In this piece, we’ll look at Jim Cramer’s Hidden Gems and ten undervalued stocks you need to know.

With the year coming to a close, Jim Cramer, like everyone else, has a couple of things on his mind. The tail end of December saw significant turmoil in markets as while the Federal Reserve did cut interest rates by 25 basis points, it took a hawkish approach for its 2-25 rate cut cycle. The central bank guided just two cuts in 2025 as opposed to the earlier four, which led to the flagship S&P index dropping by 2.95% on the day of its decision.

Yet, the close of the week would prove to be a boon for markets in the form of the personal consumption expenditure (PCE) index. The PCE is the Fed’s preferred inflation reading, and for November, it sat at 2.4% on an annualized basis. This was lower than the 2.5% that economists had predicted, and as a result, markets took a breather with the S&P closing 1.1% higher on Friday. However, while the flagship S&P index might have pared back some of its losses, the Russell index that tracks 2,000 small-cap stocks didn’t perform so well.

On the day the Fed announced its rate cut, this stock index sank by 4.39%. Yet, while the S&P surpassed a percentage point in gains on Friday, the Russel index lagged it to close 0.94% higher. The small-cap stock index also missed this week’s Santa Claus rally. From Monday to the close of trading on Christmas Eve, the S&P had gained 1.84% to nearly reverse all of its losses since the Fed’s meeting. However, the Russell index ended up 0.78% higher and is still down 3.18% from its Tuesday close before the Fed’s conference.

The fact that small-cap stocks fell sharply after the Fed’s ‘bullish bearishness’ and failed to regain momentum after the PCE data is unsurprising. These companies, due to their lighter balance sheets and localized presence, are more sensitive to economic slowdowns than large and mega-cap stocks. Their dependence on economic performance was clear after President-elect Donald Trump’s win in the November election following which the Russell index soared by 4%.

The last time the index had posted similar and stronger gains was in July when it had gained by 11.54% in the second week. As you’d expect, the bullishness was driven by none other than the economy. Small-cap stocks soared when the consumer price index dipped by 0.1% in June for its first such drop in more than four years. Gains made by small-cap stocks came right when investors had, for the time being, had enough with technology stocks. This was indicated by the broader NASDAQ index gaining just 0.43% while the Russell index had soared by 11.54%.

This searing performance by small-cap stocks didn’t go unnoticed by Cramer. In an episode of CNBC’s Mad Money, the host commented on recent small-cap stock performance trends. Cramer used the rally to highlight the importance of sticking to the stock market instead of just relying on day trading. He outlined that “When you get these kind of rallies, and you get them very rarely, it reminds you that you have to stay in this market to make big money. You can’t flit in, fled out!” Cramer added, “When I say stay in, I mean that you have to be as invested as you possibly can be so you don’t miss monster moves like the Russell 2000 up 3.5% today.”

Commenting on the reasons behind the small-cap stock rally, Cramer posited that “it started when we got that cool consumer price index reading we got last Thursday. No inflation in the month of June, that’s what triggered it!” According to him, the inflation reading was “the first prop of the small-cap rally.” Cramer shared that “Most people are surprised to see that the lowering of inflation could trigger a gigantic rally among so many small-cap stocks.” He dug deeper into the stocks that had gained and pointed out that risky loss-making firms reliant on low inflation and small and medium businesses that benefit from low interest rates were doing particularly well.

According to him “almost all [STOCKS MAKING GAINS] are biotechs” that are “losing money.” Cramer outlined that “If you look at the top 35 performers all of which are up more than 35% since a week, less than a week, including 11 that are up more than 50%, you’ll see that roughly half are biotechs and healthcare companies almost all losing money.”

Since Cramer’s remarks, the Russell index has essentially remained flat and gained a mere 0.90%. This time period has seen it soar after Trump’s election win and then sink after the Federal Reserve’s rate cut update.

Our Methodology

To make our list of Jim Cramer’s hidden gems, we scanned the stocks he mentioned in Mad Money and Squawk on the Street as far back as in August. Then, we picked out stocks with a market value lower than $6 billion, analyzed their performance, and ranked them by the number of hedge funds that had bought the shares in Q3 2024.

For these stocks, we also mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds invest in? 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. NextEra Energy Partners, LP (NYSE:NEP)

Number of Hedge Fund Holders In Q3 2024: 18

Date of Cramer’s Comments: 8-19-24

Performance Since Then: -30.44%

NextEra Energy Partners, LP (NYSE:NEP) is an American clean energy firm that owns and operates interests in wind, solar, and natural gas facilities. Its shares have been hammered in 2024 and are down 42% year-to-date despite the fact that booming AI data center construction has spurred the demand for clean energy. NextEra Energy Partners, LP (NYSE:NEP)’s stock has suffered because of the firm’s planned investments in renewable energy through which it aims to invest $13.5 billion in solar energy and battery storage by 2027. Renewable energy investments mean that NextEra Energy Partners, LP (NYSE:NEP) has to sell shares to dilute valuation and also potentially reduce dividends due to the impact of equity buyouts. Here’s what Cramer said:

“The stock that I want to back up the Brinks truck on is NextEra Energy Partners. Big dividend, but I’m not sure why we should buy it other than the big dividend—and I’m a little afraid of that.”

9. ZIM Integrated Shipping Services Ltd. (NYSE:ZIM)

Number of Hedge Fund Holders In Q3 2024: 19

Date of Cramer’s Comments: 8-21-24

Performance Since Then: -0.37%

ZIM Integrated Shipping Services Ltd. (NYSE:ZIM) is an Israeli shipping company that offers land and water-based shipping. It enjoys a sizable moat in Israel as it is the largest shipping company in the country. While shipping and logistics stocks are typically dependent on the broader economic conditions for their performance, ZIM Integrated Shipping Services Ltd. (NYSE:ZIM)’s shares have bucked the slow industry trend in 2024 and are up 94% year-to-date. The firm’s revenue surged by 49% to $1.93 billion in Q2 as the conflict in the Red Sea made it take longer routes and pass on the extra costs to customers. Cramer was quite optimistic about ZIM Integrated Shipping Services Ltd. (NYSE:ZIM) in August when he shared:

“I think it’s still ZIM’s time. I’ve been saying this for a while. Ben Stiller and I often look at each other and think it’s ZIM’s time. So, I say hold on to ZIM.”