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.”
8. Rubrik, Inc. (NYSE:RBRK)
Number of Hedge Fund Holders In Q3 2024: 23
Date of Cramer’s Comments: 8-27-24
Performance Since Then: 93%
Rubrik, Inc. (NYSE:RBRK) is a software-as-a-service (SaaS) firm that operates in the cybersecurity industry. The firm provides data protection, threat analytics, data recovery, and other associated services. Rubrik, Inc. (NYSE:RBRK)’s shares are up 85% year-to-date primarily on the back of its strong third-quarter results following which the stock jumped by 30%. These results saw the firm grow its recurring revenue by more than 35% and grow revenue by 43% to $236 million. Recurring revenue is a key aspect of SaaS performance as it lets investors measure the strength of a firm’s industry partnerships and its ability to earn margin-friendly stable and long-term revenue. Rubrik, Inc. (NYSE:RBRK)’s shares went public in April, and Cramer commented on the offering in August:
“The next largest IPO is Rubrik, the cybersecurity firm that helps customers secure their data. This is the kind of unprofitable software company that went out of style in 2022 and never really came back, but it’s also a cybersecurity play, a much stronger cohort. Rubrik had a good debut, and it’s still up 11% from its offer price, but the stock’s also down from its first trade. I’d say the jury’s still out on this one.”
7. MasterBrand, Inc. (NYSE:MBC)
Number of Hedge Fund Holders In Q3 2024: 25
Date of Cramer’s Comments: 8-26-24
Performance Since Then: -12.68%
MasterBrand, Inc. (NYSE:MBC) is a consumer cyclical stock that sells residential cabinetry items. Naturally, while the cabinetry-specific business model provides the firm with the benefits of customization it also exposes it to the effects of a high policy rate. The dependence of MasterBrand, Inc. (NYSE:MBC)’s shares on interest rates was clear in December when the stock closed 7.4% lower on the day of the Fed’s decision. On the flip side, it soared by a whopping 25.6% in July when investors piled into small-cap stocks on the back of softening inflation. MasterBrand, Inc. (NYSE:MBC) has acquired another firm this year, and the deal can enable it to generate future tailwinds by extending into the vanity sector. Cramer was aware of the link between the stock and the housing market as he shared:
“If we get a serious run in housing, then MasterBrand, formerly part of Fortune Brands, could really do well. They’re the maker of cabinets. We’ve used Aristokraft cabinets—they’re fine.”
6. Sweetgreen, Inc. (NYSE:SG)
Number of Hedge Fund Holders In Q3 2024: 25
Date of Cramer’s Comments: 8-26-24
Performance Since Then: -3.89%
Sweetgreen, Inc. (NYSE:SG) is a specialty restaurant firm that has sought to carve out a place for itself in the salad market. The firm stands out from its rivals through a well-developed vegetable supply chain through which it promises fresh raw materials. Sweetgreen, Inc. (NYSE:SG)’s shares are up 201% year-to-date as they’ve benefited from automation plans that improve margins and reduce kitchen errors. However, the stock is down 3.9% since Cramer’s remarks as Sweetgreen, Inc. (NYSE:SG) has struggled primarily on the back of a bearish Goldman Sachs note in August which cut the firm’s average operating income forecasts for the next couple of years by 12%. Back then, the stock had peaked at $42.2 while Goldman kept the share price target at $40. Here’s what Cramer said in August:
“Quick—what’s the best-performing restaurant stock in the Russell 3000 this year? It’s not Wingstop, which is having another great year, up 46%. It’s not Brinker International, the parent of Chili’s, up 54%. It’s not even Cramer favorite Cava Group, the standout IPO of 2023, up 129% year-to-date. No, the best-performing restaurant stock this year is Sweetgreen, the salad chain, which has nearly tripled in value. That’s impressive, especially considering this has been a tough year for restaurants and Sweetgreen looked like a dud not long ago. Sweetgreen went public in November 2021, right near the peak of the growth stock boom, at $28 per share.
“The stock doubled in the first two days of trading, reaching the mid-50s, but then, like many 2021 IPOs, it collapsed, hitting a low of around $6 in March of last year, down nearly 90% from its highs. Although I’ve been critical of Sweetgreen since its IPO and advised caution regarding unprofitable companies, this year’s rally took me by surprise. So, what changed to make this stock such a winner? First, Sweetgreen has been consistently generating earnings before interest, taxes, depreciation, and amortization (EBITDA) positively in four of the past five quarters, which is unusual and indicates the company is moving in the right direction on the profitability front. Second, same-store sales growth, a key measure of performance, has improved significantly.
“After slowing to 13% in 2022 and 4% last year, same-store sales growth re-accelerated to 9% in the last quarter, with projections of 5-7% growth for the full year. Sweetgreen has achieved these results by focusing on healthier meals and a more affluent customer base, giving them an advantage in a broader quick-service industry facing pricing pushback from lower-income consumers. They’ve also improved their loyalty program and digital ordering system. Previously, Sweetgreen was overly focused on salads, but last year they began offering more varied options. They introduced new protein dishes, like a chicken burrito bowl with no leafy greens, and a miso salmon plate. Their recent spring menu included a caramelized garlic steak. These changes have attracted new customers and increased traffic, especially during dinner hours and weekends. Sweetgreen’s innovation in menu offerings and efficiency improvements, including investments in automation and the “infinite kitchen” concept, have boosted their margins significantly. Their restaurant margins are now 10 percentage points higher than the fleet average, which is substantial.”
5. Lumen Technologies, Inc. (NYSE:LUMN)
Number of Hedge Fund Holders In Q3 2024: 26
Date of Cramer’s Comments: 8-21-24
Performance Since Then: -7.50%
Lumen Technologies, Inc. (NYSE:LUMN) is a telecommunications products and services provider that caters to consumer and business needs. The latter portion of its business has been nothing short of a boon for the shares in 2024. Lumen Technologies, Inc. (NYSE:LUMN)’s stock is up by a whopping 200% year-to-date, fueled by an unbelievable 156% gain in August. The August jump occurred after the firm’s second-quarter earnings saw it increase its midpoint annual cash flow estimate to $1.1 billion from an earlier $200 million due to $5 billion in deals with Microsoft and others. The stock gained another 26% in November after Lumen Technologies, Inc. (NYSE:LUMN) increased its deal size to $8 billion. Cramer’s comments came after the stock’s first jump in August:
“This is a parabolic move. It would have been great to be invested in something like network security and cloud solutions. For some, it was easy to see, but I missed it. The trade is done.”
4. Powell Industries, Inc. (NASDAQ:POWL)
Number of Hedge Fund Holders In Q3 2024: 26
Date of Cramer’s Comments: 8-19-24
Performance Since Then: 35.22%
Powell Industries, Inc. (NASDAQ:POWL) is an industrial products company that makes and sells electrical equipment. It is another strong-performing stock, as the shares are up 156% year-to-date. While on the surface the share price growth is stunning, digging into Powell Industries, Inc. (NASDAQ:POWL)’s balance sheet makes it clear. The firm grew its revenue by a whopping 45% during its fiscal year 2024. The growth came on the back of growth in its energy and commercial markets. The latter market caters to data centers, and Cramer commented on its growth and noted how a strong order backlog is a key factor driving Powell Industries, Inc. (NASDAQ:POWL)’s shares:
“Lately, the market has fallen in love with a particular kind of industrial stock. These are still smokestack stocks, but they also have powerful secular growth drivers, meaning they can thrive even if the economy doesn’t accelerate. Tonight, I have a smaller company that falls into the same category: Powell Industries. This company has been around since 1947 and went public decades ago. However, the stock has caught my attention over the past couple of years, skyrocketing from $20 in late September 2022 to $171 today—a gain of more than 700%. So, what does this company do, and how did the stock manage to catch fire like this? More importantly, can it keep running once the Fed starts blessing us with rate hikes?
Let’s start with the basics. Powell makes custom-engineered equipment that distributes, controls, and monitors the flow of electricity while also providing protection to all sorts of electrically powered hardware, like motors and transformers. If you want to know why the stock languished from 2014 through late 2022, it’s because of their exposure to the oil and gas industry. Even now, the fossil fuel industry accounts for 59% of Powell’s sales year-to-date. However, the stock’s spectacular breakout over the past couple of years has been driven by Powell’s success in new markets, namely utilities, transportation like light rail, metals and mining, pulp and paper, and of course, data centers. Everything really came together for Powell Industries last year, with these new businesses generating tremendous growth. After four years of being stuck in the $500 million revenue range, Powell posted 31% revenue growth in 2023, reaching total sales of just under $700 million.
Meanwhile, their earnings per share nearly quadrupled—from $1.15 in 2022 to $4.50 last year. It’s like hitting the lottery. Essentially, if their equipment can handle the petrochemical business, it can handle utilities, especially those in the Gulf Coast, where many of their petrochemical customers are located. Cope also mentioned data centers, electric vehicles, and semiconductors. When you put it all together, it’s easy to see how Powell’s orders grew by 94% last year, with their backlog increasing by 118% to $1.293 billion—the first time their backlog ever crossed the $1 billion mark.
These numbers are incredible, yet Wall Street continues to underestimate this company, allowing Powell to repeatedly blow away the estimates. It’s like the old days when companies were smaller, moving from midcap to large cap. When Powell reported at the end of January, they posted 53% revenue growth and earned $1.98 per share. Analysts were only expecting $0.84. Yes, that’s right—they more than doubled the analyst consensus, which is extraordinary.
When Powell reported again in early May, they delivered another monster revenue beat with a staggering $0.97 earnings beat, off a $1.78 estimate. That’s an upside surprise of almost comical proportions. Most recently, Powell delivered yet another stunning quarter at the end of July, with much higher-than-expected revenue, earning $3.79 per share. Wall Street had only expected $2.16. No wonder the stock has more than doubled in the past seven months—these beats are extraordinary.”
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.”
2. Liquidia Corporation (NASDAQ:LQDA)
Number of Hedge Fund Holders In Q3 2024: 28
Date of Cramer’s Comments: 8-20-24
Performance Since Then: 22.9%
Liquidia Corporation (NASDAQ:LQDA) is the only biotechnology stock on our list. It is a loss-making entity yet to turn a profit. The firm generates revenue primarily through its treprostinil drug for hypertension in patients with lung disease. As a result, Liquidia Corporation (NASDAQ:LQDA)’s hypothesis depends quite a bit on this drug’s success. This dependence was evident in August when the stock sank by 31% after the FDA delayed the drug’s final approval to mid-2025. Cramer wasn’t a fan of the stock either in August as he doubted its ability to post returns after the 31% dip. Here’s what he said:
“Man, I’ll tell you, that is just such a dice roll. It’s been going down, down, down. The only outfit that really covers it is HC Wainwright. It’s a lot like, well, I’m not sure. This one is just too much of what I would call a black box. But I will check in the 2002 Cramer Burket’s return, because maybe that’s the kind of thing that could make it so I can retire—though it’s highly unlikely.”
1. Shake Shack Inc. (NYSE:SHAK)
Number of Hedge Fund Holders In Q3 2024: 35
Date of Cramer’s Comments: 8-19-24
Performance Since Then: 26.51%
Shake Shack Inc. (NYSE:SHAK) is a fast food chain that sells meals such as fries, hot dogs, hamburgers, and of course, shakes. On the surface, the firm’s business model of depending on consumer spending would have left the stock vulnerable in 2024. However, Shake Shack Inc. (NYSE:SHAK)’s shares are up by 80% year-to-date as the firm has bucked the trend of budget-conscious consumers looking to extract greater value out of their meals. The ability to retain customers and grow profits has come on the back of several initiatives such as the firm improving kiosk checkout times, new product launches, and upscale outlets that are typically more resilient to drops in consumer spending. Cramer, in his remarks, covered an August note from Piper Sandler that worried about the effects of Shake Shack Inc. (NYSE:SHAK)’s menu pricing on the firm’s long-term performance, downgraded the stock to Neutral from Overweight, and set a $114 price target:
“Piper Sandler has taken a more moderate view toward the fast-casual sector overall and also downgraded Shake Shack.”
SHAK was a stock Jim Cramer mentioned in August. While we acknowledge the potential of SHAK as an investment, our conviction lies in the belief that some 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 SHAK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
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