Jim Cramer’s Hidden Gems: 10 Undervalued Stocks You Need to Know

3. Foot Locker, Inc. (NYSE:FL)

Number of Hedge Fund Holders In Q3 2024: 27

Date of Cramer’s Comments: 8-28-24

Performance Since Then: -22.24%

Foot Locker, Inc. (NYSE:FL) is a footwear retailer that is one of the best-known firms of its kind. The market hasn’t been kind to its shares in 2024 as they are down by 26% year-to-date. Foot Locker, Inc. (NYSE:FL)’s stock devastation started in March after the shares tanked by 29% in one trading day. The drop occurred after the firm’s midpoint guidance of $1.60 per share missed analyst estimates of $1.93 and it revealed that its long term profit margin target would be delayed by two years. Foot Locker, Inc. (NYSE:FL)’s woes are related to softer demand for Nike’s shoes, and the stock sank by another 20% in December after the firm projected annual sales to drop at a low end of 1% from an earlier 1% growth. Cramer pointed out in September that the only reason to buy Foot Locker, Inc. (NYSE:FL) would be for the long term:

“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.

“How come the stock lost 10%? Well, first, the stock came into the quarter again, like some of these others, very hot, up 45% from the last time the company reported in May. Second, I think the sellers are basically saying that they don’t believe Foot Locker can make its full-year forecast because they’ll need a couple of strong quarters to make the numbers, especially on the earnings front.

“But having listened to the conference call, management laid out some major positives. Most important of all, Foot Locker’s relationship with Nike seems to have improved substantially. Nike needs them more than Nike thought. That’s very important. It ain’t just old DTC at the end of the day.

Foot Locker’s a turnaround story. It’s going to take at least a couple more quarters to unfold, but it’s going to unfold. Stock may have gotten ahead of itself over the summer, one reason why we sold it for the Charitable Trust, but if you have a longer-term view, I think this is a viable dip.”