membership-based model provides a steady and recurring revenue stream, supported by its large base of over 127 million global cardholders. By focusing on high-quality products at competitive prices, Costco Wholesale Corporation (NASDAQ:COST) has built strong customer loyalty and high membership renewal rates, which exceed 90% in the U.S. and Canada. This approach, combined with Costco Wholesale Corporation (NASDAQ:COST)’s efficient operations and large-scale purchasing power, allows it to pass savings on to customers, enhancing its value and driving steady sales growth.
Jim Cramer highlights Costco Wholesale Corporation (NASDAQ:COST) as an exceptional performer despite not being involved in technology. He points out that Costco Wholesale Corporation (NASDAQ:COST)’s success comes from its strong business model, which has delivered impressive results without relying on tech innovations.
“Costco, has nothing whatsoever to do with tech, yet has been an outstanding performer.”
In its Q4 2024 earnings report, Costco Wholesale Corporation (NASDAQ:COST) reported net sales of $78.94 billion, a 9.4% increase from the previous year. Costco Wholesale Corporation (NASDAQ:COST) achieved a net income of $2.16 billion, or $4.91 per diluted share, surpassing analysts’ expectations. This performance reflects Costco Wholesale Corporation (NASDAQ:COST)’s effective cost management and ability to maintain strong pricing power amid inflationary pressures. Its solid cash position also provides flexibility for continued growth investments.
Costco Wholesale Corporation (NASDAQ:COST)’s expansion strategy remains strong, with 28 new warehouse openings in 2024, including its first in New Zealand and Sweden. Expanding into markets like Asia and Europe offers significant opportunities for capturing more market share and driving long-term revenue growth. Costco Wholesale Corporation (NASDAQ:COST) is also making strides in e-commerce, with a 9.1% increase in online sales in Q4 2024, driven by rising demand for various product categories.
Costco Wholesale Corporation (NASDAQ:COST)’s emphasis on delivering value to its members and maintaining high customer loyalty is evident in its strong renewal rates and unique private-label products like Kirkland Signature. Plans to increase membership fees in 2024 could further enhance revenue, given the historically low churn rates. Costco Wholesale Corporation (NASDAQ:COST)’s successful holiday season, robust traffic, and exploration of new product categories and delivery options underscore its growth potential and market leadership.
2. Eli Lilly and Company (NYSE:LLY)
Number of Hedge Fund Investors: 100
Jim Cramer often praises Eli Lilly and Company (NYSE:LLY), believing it has the potential to become the first non-tech company to reach a trillion-dollar valuation. He compares Eli Lilly and Company (NYSE:LLY)’s potential to Costco’s success, noting that while Costco’s strength lies in its membership fees, Eli Lilly’s future growth is driven by its groundbreaking drugs for weight loss and diabetes.
“It’s why we constantly praise Eli Lilly because we believe this drug company can be the first non-tech stock to hit a trillion-dollar valuation. Costco’s lever is its membership dues; Lilly is all about the revolutionary weight loss and diabetes drug.”
Eli Lilly and Company (NYSE:LLY) is a prominent player in the pharmaceutical industry, driven by a robust portfolio and a promising pipeline. Eli Lilly and Company (NYSE:LLY)’s core drugs—Trulicity for type 2 diabetes, Taltz for psoriasis, and Verzenio for breast cancer—are key contributors to its substantial revenue growth. In addition, Eli Lilly and Company (NYSE:LLY)’s pipeline is notably strong, with potential blockbusters like tirzepatide, a treatment for both obesity and diabetes, showing impressive results in clinical trials.
One of Eli Lilly and Company (NYSE:LLY)’s most significant advancements is donanemab, an experimental drug for Alzheimer’s disease. Recent Phase 3 trial results have shown that donanemab can significantly slow cognitive decline in early-stage Alzheimer’s patients. If it receives approval, this drug could be a major revenue driver and solidify Eli Lilly and Company (NYSE:LLY)’s position as a leader in the Alzheimer’s treatment market, which has a significant unmet need.
Eli Lilly and Company (NYSE:LLY)’s financial performance is equally strong, with Q2 2024 revenues reaching $9.51 billion—a 28% increase from the previous year—thanks to robust sales of existing medications and successful new product launches. Eli Lilly and Company (NYSE:LLY) reported a net income of $2.12 billion, or $2.33 per share, exceeding analyst expectations. Eli Lilly and Company (NYSE:LLY)’s strong cash flow and balance sheet provide the resources for continued investment in research, development, and strategic acquisitions. Furthermore, Eli Lilly and Company (NYSE:LLY) has raised its full-year 2024 guidance, reflecting strong performance and confidence in its product portfolio and pipeline.
Eli Lilly and Company (NYSE:LLY) is also making strides in expanding its therapeutic areas. The successful launch of Mounjaro (tirzepatide) for diabetes and its potential approval for obesity are notable growth opportunities. Additionally, Verzenio’s continued success in oncology, supported by strong clinical data, underscores Eli Lilly and Company (NYSE:LLY)’s expanding influence in this field.
Strategically, Eli Lilly and Company (NYSE:LLY) has been active in enhancing its pipeline through acquisitions and partnerships. The recent acquisition of DICE Therapeutics, which focuses on oral treatments for autoimmune diseases, complements Lilly’s immunology portfolio. Partnerships in gene therapy and oncology are further accelerating the development of innovative therapies. Recent updates include plans to submit donanemab for regulatory approval in the U.S. and Europe, with potential market entry in 2025. Mounjaro has exceeded sales expectations, surpassing $1 billion in Q2 2024.
Baron Health Care Fund stated the following regarding Eli Lilly and Company (NYSE:LLY) in its Q2 2024 investor letter:
“Shares of global pharmaceutical company Eli Lilly and Company (NYSE:LLY) increased on continued investor enthusiasm around GLP-1 drugs for diabetes and obesity. We remain shareholders. Lilly’s Mounjaro/Zepbound not only offers superb blood sugar control for diabetics but can drive 20%-plus weight loss and likely improve cardiovascular outcomes in both diabetic and non-diabetic obese patients. Lilly is developing next generation drugs, including retatrutide, which drives approximately 25% weight loss, and orforglipron, a daily pill that produces approximately 15% weight loss. In the U.S. alone, there are 32 million Type 2 diabetics and an additional 105 million obese patients who we estimate would qualify for GLP-1 drugs. Although supply and access are limited near term, we think GLP-1 drugs will become standard of care for both diabetes and obesity and will become a $150 billion-plus category. We see Lilly setting a high efficacy bar and capturing significant long-term market share. We think the adoption of GLP-1s will drive Lilly to triple total revenue by 2030.”
1. Berkshire Hathaway (NYSE:BRK-B)
Number of Hedge Fund Investors: 120
Jim Cramer describes Berkshire Hathaway (NYSE:BRK-B) as a consistently strong investment, referring to it as an “up stock.” He highlights that this reputation has been in place since Leon Cooperman first introduced him to Berkshire Hathaway (NYSE:BRK-B) in 1983 and 1984, and it continues to hold true in the present day.
“Berkshire Hathaway is what I call an up stock. It’s been that way since Leon Cooperman first told me about it in 1983 and ’84, and it remains an up stock even today.”
Berkshire Hathaway (NYSE:BRK-B) excels with its broad and diverse portfolio, guided by Warren Buffett and Charlie Munger’s (now deceased) exceptional management. Berkshire Hathaway (NYSE:BRK-B)’s extensive holdings in sectors like insurance, energy, railroads, manufacturing, and consumer goods provide stability and steady cash flow, even during economic downturns. Buffett’s strategic value investing and smart capital allocation have consistently delivered high returns. With over $147 billion in cash reserves as of Q2 2024, Berkshire Hathaway (NYSE:BRK-B) is in a strong position to seize investment opportunities or buy back shares, enhancing its long-term growth prospects.
In Q2 2024, Berkshire Hathaway (NYSE:BRK-B) showcased robust financial performance, reporting operating earnings of $10.04 billion, up 7% from the previous year, largely due to its insurance and energy sectors. Berkshire Hathaway (NYSE:BRK-B)’s net earnings of $35.9 billion, driven by gains from major equity stakes in Apple Inc. (NASDAQ:AAPL), The Coca-Cola Company (NYSE:KO), and American Express Company (NYSE:AXP), highlight its resilient business model and strong cash flow. Its equity portfolio, worth over $350 billion, includes investments in profitable companies and recent forays into energy infrastructure and renewable projects, positioning it well to benefit from the global move toward cleaner energy.
Berkshire Hathaway (NYSE:BRK-B)’s focus on shareholder value is clear from its $8 billion share buybacks in the first half of 2024, demonstrating confidence in its intrinsic value. Recent strategic actions, such as boosting its stake in Occidental Petroleum Corporation (NYSE:OXY) and expanding into renewable energy, align with its goal to leverage opportunities in the energy sector and lead in sustainable energy. These developments reinforce a positive outlook for Berkshire Hathaway (NYSE:BRK-B)’s continued growth and value creation.
While we acknowledge the potential of Berkshire Hathaway (NYSE:BRK-B), 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 the ones on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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