Recently, Jim Cramer sifted through the S&P 500 to identify stocks that satisfy his criteria: yield, earnings growth, and value. He explained the need behind the criteria:
“In a market with huge year-to-date gains, you got to get a little more selective about what you buy. Which is why I created this three-part test, also known as tripartite test.”
To navigate this market, he developed a three-part evaluation framework, which he refers to as the YEV test. Cramer explained that the first criterion focuses on yield, specifically seeking stocks that offer better returns than the current yield on the 10-year Treasury, which sits slightly above 4%. The second criterion is outsized earnings growth, meaning he looks for companies expected to exceed the 14% growth forecast for the S&P 500 next year. Lastly, Cramer seeks value, targeting stocks priced lower than the S&P 500, which currently trades at around 21 times next year’s earnings estimates.
“We want stocks with higher yields than the 10-year Treasury, meaning 4% plus. We want faster earnings growth than the S&P 500. In the aggregate, that’s faster than 14%. And we want a price-earnings multiple lower than that of the overall S&P 500, which trades at 21 times next year’s earnings, which everybody says is a little elevated.”
While Cramer acknowledged that his criteria was challenging to meet, he successfully identified nine stocks that fit the YEV model. He noted that although the Federal Reserve has created a favorable environment for investors, resulting in substantial market gains, it is crucial to exercise caution when selecting stocks.
Observing the historical trends, Cramer pointed out that October has generally been a strong month for the market, yet he reiterated the necessity of being discerning in purchases. He encouraged viewers to consider these nine stocks as the top tier within the market. He went on to emphasize:
“Now, I want you to think of them as the elite of the elite. Not many companies can give you high yields, cheap stocks, and explosive earnings growth all at the same time… Here’s the bottom line: in a market like this one, you do need to be selective, which is why we’ve fallen back on yield, on earnings and on growth and on value. Okay, now these are all things that are very hard to find right now.”
Jim Cramer’s List of 9 YEV Stocks
Our Methodology
For this article, we compiled a list of 9 stocks that fit Jim Cramer’s YEV stocks criteria and were unveiled during his episodes of Mad Money from October 7 to October 10. We listed the stocks in ascending order of their hedge fund sentiment as of the second quarter, which was taken from Insider Monkey’s database of more than 900 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Jim Cramer’s Exclusive List of 9 YEV Stocks
9. Dominion Energy, Inc. (NYSE:D)
Number of Hedge Fund Holders: 27
During one of the episodes, Cramer dived into Dominion Energy, Inc.’s (NYSE:D) operations, stock performance, and its place in a world where there is a huge demand for power.
“Finally, there’s Dominion Energy, which passed the YEV test with flying colors. This is a gas and electric utility in Virginia, North Carolina; South Carolina, small gas utility business in South Carolina; and a big clean power generation business, one that includes a nuclear plant along with some wind, solar, renewable, natural gas.
I actually used to like Dominion a lot. This was a great growth utility for many years under the leadership of former CEO, Tom Farrell, long-time friend of the show. Before he retired as CEO in 2022, he stuck on as executive chairman but in April 2021, Farrell tragically died after a battle with cancer the day after he retired.
After that, Dominion seemed a bit lost to me. Frankly, in late 2022, the stock started to slide, but ultimately shaved off more than half its value before it bottomed roughly a year ago. Since then, it’s done much better. Stock’s up almost 42% from its lows last October and management conducted a top and bottom-line business review in order to come up with a new strategy. The problem for Dominion was that business just got too sprawling… They invested heavily in some expensive solar projects and some very complicated offshore wind projects. They also spent heavily to improve the regular power grid.
So, suddenly, the company was spending enormous tons of money. Plus, in 2022, anything related to alternative energy was just killed. But now they’ve simplified the business significantly. Dominion sold off most of its natural gas business at this point, [which] netted them a little more than $14 billion. Going forward, Dominion wants to be a pure-play-regulated electric utility with a merchant power kicker, I think that is a terrific idea. Right now, we have immense demand for electricity in this country. In fact, Dominion service area includes Northern Virginia, meaning they sell power to the world’s largest data center hub. According to Bloomberg, new data centers in the area face a seven-year wait for Dominion power, which tells you there’s insane demand for power.
Of course, Dominion needs to make some large investments in order to be able to handle all that demand, but they’ve got a bunch of money from selling off their natural gas businesses. I think they can afford it. That said, I’m not super thrilled about the strategy because many of these natural gas businesses were excellent, especially the pipelines and the stake in liquified natural gas export facility in Chesapeake Bay. I still need convincing on those expensive offshore wind projects. Although management says they’re largely complete at this point, I wouldn’t start one now to tell you that. Overall though, I’m warming back up to Dominion Energy. As much as I like these natural gas assets, they absolutely needed to simplify the business, and given the bull market power generation, sticking with electricity was the right call. Plus, pays a nearly 5% yield.
… the bottom line, when you screen for yield, earnings, growth, and value and you make that in screen incredibly harsh like we have, you wind up with a list of seven great stocks… and one that I actually have to tell you I’m intrigued [about], even though I’m not quite ready to recommend it. And that’s Dominion Energy.”
Dominion Energy (NYSE:D) operates a vast energy distribution network, serving around 2.8 million customers across Virginia and North Carolina. The company has established itself as a significant provider of electricity in the region. A significant factor influencing this landscape is the increasing demand for electricity from data centers, particularly driven by advancements in artificial intelligence. The Electric Power Research Institute anticipates that data centers may account for up to 9% of total U.S. electricity generation by 2030, highlighting an urgent need for clean and reliable energy sources.
Dominion Energy’s (NYSE:D) investments and initiatives have been instrumental in transforming Virginia into a prominent data center hub. Since 2019, the company has successfully connected 94 new facilities. The interplay between strong electricity demand and the swift expansion of data centers is expected to support sales growth for the Dominion Energy Virginia segment, projected to be between 4.5% and 5.5% for 2024. This year alone, the company has already connected nine new data centers, with plans to increase that number to 15 by the end of 2024.
8. Huntington Bancshares Incorporated (NASDAQ:HBAN)
Number of Hedge Fund Holders: 32
Cramer talked about Huntington Bancshares Incorporated (NASDAQ:HBAN) and discussed that regional bank stocks ought to perform better in a “falling interest rate environment”. He also mentioned that he likes regional bank stocks presently. He noted that these banks faced significant challenges when interest rates were raised sharply and kept high.
“The economy is still pretty darn strong, to the point where calling it a soft landing feels too negative. Throw in falling interest rates and that’s nirvana for the regional banks. And obviously, the credit losses will be less if we are in a cut cycle portion.”
Talking specifically about the company, Cramer expressed bullish sentiment about the stock.
“Next up, the Columbus-based Huntington Bancshares… the parent company of Huntington Bank, and a company, by the way, we know well. After speaking with CEO Stephen Steinour several times over the last couple years, I recommended this one in early August.
And when the whole market sold off hard after the yen carry trade fell apart, remember that fiasco? Since then, it’s rallied nearly 11%. I felt comfortable recommending Huntington into weakness because we just had Steinour on the show less than a week before in the wake of a very healthy quarter. Steinour told a really positive story, saying that we’re on the verge of a rate-cutting cycle. And after many banks spent last year on risk-weighted assets diets as they recovered from the crisis, that’s mostly over now.
Listen to this, ‘We are incredibly well-positioned in the Midwest, and in addition, we’ve recently expanded in the Carolinas and a bit into Texas. So we have this unique franchise with a lot of growth potential. Columbus itself, our headquarters city, is doing phenomenally well. We’ve been growing deposits every quarter, we’ve grown loans and we’re in a great position to continue to grow and frankly to help the economy and our customers.’
Again, terrific story. Even though Huntington has had a nice run since then, still got a 4.2% yield, plenty of earnings growth on the horizon as interest rates come down.”
Huntington Bancshares (NASDAQ:HBAN) is the holding company for The Huntington National Bank, which offers a wide array of banking services, including commercial, consumer, and mortgage banking, throughout the United States.
Recently, the bank announced an expansion into North Carolina and South Carolina, marking a significant step in its growth strategy. It builds on Huntington’s 2023 Commercial Banking expansion in these states and further increases its existing customer base in the Carolinas, supported by the establishment of its regional headquarters in Charlotte.
As part of this expansion, Huntington Bancshares (NASDAQ:HBAN) plans to invest heavily in the Carolinas, aiming to add over 350 employees across various business lines and open approximately 55 retail branches within the next five years. This retail expansion portrays the company’s focus on increasing its footprint in several key markets, which also include Denver, Minneapolis, and Chicago.
7. Dow Inc. (NYSE:DOW)
Number of Hedge Fund Holders: 32
Cramer talked about Dow Inc. (NYSE:DOW) and its 5.13% yield. While mentioning that the chemical stock has not been performing well, he highlighted that it is flat for the year. He called it “textbook cyclical”, explaining that it follows the pattern of the economy. If the economy goes up, the stock goes up, and vice versa.
Cramer recently discussed the recent improvements in the economies of the United States and China. He noted that the Federal Reserve has begun a new easing cycle, initiating a double rate cut and signaling more cuts to come, with expectations that the Fed funds rate could fall to 3.5% to 3.75% by next June.
Cramer emphasized the importance of this downward trend in interest rates, advising investors not to fight the Fed, as stocks that align with economic cycles often thrive in such conditions. He explained:
“If there’s a perfect time to buy commodity chemical places like Dow and LyondellBasel, it starts when the Fed is cutting, which is right now.”
Cramer also pointed out that the Chinese government has implemented significant stimulus measures, which could help both its domestic economy and global cyclicals linked to it. While highlighting that the company will be publishing a third-quarter earnings report on October 24, Cramer reminded the viewers that the company had “already pre-announced light numbers at the industry conference last month.”
Although analysts at JPMorgan have forecasted weak third-quarter results for chemical companies, Cramer argued that these challenges are already reflected in stock prices and that Dow could see recovery as interest rates decline. He said to “anticipate, anticipate, anticipate”.
“[It] perfectly drives what we heard from Jim Fitterling, the chairman and CEO of Dow when we had him on the show back in July. Listen to this. ‘I think we need to see mortgage rates get to something with a five handle on them so that we can see people being able to get mortgages and being able to move into that market. When that happens, the part of the business that’s slow will pick up pretty quickly, both from construction and then all the knock-on effect from appliances, carpets, and other things that go into the housing market.’ Bingo.
That’s more or less the story here. Of course, Fitterling said all this a couple of months before Dow had to issue a negative pre-announcement for the third quarter, mostly because the hurricane shutting down production. That pre-announcement came on September 12, causing the stock to hit a low for the year. But since then it’s rebounded from $50 and change to $54 and change. Do you expect that to happen during the rate-cut season?
That rebound makes so much sense. Everybody knows that when the Fed starts cutting rates, it’s time to buy the cyclicals. Just that these commodity chemical plays take a little longer to come alive again than say, the housing stocks. Of course, Dow… [is] very much hostage to the Federal Reserve. If you don’t believe we’ll get a steady stream of rate cuts, then they won’t be able to hit the earnings estimates, meaning the stocks are more expensive than they look, and they could be pushed for more downside.”
He encouraged investors to seek high-quality stocks that fit the YEV paradigm—yield, earnings growth, and value—before earnings season ramps up.
“Dow and LyondellBasel, they perfectly fit the bill. And as chance would have it, they’re exactly what the hedge fund playbook says you should buy at this point in the business cycle.”
Dow (NYSE:DOW) is a provider of a diverse range of materials science solutions across various sectors, including packaging, infrastructure, mobility, and consumer applications. Recently, the company shared its earnings guidance for the third quarter of 2024, expecting revenue of around $10.6 billion and operating EBITDA of approximately $1.3 billion.
Jim Fitterling, the chair and CEO of the company, explained that the updated outlook reflects challenges faced due to an unexpected event that impacted one of the company’s ethylene crackers in Texas in late July. This incident has contributed to higher input costs and margin pressures, particularly in Europe. However, there are some positive developments, including improved pricing and feedstock costs in North America, especially within the Packaging & Specialty Plastics segment.
As for the fourth quarter, Dow (NYSE:DOW) management expects to see typical seasonal fluctuations in demand. Throughout this period, the company is committed to maintaining operational and financial discipline while pursuing long-term growth opportunities.
6. ONEOK, Inc. (NYSE:OKE)
Number of Hedge Fund Holders: 34
Cramer said that he recommended ONEOK, Inc. (NYSE:OKE) stock previously and likes oil and gas pipeline operators for various reasons, including dependence on volume, limited players in the industry, and great dividend yields.
“What else passed through the YEV test? ONEOK, which is a pipeline play that I absolutely adore. Now, I recommended this one late last year, and it’s up more than 40% since then. I like the oil and gas pipeline operators in general because they’re like toll roads that depend solely on volume, not the underlying price of the commodities in question. Plus, it’s so hard to get regulatory approval to build new pipelines that we’ve got a severe shortage in this country. At the same time, we’re both producing and exporting record levels of oil and gas here, which means more demand for ONEOK.
The other great thing about the pipeline play is that they tend to have terrific dividend yields. Even after ONEOK’s huge run over the past ten months, this thing’s still got a 4.18% yield here, still superior to the tenure. And it’ll get even better as long as long rates come down, which is inevitably what happens when the Federal Reserve cuts short rates. ONEOK also regularly raises its dividend. They target 3% to 4% annual growth for the payout… Unlike most pipeline plays, ONEOK is organized as a traditional C corp, a normal business, and not an MLP or mass limited partnership. And that makes for a cleaner governance structure.”
Cramer noted that the company, which traditionally concentrated on natural gas and natural gas liquids infrastructure, acquired a well-liked company last year, resulting in a more balanced portfolio.
“ONEOK used to exclusively focus on infrastructure for natural gas and natural gas liquids, but then shelled out $18.8 billion for a company we liked very much when we had money, called Magellan Midstream Partners last year. Now they’re more balanced, though still with a natural gas lean. I like that, too, because the big opportunity in energy exports for this country is in LNG, liquified natural gas.
Overall, ONEOK is just another good, solid energy infrastructure play with an outsized payout, which will look even better once rates start inevitably falling again, something I still expect, even as long rates have counterintuitively been kind of creeping up higher since the Fed September meeting. It’s also a great option for someone who wants energy exposure but doesn’t want to gamble on oil and gas prices with a multi-front war happening in the Middle East.”
ONEOK (NYSE:OKE) operates in the essential sectors of gathering, processing, fractionating, storing, transporting, and marketing natural gas and natural gas liquids (NGL) across the United States. The company is currently in the process of acquiring significant assets to strengthen its market presence and increase cash flow, ultimately aiming to provide better returns for investors.
Recently, it announced a series of transactions with Global Infrastructure Partners (GIP), a prominent infrastructure investor. It involves purchasing GIP’s 43% stake in EnLink Midstream for $3 billion in cash, along with acquiring 100% of the managing member interests for an additional $300 million. As per the deal, the valuation of EnLink stood at $14.90 per share.
Additionally, ONEOK (NYSE:OKE) plans to acquire Medallion Midstream from GIP for $2.6 billion in cash. The transactions are expected to be completed in the early part of the fourth quarter. Following the acquisition of GIP’s interest in EnLink, the company intends to pursue acquiring publicly traded shares of EnLink in a tax-efficient manner, specifically through a stock-based acquisition.
These transformative deals are set to establish a comprehensive, large-scale platform in the Permian Basin, significantly boosting the company’s operational footprint in key regions including the midcontinent, North Texas, and Louisiana. The company’s business model will also become more diversified as a result. Post-acquisition, ONEOK (NYSE:OKE) forecasts that 35% of its earnings will stem from natural gas liquids, 29% from gathering and processing, 27% from crude oil and refined products, and 9% from gas pipelines.
With an initial outlay of $5.9 billion for these acquisitions, the company expects immediate positive impacts on its earnings per share and free cash flow. It projects an average annual increase in earnings per share of over 5% from 2025 to 2028, alongside a more than 15% rise in free cash flow per share within the same timeframe. Furthermore, it estimates the potential to realize combined synergies ranging from $250 million to $450 million within three years of finalizing the deals.
5. KeyCorp (NYSE:KEY)
Number of Hedge Fund Holders: 38
Cramer views KeyCorp (NYSE:KEY) favorably, labeling it a reliable operator. He pointed out that the stock is approaching the values it had prior to the collapse of Silicon Valley Bank last spring. Here’s what Mad Money’s host had to say:
“The regional banks got squashed when the Fed rapidly raised interest rates, then decided to leave short rates higher for longer. But now that the Fed’s in rate-cut mode… We know that’s going to happen, they stand to benefit even if the pace of the cut slows down. In fact, we’re in a terrific scenario for these guys.
First is KeyCorp. This is a Cleveland-based, parent of KeyBank. It’s a high-quality consumer and commercial bank franchise with a sneakily large reach. They’ve got roughly 1000 branches across 15 states, Midwest, Northeast, Northwest. Unfortunately, KeyCorp made some mistakes with its bond portfolio that severely damaged its earnings power when bond yields soared and bond prices got clobbered. Now, if the Fed is our friend, that won’t be a problem anymore.”
Cramer mentioned that a couple of months ago, Scotiabank announced a significant investment for nearly a 15% stake in KeyCorp, which will occur in three tranches, with the first tranche completed and the remaining two contingent on regulatory approval.
“Plus, a couple of months ago, we learned that the Bank of Nova Scotia, also known as Scotiabank, will be paying $2.8 billion to take a nearly 15% stake in KeyCorp. Oh, man. It’s a complex transaction, which will take place in three tranches. The first tranche has happened and the other two will come over time after the deal gets regulatory approval. But what matters is Scotiabank’s investment gives KeyCorp a much better capital cushion that it can use to reposition its investment portfolio. I think this is a nice reset opportunity for KeyCorp. And I’d be buying it right along the side of the Canadians, especially since the stock currently yields nearly 5%. In fact, with KeyCorp trading at $16 and change, you know, you’re actually getting a slightly better price than the $17.17 per share Scotiabank’s paying for its stake. That sounds good to me.”
KeyCorp (NYSE:KEY) serves as the holding company for the KeyBank National Association, delivering a wide range of retail and commercial banking services throughout the United States. On October 2, Evercore ISI analyst John Pancari raised the price target on the stock to $20 from $18.50 and kept an Outperform rating.
Pancari noted that the upcoming third-quarter results for regional banks are expected to reflect a continued fundamental improvement that began to emerge in the previous quarter. He believes that the downward revisions in earnings per share estimates, influenced by a lower interest rate environment and declining loan trends, will help stabilize expectations for sector earnings.
KeyCorp (NYSE:KEY) reported a net income from continuing operations of $237 million for the second quarter of 2024, translating to $0.25 per diluted common share. This figure is an increase from the first quarter of 2024, which saw a net income of $183 million, or $0.20 per diluted common share, but represents a decline compared to the $250 million, or $0.27 per diluted common share, recorded in the second quarter of 2023.
4. LyondellBasell Industries N.V. (NYSE:LYB)
Number of Hedge Fund Holders: 41
Cramer recently introduced his YEV stocks list during an episode of Mad Money, focusing on companies that offer the highest yields. Among these, LyondellBasell Industries N.V. (NYSE:LYB) caught his attention and he mentioned its yield of 5.62%. The company, recognized as a significant player in the commodity chemicals sector, has faced a challenging year. Cramer pointed out that while its performance has been relatively stable, it has significantly underperformed compared to the S&P 500, trailing by nearly 20% during the same timeframe.
Cramer commented that the company’s stock, along with similar stocks, is experiencing the expected cyclical nature of the industry. According to him, these types of companies thrive when the global economy is strong but tend to struggle during economic downturns. This cyclical behavior explains why it has been lagging this year, as broader economic challenges have impacted its performance. He further explained:
“Until very recently, the two largest economies of the world, the United States and China were both deteriorating. But think about what’s happened just in the past few weeks. First, the Fed officially kicked off a new easing cycle, starting with that double rate cut I just mentioned. And then there’s a clear consensus that we are going to get several more rate cuts done before the Fed is finished.
Wall Street is expecting that the Fed funds rate will be down to 3.5 to 3.75% by next June’s meeting. That’s down 125 basis points from where it stands right now. What really matters, though, is that the general direction of interest rates is lower, which means the Fed is your friend. Don’t fight the Fed. At moments like this, the textbook cycle stocks tend to become big winners.”
Cramer emphasized that the time to buy chemical commodity stocks like LyondellBasell is when the Fed is cutting rates. He further highlighted:
“Second, in the past two weeks, the Chinese government has announced the most aggressive stimulus efforts that [it] has put in place since the end of the pandemic. And for once, China is actually putting money in people’s pockets. For a communist regime, they seem to really hate handouts, but they’re finally taking action to bolster their ailing economy, which is good news both for their own companies and for cyclicals worldwide that are levered to the Chinese economy, including… LyondellBasel.”
Cramer has made note of the company releasing its third-quarter earnings report on October 1. He stated:
“A couple of weeks ago, analysts at JPMorgan published a note on the chemicals group. Basically said that they expect these companies to report weak third-quarter results… The analysts at JPMorgan went on to explain that these stocks have been what we call de-risked, meaning the near-term earnings headwinds are already baked into the share price. If you’re willing to look past that and see further into the future, though… LyondellBasel should be on the road to recovery now that interest rates are coming down. You got to anticipate, anticipate, anticipate, that makes a lot of sense to me.”
Cramer emphasized that a shift in the Federal Reserve’s policy, particularly when it starts lowering interest rates, signals a good time to invest in cyclical stocks. He noted that while many sectors respond quickly to such changes, the commodity chemical companies, like LyondellBasell, typically take longer to recover.
Cramer highlighted that companies like LyondellBasell (NYSE:LYB) are often significantly influenced by the decisions of the Federal Reserve. He cautioned that if investors do not expect a consistent series of rate cuts, these companies may struggle to meet their earnings targets. This could make their stocks appear more expensive than they actually are, leading to potential declines in value. He gave his opinion, saying:
“If, like me, you believe the Fed will continue cutting, then bond yields will come down, too, and economies around the world will reaccelerate, bolstering the commodity chemical business as a whole… LyondellBasel. Well, then you got to pull the trigger.
So here’s the bottom line: In this quiet period before earnings season gets crazy, okay? We got to search for new ideas. These are ideas that represent the highest quality stocks for the current moment, the ones that fit the YEV paradigm: yield, earnings growth, and value.”
Cramer concluded by saying that the company is an ideal candidate for investment right now. He pointed out that this aligns perfectly with what hedge fund strategies typically recommend at this stage in the business cycle.
LyondellBasell (NYSE:LYB) is a global leader in the production of petrochemicals, polymers, and fuels, with a significant presence in various markets. The company has been actively working on improving its operational performance while pursuing strategic initiatives aimed at long-term growth.
During the second quarter, it generated $1.3 billion in cash from its operating activities. The substantial cash flow has been essential in supporting the company’s disciplined approach to executing its business strategy. As highlighted in its fourth-quarter earnings call, the company is making strides toward its objective of achieving an additional $3 billion in normalized EBITDA by 2027, with nearly one-third of that goal already reached in 2023.
3. United Parcel Service, Inc. (NYSE:UPS)
Number of Hedge Fund Holders: 44
Cramer mentioned that he has less confidence in United Parcel Service, Inc. (NYSE:UPS). He discussed the company’s higher costs damaging its earnings and briefly reviewed its performance in comparison to its peer, FedEx.
“Why don’t we start with UPS, which has been a very frustrating stock to own for the past couple of years. It’s down 43% from its early 2022 highs. Back in the summer of last year, UPS had to contend with a threat of a crippling Teamster strike. So they blinked and gave the teamsters, what a lot of people feel, is a very generous contract.
Great for the drivers, but the higher costs have done real damage on the earnings front for UPS. At the same time, it sure seems like they’re losing business to FedEx. In the past four quarters, UPS has disappointed three times, FedEx was doing fine till it had a tough last quarter. Just focusing on UPS though, these guys have lowered expectations repeatedly this year. That’s right, slashed estimates.
When the company report’s latest results in July, they delivered a sizable top and bottom line miss and slashed their guidance. Management tried to put a positive spin on things, touting a return to volume growth in the United States, but Wall Street didn’t buy it and the stock plunged 12% in a single session. Hasn’t really come back much since then. Don’t forget even the better-run FedEx reported a difficult quarter in September so it’s hard to be optimistic about UPS headed into the next earnings report in two weeks.”
While Cramer did make a note of the sinking earnings and the market’s reaction to it, he presented a bull case for the stock based on Citi analysts’ coverage of the transportation logistics sector.
“So is there even a bull case for UPS? Actually, yes, and conveniently, we got it from analysts at Citi earlier this week who initiated coverage on the transportation logistics sector starting UPS with a buy, quite surprising, and a $162 price target for what’s a $132 stock today. They point out that UPS has the highest dividend in the group with a strong balance sheet and the company’s now starting to annualize its higher labor costs. So that’s less of an issue going forward. I like that. At the end of the day, management laid out some very bullish long-term financial targets back in March and if the company hit those numbers, well, UPS could be a huge long-term winner, but I say that’s a pretty big if.
Do you really wanna bet on UPS hitting its financial targets when they’ve missed them so frequently over the last year? Normally, this is the kind of stock that would work when the Fed cuts interest rates, but I need to see some better execution before I’m willing to endorse it, and boy, I really want to ’cause I like that yield, but not yet.”
United Parcel Service (NYSE:UPS) is a leading package delivery and logistics company, offering a wide array of services that encompass transportation, distribution, contract logistics, ocean freight, air freight, customs brokerage, and insurance. It has been facing challenges for some time now, including a decline in stock value attributed to inflationary pressures, broader macroeconomic concerns, and the impact of negotiations with the Teamsters Union, which represents approximately 330,000 employees.
The company is preparing for a potential upswing in business during the latter half of the year, driven by a reduction in macro pressures and a focus on servicing healthcare and small to medium-sized enterprises. In a bid to optimize operations, it plans to lay off employees this year while simultaneously investing in new technologies and automation to improve efficiency and reduce costs.
On October 3, Wells Fargo raised the price target on United Parcel Service (NYSE:UPS) to $142 from $134 and maintained an Overweight rating. The adjustment came because the firm expects favorable trends in the third quarter, suggesting that recent pricing actions and volume growth could align with the company’s full-year guidance.
2. Citizens Financial Group, Inc. (NYSE:CFG)
Number of Hedge Fund Holders: 47
Cramer mentioned the Rhode Island-based Citizens Financial Group, Inc. (NYSE:CFG) during an episode of Mad Money and talked about its capital ratios and the ensuing benefits. He said:
“I like the regional banks here for roughly the same reason that I like the commodity chemical place. These stocks have been out of favor for a very long time, but they should do much better in a falling interest rate environment. Of course, some of the regionals are a lot better than the others. We don’t want exposure to the outfits that still haven’t recovered from last year’s mini-banking crisis.”
Cramer has expressed a favorable view of the bank, describing it as a strong operator. He mentioned that the stock is nearly back to its pre-Silicon Valley Bank collapse levels from last spring, a period that significantly impacted regional banks. Cramer believes that we are moving in a positive direction for these institutions.
He pointed out that regional banks faced severe pressure when the Federal Reserve quickly raised interest rates, followed by a prolonged period of elevated short-term rates. However, with the Fed now shifting towards cutting rates, Cramer emphasized that regional banks are likely to benefit, even if the rate reductions come at a slower pace. He stated, “We know that’s going to happen,” suggesting confidence in the eventual easing of monetary policy.
According to Cramer, the current economic landscape is quite favorable for regional banks. He remarked that the economy remains robust enough to make the term “soft landing” seem overly negative. With interest rates on the decline, he referred to the situation as “nirvana” for these banks, adding that credit losses are expected to decrease during this rate-cutting phase. Coming to the company, he said:
“It’s a Northeast bank, it’s called Citizens Financial Group. I haven’t focused on it since it was spun off by the Royal Bank of Scotland a decade ago. When you take a closer look at Citizens, it’s got some of the best capital ratios of large regional banks. That matters for a couple of reasons. First, it offers safety. This is how you know Citizens won’t be the next First Republic if we have another banking blow-up. But more importantly, in calmer times, it gives them [the] flexibility to do other shareholder-friendly things, dividends [and] buybacks. In fact, in late July, after hearing all the regional banks report second-quarter earnings, analysts at Deutsche Bank called Citizens Financial their top pick in the sector, citing strong earnings growth potential as net interest margins normalize, growth initiatives pay off like the private bank build-out and their expansion in New York City and mortgage demand bounced back thanks to lower rates. Deutsche Bank analysts also know that Citizen has been held back in recent quarters by some significant one-off items. But management is signaling that there shouldn’t be much more of an impact from that kind of thing going forward. That all sounds real good to me. So count me in as a believer in Citizens Financial.”
Citizens Financial Group (NYSE:CFG) functions as a bank holding company that specializes in offering a wide range of retail and commercial banking products and services. It operates an integrated Consumer Banking experience and it boasts around 3,300 ATMs and approximately 1,000 branches located across 14 states and the District of Columbia.
In the second quarter, Citizens Financial Group (NYSE:CFG) reported commendable performance, characterized by strong fee generation across its Capital Markets, Wealth Management, and Card divisions. Positive trends in deposit growth were evident. The company’s Private Bank achieved a total of $3.6 billion in assets under management, progressing toward its ambitious goal of reaching $10 billion by the close of 2025. Its revenue from the Private Bank surged by 68%, totaling about $30 million in the second quarter, with projections showing a path toward breakeven on the bottom line later this year.
Chairman and CEO Bruce Van Saun emphasized the successful execution of the company’s strategic initiatives, highlighting significant milestones such as the Private Bank’s deposits reaching $4 billion and now has $3.6 billion in assets under management. He conveyed confidence in the company’s full-year guidance and medium-term objectives.
1. Bristol-Myers Squibb Company (NYSE:BMY)
Number of Hedge Fund Holders: 61
Cramer included Bristol-Myers Squibb Company (NYSE:BMY) in his YEV stocks list and mentioned the company’s acquisitions which can bring promising additions to its pipeline. Here’s what he had to say:
“First up, there’s Bristol Myers Squibb, the pharmaceutical giant that we just checked in with last week. Bristol Myers sports a 4.55% yield, and the stock trades at a paltry 7.6 times next year’s earnings estimates. It also looks incredibly cheap on 2025 growth, but that’s because mostly they’re taking a big earnings hit this year from a $12 billion charge related to a recent acquisition. They’re looking at above 800% earnings growth next year simply because things are going back to normal. But I don’t care if Bristol Myers made the YEV list loophole. After speaking to management last week, I think it’s a great time to consider buying this one.
Why? Because if you’re thinking about the 2024-2025 earnings estimates here, I think you’re missing the whole story. Bristol Myers has a major long-term turnaround plan in place, and I believe they can deliver. I think it’s going to take a little time.
Remember, Bristol Myers had a big downturn as its big cancer franchise fell behind Merck’s, and its huge $74 billion acquisition of Celgene wasn’t, in retrospect, really worth the price. The company’s revenue growth disappeared for the last couple of years, and they had a down earnings year in 2023. For the first time in a decade, things looked grim, especially with big patent cliffs looming for some of their top drugs in the next few years.
But now Bristol Myers is under new management, with Chris Boerner taking over as CEO nearly a year ago, he got started with a bang. A month later, the company announced two deals. First, paying $14 billion to acquire neuroscience specialist Karuna Therapeutics and then just days later announcing $4.1 billion to buy a cancer-focused biotech company called RayzeBio. This is on top of the $5.8 billion position of Mirati Therapeutics, another cancer play that we learned about just before Boerner took over.”
Cramer remarked that these developments hinted at a coherent plan for the company, despite Wall Street’s lack of enthusiasm, as the stock price continued to decline during the first half of the year. The situation was exacerbated when Bristol-Myers (NYSE:BMY) reported a $12 billion charge related to the acquisition of Karuna Therapeutics in April, coupled with their full-year earnings forecast.
However, Cramer emphasized that this charge was more of a patent-related issue rather than a reflection of poor management decisions. He clarified that the company did not make any significant mistakes. He added:
“Ultimately, the stock finally found its footing in July, down 23% for the year. Since then, though, things [have] come roaring back. First, Bristol Myers reported a better-than-expected quarter in July and raised its previously slashed earnings for outlook by 36%. More importantly, the company got its first big payoff from its late 2023 takeover spree. The lead drug they got from Karuna Therapeutics called Cobenfy got FDA approval for treatment for schizophrenia. This thing is revolutionary because it’s the only schizophrenia drug that doesn’t have life-ruining side effects. And Bristol Myers has much better, bigger ambitions for Cobenfy.
They’re actively studying it for a treatment for adjunctive schizophrenia and psychosis in Alzheimer’s disease, with data coming for those indications in 2025 and 2026… Now, when you look at what’s currently on the market, nearly every schizophrenia treatment is also approved for other types of psychoses, I bet this one follows the same trajectory, just without the side effects. Every single approval will make people excited about owning the stock of Bristol Myers.”
Cramer wrapped up by expressing concerns about the company potentially losing patent protection for several critical drugs within the next two to four years. Despite this looming challenge, he believes that the recent acquisitions will provide the company with a strong lineup of quality drugs in development.
“In the end, you still got to worry that Bristol Myers is losing patent protection for some key drugs in the next two to four years. But with all these acquisitions, I think they’ve got enough quality drugs in the pipeline to come out of this period in much better shape. Oh, I’d be a buyer.”
Bristol-Myers (NYSE:BMY) is a global leader in biopharmaceuticals and addresses various diseases across multiple fields, including hematology, oncology, cardiovascular health, immunology, fibrotic diseases, and neuroscience. In the previous year, its portfolio included ten medicines that each generated over $1 billion in sales, highlighting the significance of its offerings in the pharmaceutical market.
Among its newer products, Reblozyl, which treats anemia in patients with beta-thalassemia, has gained substantial traction since its approval in 2019. Last year, Reblozyl achieved $1 billion in sales, reflecting its importance in the company’s lineup. The momentum for this drug continues to build, as evidenced by a remarkable 82% increase in revenue year-over-year, reaching $425 million in the second quarter. Overall, the company reported a 9% rise in revenue for the same quarter, totaling $12.2 billion.
While we acknowledge the potential of Bristol-Myers Squibb Company (NYSE:BMY) as an investment, our conviction lies in the belief that 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 BMY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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