In this article, we’ll explore the 10 Stock Picks of Jim Cramer that You Shouldn’t Miss.
Jim Cramer reacted to Monday’s market by questioning if there’s any money left to invest and why mutual funds aren’t holding enough cash. The S&P 500 fell 17.77 points, or 0.3%, to 5,616.84. The Dow Jones Industrial Average rose 65.44 points, or 0.2% to 41,240.52. The Nasdaq composite fell 152.03 points, or 0.9%, to 17,725.76.
“What do we do if we’re out of money? Don’t mutual funds have enough cash? That’s my reaction to today’s market action. Right now, mutual funds know they have to pivot out of consistent growth stocks, especially tech stocks like software and semiconductors, which don’t benefit from rate cuts. They need to swap into companies that can supercharge their earnings as the Fed lowers rates. We all recognize that cyclical stocks, the ones that benefit from lower rates, can go higher, maybe much higher.”
Cramer pointed out that mutual funds now need to shift away from consistent growth stocks, particularly in tech sectors like software and semiconductors, which don’t benefit from interest rate cuts. Instead, they should move towards companies that can boost their earnings as the Federal Reserve reduces rates.
“What’s painful for many of you are the declines in stocks of companies with consistent earnings. These companies, especially tech firms, don’t really need lower rates, and they’re selling off as money managers raise capital to rotate into the rate-cut winners.
So, why don’t we go over the winners and talk about the losers? The rate-cut winners are divided into two camps: stocks with high dividend yields and cyclical companies with earnings that should go higher because lower rates will bolster various industries, especially housing.”
Cramer explained that cyclical stocks, which tend to perform better with lower rates, are likely to rise, possibly significantly. However, the decline in stocks of companies with stable earnings, especially in tech, is troubling for many investors. These stocks are being sold off as money managers raise capital to invest in those poised to benefit from rate cuts.
Cramer emphasized that it’s important to understand who the winners and losers are in this situation. The winners include two groups: high-dividend-yield stocks and cyclical companies expected to see earnings growth from lower rates, particularly in the housing sector.
Cramer noted that housing stocks, which had seen significant gains, were down on Monday because hedge funds and mutual funds had bought heavily before the Federal Reserve’s Jackson Hole meeting. While mutual funds are holding on, hedge funds are cashing in their profits, as these stocks had sharp increases before the event. For traders, taking profits after such a successful trade is standard practice.
“Let’s start with the most direct beneficiaries: housing. These stocks were all down today because hedge funds and mutual funds bought them aggressively ahead of Friday’s Jackson Hole verdict. Mutual funds are staying long, but hedge funds are ringing the register furiously because they’ve made so much money. Housing stocks had parabolic moves going into the Fed’s Jackson Hole conference, so now these portfolio managers are just taking profits. That’s what you’re supposed to do with a successful trade if you’re a trader.
Remember, these guys are traders, not investors. So, the housing trade is over, but what about the housing investment? I believe Toll Brothers, which just reported a stellar quarter last week, can go higher, maybe much higher. But this reversal is going to constrain the stock because people do not like the technical trends we just saw. We’ve seen multiple long-term reversals after these kinds of moves, and they rarely turn out to be buyable, even though in theory, this should be a great moment for the stock of all the homebuilders.”
Cramer believes that while the housing trade may be over for traders, the housing investment story isn’t finished. He also warned that the recent reversal in housing stocks could limit their potential, as investors are wary of the technical trends.
“It doesn’t matter, though. This kind of reversal I’m talking about can be hideous. Some of these stocks are very close to their highs, and I don’t like that.”
Cramer cautioned that these kinds of reversals can be severe and might discourage new buyers. He reminded everyone that by the time the Federal Reserve signals a clear path forward, it might be too late to buy the most obvious rate-cut winners. According to Cramer, it’s better to wait for these stocks to pull back and recharge before making a move.
“Those who have them can hold on, but they flew too close to the sun to attract new buyers. Remember, I’ve said all along that by the time the Fed gives the all-clear, it may be too late to buy the most obvious rate-cut winners. You have to let them recharge, let them come down, and then you can pull the trigger.”
Our Methodology
In this article, we analyzed a recent episode of Jim Cramer’s Mad Money and picked the ten notable stocks he mentioned. We also explore what hedge funds think about these stocks and rank them based on how many hedge funds own them, from the fewest to the most.
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).
10. The AZEK Company Inc. (NYSE:AZEK)
Number of Hedge Fund Investors: 35
Jim Cramer has a particular favorite among the stocks he’s discussed, which is The AZEK Company Inc. (NYSE:AZEK), a company specializing in faux wood products. Cramer finds The AZEK Company Inc. (NYSE:AZEK) impressive because its products are a great alternative to traditional wood decking and trim.
“But my favorite in this group may be AZEK, the faux wood products company. It’s fantastic as a replacement for wood decking and trim. I’d put AZEK in the moment I buy a house because I’m tired of having to fix a wooden deck two or three times. Real wood is a money pit in a few years—you just don’t even realize how much you can save. AZEK has leaned into recycling, and a big percentage of its materials are 90% recycled.”
The AZEK Company Inc. (NYSE:AZEK) achieved strong results in the fiscal third quarter of 2024, with net sales rising 12% compared to the previous year. Excluding the Vycom business, which was recently sold, net sales increased by 18%. This growth was driven by a robust performance in the residential segment, which also saw an 18% increase due to strong demand for decking, rails, and accessories. The AZEK Company Inc. (NYSE:AZEK)’s growth strategies and initiatives are proving effective, allowing the company to surpass the overall market growth and solidify its industry leadership.
The AZEK Company Inc. (NYSE:AZEK) is poised for strong long-term growth driven by trends such as an aging housing stock, more millennial homeowners, and increased demand for sustainable materials. The AZEK Company Inc. (NYSE:AZEK) is investing heavily in research, innovation, and brand awareness, with recent product launches like TimberTech composite and TimberTech Fulton Rail enhancing its market position.
The AZEK Company Inc. (NYSE:AZEK)’s TimberTech brand is highly recognized for quality and innovation. Strategic investments in consumer education, new distribution partnerships, and a new manufacturing facility are expected to further drive growth. The AZEK Company Inc. (NYSE:AZEK) maintains confidence in achieving double-digit growth, reaffirming its fiscal 2024 guidance with a projected 10% to 12% increase in net sales and significant EBITDA growth.
Aristotle Capital Small Cap Equity Strategy stated the following regarding The AZEK Company Inc. (NYSE:AZEK) in its first quarter 2024 investor letter:
“The AZEK Company Inc. (NYSE:AZEK), a leading manufacturer of residential building products, primarily focused on wood-alternative decking, railing and trim, benefited from strong fundamental performance revealed in the company’s latest earnings release after the company reported favorable broader business trends, expanding margins, and strong sales. We maintain our position, as we believe the strong secular demand backdrop for alternative, sustainably sourced building products along with company-specific margin improvements should benefit shareholders in periods to come.”
9. Fortune Brands Innovations (NYSE:FBIN)
Number of Hedge Fund Investors: 35
According to Jim Cramer, Fortune Brands Innovations (NYSE:FBIN), which produces premium faucets, housing materials, decking, and safety equipment, stands to gain from lower interest rates. Despite having done a lot to succeed even in a high-rate environment, Fortune Brands Innovations (NYSE:FBIN) has a product that Cramer particularly likes—a shut-off device designed to prevent flooding when homeowners are away.
“Please do not forget about a company we showed you last week: Fortune Brands Innovations. This maker of high-end faucets, housing materials, including decking and safety equipment, can really benefit from lower rates, even as it’s done a lot of self-help to thrive in a high-rate environment. I really like their shut-off device that can prevent flooding when you’re away—insurers are embracing the concept, giving you lower homeowner premiums if you buy these setups. They pay for themselves.”
Fortune Brands Innovations (NYSE:FBIN) is well-positioned for continued growth, driven by its strategic realignment and robust performance in Q2 2024. Fortune Brands Innovations (NYSE:FBIN)’s recent efforts have led to market-beating sales and margin improvements, reinforcing its growth-focused strategy.
For the second quarter, Fortune Brands Innovations (NYSE:FBIN) reported net sales of $1.2 billion, marking a 7% increase, with operating income rising by 9% and earnings per share improving by 8% year-over-year. Despite a slight decline in organic sales, mainly due to cautious consumer behavior in China, Fortune Brands Innovations (NYSE:FBIN) achieved significant growth in its core North American markets. Key drivers of this growth include a strong performance in the Moen North America and Outdoors segments, as well as an expanding digital portfolio.
Fortune Brands Innovations (NYSE:FBIN)’s digital business saw notable success, with 200,000 device activations and promising partnerships that are expected to boost organic sales growth by over 150 basis points in the latter half of 2024. Fortune Brands Innovations (NYSE:FBIN)’s deal with Farmers Insurance to provide Flo Smart Water Monitors and Shutoff devices shows its capability to scale up and innovate.
Diamond Hill Mid Cap Strategy stated the following regarding Fortune Brands Innovations, Inc. (NYSE:FBIN) in its fourth quarter 2023 investor letter:
“We initiated a position in Fortune Brands Innovations, Inc. (NYSE:FBIN), a leading manufacturer of decorative plumbing fixtures, exterior doors, composite decking and locks and safes. Shares have been pressured recently against a backdrop of declining existing home sales, which is generally considered the primary driver of repair and remodeling (R&R) spending. However, the long-term outlook for new construction and R&R spending is positive given historical underinvestment and favorable demographic trends. Further, history shows R&R spending can grow despite declining existing home sales as it did from 1978-1982. FBIN’s portfolio includes leading brands with attractive end markets and secular tailwinds, and we believe the outlook from here is positive.”
