In this article, we will take a detailed look at Jim Cramer’s Latest Portfolio: Top 10 Calls Before August.
Earlier this month, Jim Cramer during his program on CNBC talked about the importance of optimism right now and explained why he sees hope for America in the future.
Cramer said that the recent political violence made things look “dark” and “grim.” The CNBC host said this election year has been a “mess, something very much in sync with the tone of the country.”
However, Cramer referred to the recent comments from the CEO of the world’s largest investment manager, and said it seems the end of the world is “not on the table.” Cramer called the executive’s comments a “breath of fresh air” and agreed with the notion that the US economy needs more growth and less business regulation. Cramer said that America has a huge deficit problem but it cannot tax its way out of this.
“But we can grow our way out of it.”
Cramers said we should understand that capitalism is a “force for good, a force for wealth generation, not just for the rich, but for everybody, as long as they invest.”
Jim Cramer urged his viewers to invest in individual stocks.
“I don’t care what you invest in, as long as you invest.”
For this article we watched the latest programs of Jim Cramer and picked 10 stocks he’s talking about. With each stock we have mentioned hedge fund sentiment. 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).
10. Five Below Inc (NASDAQ:FIVE)
Number of Hedge Fund Investors: 39
Jim Cramer was asked about discount store company Five Below Inc (NASDAQ:FIVE). Here is what he said:
“I’m very mystified by Five Below Inc (NASDAQ:FIVE). I don’t know what happened there… Many operational problems, CEO leaves, they don’t really explain what’s going on.”
Cramer said that the company “rushed” to open stores.
“Until they get their act together I’ve got nothing good to say about them.”
Five Below Inc (NASDAQ:FIVE) is getting negative ratings from Wall Street amid an abrupt CEO departure and profit guidance cut.
Barclays downgraded the stock to Equal Weight recently.
“Ultimately, for the stock, we will need to gain more confidence in the growth story, including FIVE’s ability to return to steady +LSD comps growth and maintain strong units growth,” Barclays wrote.
Five Below Inc (NASDAQ:FIVE) has decreased its second-quarter EPS outlook to $0.53 to $0.56, from $0.57 to $0.69.
Gordon Haskett also downgraded the stock, saying in hindsight the company’s decision to start selling items priced above $5 was wrong.
Five Below Inc (NASDAQ:FIVE) has been seeing a decline in comparable sales. The company recently said sales for the 10 weeks ending July 13 rose 9.5% year over year. But this was mostly due to new store openings. Comparable sales in the period fell 5% year over year, while the company expects a further decline of 6% to 7% in comparable store sales for the second quarter. Five Below Inc (NASDAQ:FIVE) short-term expectations are bleak, to say the least. For the second quarter, the company expects sales between $820 million and $826 million, 8.4% higher than last year’s $759 million but below analysts’ expectations of $839.8 million. Earnings per share are projected at $0.53 to $0.56, down from $0.84 last year and missing analysts’ forecast of $0.65. Net income is expected to be $29.3 million to $30.9 million, short of the anticipated $35.9 million.
In the past Five Below Inc (NASDAQ:FIVE) had outlined targets of expanding its store count to 3,500 locations by the year 2030, compared with 1,605 locations as of the end of Q1. However, this target can see changes soon amid new management and changing business dynamics. It’d take a lot of strategy shifts and time for Five Below Inc (NASDAQ:FIVE) to see positive changes in business. Therefore, the stock might not be the ideal choice for investors.
Artisan Mid Cap Fund stated the following regarding Five Below, Inc. (NASDAQ:FIVE) in its Q2 2024 investor letter:
“We ended our investment campaigns in Five Below, Inc. (NASDAQ:FIVE), Roblox and Pool Corp during the quarter. Five Below is a value-oriented discretionary retailer offering an evolving assortment of trend-right products oriented to kids (tweens/teens). We were encouraged by management’s “triple-double” strategy, aiming to triple Five Below’s number of stores by 2030 and double revenue by 2025, which was supported by its stores’ high returns on invested capital. Unfortunately, financial results have been disappointing over our holding period, and we decided to exit the position.”
9. Pinterest Inc (NYSE:PINS)
Number of Hedge Fund Investors: 64
Jim Cramer hit the “buy, buy, buy” button for Pinterest Inc (NYSE:PINS) in a latest program on CNBC.
“I think this by the way along with Reddit are the new companies you have to be in because of advertising dollars.”
Pinterest Inc’s (NYSE:PINS) biggest strength and moat is its unique niche audience and the fact that it’s playing on its own turf instead of competing with giants like TikTok or Facebook. Over 500 million active users turn to Pinterest Inc (NYSE:PINS) every month with a clear intention: get inspiration for ideas and buy stuff online for their home or office. Women make up two-thirds of Pinterest’s user base, and over 40% are Gen Z, the fastest-growing cohort. The company has taken several steps to better monetize its audience. Since 2023, they’ve enhanced click-through rates, with 97% of lower funnel revenue coming from direct links, more than 80% previously. Pinterest Inc (NYSE:PINS) API initiative for third-party integration is also working, with a whopping 40% of revenue coming from that step. The company talked about this during Q1 earnings call:
“One of our most important initiatives began in earnest in 2023 with our efforts to increase adoption of the API for conversions, which provides a server-to-server connection for advertisers to measure and attribute conversions. I’m pleased to report that we’ve grown the adoption of the API to nearly 40% of total revenue, up from 28% of total revenue at our investor day last September.
As I’ve mentioned previously, revenue from retail advertisers who have adopted the API for conversions tends to grow significantly faster than revenue from those who have not yet adopted. This trend continued to hold in Q1 and underscores our desire to drive more privacy-centric measurement, particularly to lower funnel advertisers where it’s most impactful. We’re seeing a reinforcing effect take place. As advertisers adopt and see the benefits of shopping ads, mobile deep linking, or direct links, they are more incentivized to adopt our privacy-centric measurement.”
Analysts believe Pinterest’s partnership with Amazon will also boost Pinterest Inc (NYSE:PINS) revenue. This year the partnership is expected to bring in about $120 million of incremental revenue.
Meridian Contrarian Fund stated the following regarding Pinterest, Inc. (NYSE:PINS) in its fourth quarter 2023 investor letter:
Pinterest, Inc. (NYSE:PINS) is a social media platform that enables visual discovery and generates revenue mainly through online advertising and e-commerce. Earnings declined after the company saw tremendous user and revenue growth in 2020- 2021 and grew operating expenses as if the pandemic-fueled growth trajectory would continue. Normalized growth trends and a macro slowdown that affected ad spend eventually hurt earnings per share. We believed that Pinterest had a significant opportunity to resume earnings growth because:
- Pinterest has an attractive franchise and appears under-monetized vs. social media peers given how well its user experience lends itself to online shopping. 2. Its new CEO, who led commerce initiatives at Google, may portend a virtuous self-help/self-improvement opportunity to unlock monetization. 3. The high levels of operating expense growth vs. sales prior to our investment provides an opportunity for leverage and expense reductions to improve earnings. Pinterest’s stock performed well in the quarter as the thesis played out and the company reported strong results while raising 2023 guidance. We pared back our position during the quarter due to stock appreciation and as the investment becomes less contrarian as our thesis plays out.”
8. Tesla Inc (NASDAQ:TSLA)
Number of Hedge Fund Investors: 74
Talking about auto stocks in a latest program, Jim Cramer said that he doesn’t believe Tesla Inc (NASDAQ:TSLA) is an auto company because of its technology.
“I don’t regard Tesla Inc (NASDAQ:TSLA) as an auto company because of its technology. And I like it for tech.”
Amid a decline in EV sales growth, Elon Musk’s only option is to go all-in on AI. After a Twitter poll that overwhelmingly voted in favor of Tesla Inc (NASDAQ:TSLA) investing capital in xAI, Musks’ AI company, the CEO of Tesla said he’d discuss investing $5 billion in xAI with Tesla Inc (NASDAQ:TSLA).
Elon Musk said in a latest earnings call with analysts that massive discounts from Tesla Inc (NASDAQ:TSLA) competitors created headwinds for the company in the most recently reported quarter.
Tesla Inc (NASDAQ:TSLA) has also delayed its robotaxi event until October. All possible catalysts for Tesla stock lie far into the future and the reality is revealing itself to Elon Musk who admitted during the latest earnings call that he’s been overly optimistic about robo taxis.
“It’s difficult, obviously, my predictions on this have been overly optimistic in the past. So I mean, based on the current trend, it seems as though we should get miles between interventions to be high enough that — to be far enough in excess of humans that you could do unsupervised possibly by the end of this year. I would be shocked if we cannot do it next year.”
During the second quarter, Tesla Inc (NASDAQ:TSLA) automotive gross margin fell to 18.47% from 19.22% the previous year. Non-automotive revenue, now 22% of total sales compared to 14.67% in Q2 2023, has a lower gross margin, negatively impacting overall profitability. Tesla Inc (NASDAQ:TSLA) is still heavily reliant on EVs where demand is falling. Tesla energy business is not strong enough to offset declines in the core business.
Alger Focus Equity Fund stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q1 2024 investor letter:
“Tesla, Inc. (NASDAQ:TSLA) is an electric vehicle manufacturer with a technological lead in its large and rapidly growing addressable market. In our view, Tesla is a transportation company that is setting the pace for industry innovation. During the quarter, shares detracted from performance after the company reported fiscal fourth quarter results, where revenues and earnings missed analysts’ estimates. Weaker-than-expected automotive revenues were partly driven by a reduced average selling price, which was down 15% year-over-year. Moreover, management decided to forgo providing volume guidance, though they did acknowledge they are in a lower growth phase given the uncertain consumer environment particularly as it relates to high ticket purchases.”
7. Crowdstrike Holdings Inc (NASDAQ:CRWD)
Number of Hedge Fund Investors: 76
Crowdstrike Holdings Inc (NASDAQ:CRWD) shares have faced a bloodbath following a global tech outage that was caused by a system update at the company. However, Cramer believes the stock is going to “bottom.”
“I think they are 97% through this problem. George Kurtz (Crowstrike CEO) is doing an admirable job. I don’t want to write Crowdstrike Holdings Inc (NASDAQ:CRWD) off. Kurtz is too good.”
Oppenheimer recently gave an Outperform rating to Crowdstrike Holdings Inc (NASDAQ:CRWD) shares based on technical analysis. CRWD’s generative AI security platform Charlotte AI is seeing a lot of traction. In the June quarter the platform saw a whopping 90% POV close rate. During the quarter, Crowdstrike Holdings Inc (NASDAQ:CRWD) saw a dramatic surge in deals involving cloud, identity, or Falcon Next-Gen SIEM, more than doubling year-over-year. Management emphasized that customers are reaping substantial cost savings by adopting more modules, a development that bodes very well for Crowdstrike Holdings Inc’s (NASDAQ:CRWD) top-line growth. The strategic expansion of its modules has also tapped into the burgeoning AI-related demand, driving higher adoption rates. The stock’s forward P/E is 63, much higher than the industry average of 24, but 76% lower than the company’s five-year average. Wall Street expects revenue of Crowdstrike Holdings Inc (NASDAQ:CRWD) to grow 26% next year and earnings by 23%.
TimesSquare Capital U.S. Focus Growth Strategy stated the following regarding CrowdStrike Holdings, Inc. (NASDAQ:CRWD) in its first quarter 2024 investor letter:
“The high demand for cybersecurity systems is unlikely to abate, which benefited CrowdStrike Holdings, Inc. (NASDAQ:CRWD). The company’s expansion beyond endpoint security to offering security on all cloud workloads, along with its growing product suite in areas such as identity and security information & event management, is driving strong demand for its platform among customers amidst a very active cyberthreat environment. That lifted its shares by 25% this quarter, and we trimmed our position.”
6. General Motors Co (NYSE:GM)
Number of Hedge Fund Investors: 78
Jim Cramer was recently asked about Toyota during his program on CNBC. He recommended investors stay away from auto stocks for now because they have become “too dicey.”
“Prices are coming down. Let’s say no to the autos.”
However, Cramer made General Motors Co (NYSE:GM) an exception, saying the company “continues” to buy back its stock.
General Motors recently posted strong Q2 results and lifted its full-year profit outlook, thanks to rising sales of its internal combustion engine cars. General Motors Co (NYSE:GM) also upped 2024 guidance for EBIT and free cash flow amid strong demand for pick-up truck and SUV line-ups. Like other American car companies, General Motors Co (NYSE:GM) is facing headwinds in China amid intense competition. General Motors Co (NYSE:GM) EV outlook was also soft but that’s also not exclusive to the company amid a broader decline in demand.
General Motors Co (NYSE:GM) is currently trading at a forward P/E ratio of 4.6X its 2025 earnings estimate. In comparison, Ford Motor, which is facing the same business dynamics and relies on traditional car sales, is trading at a P/E of 6.9. General Motors Co (NYSE:GM) increased EBIT/FCF forecasts for FY 2024, and plans for stock buybacks. This makes it an attractive play at current levels.
Diamond Hill Large Cap Strategy stated the following regarding General Motors Company (NYSE:GM) in its first quarter 2024 investor letter:
“Other top contributors included Allstate, Caterpillar and General Motors Company (NYSE:GM). Automobile manufacturer General Motors continues capitalizing on the shift to electric vehicles (EVs) while maintaining the strength of its core gas-engine truck and SUV business. Though it has experienced some setbacks — such as needing to roll back its Cruise driverless car project — we believe the company remains well-positioned relative to secular tailwinds within the automobile business.”
5. Palo Alto Networks Inc (NASDAQ:PANW)
Number of Hedge Fund Investors: 78
Jim Cramer was recently asked about A10 Networks. He instead pitched Palo Alto Networks Inc (NASDAQ:PANW) as a better buy.
“Palo Alto Networks Inc (NASDAQ:PANW) stock is not even up now since what happend to Crowdstrike. Yet they are cheap.”
Cramer also added:
“I like, I do like Palo Alto.”
Strong demand in the cybersecurity industry is boosting Palo Alto Networks Inc (NASDAQ:PANW) across the Street. Recently, Baird analysts Shrenik Kothari and Zachary Schneider said customers are focused on ROI and increased spending in the industry is benefitting Palo Alto Networks Inc (NASDAQ:PANW).
“PANW has seen this focus on ROI for some time now. Discounts are offered for larger deals rather than smaller ones to help lock in customers and maximize lifetime value. While still early days, initial customer response to new SASE 3.0 capabilities and AI features has been positive,” the analysts said.
They maintained an Outperform rating on the stock and upped their price target to $360 from $340.
Last month, DA Davidson also started covering the stock with a Buy rating and added it to its ‘Best of Breed Bison’ category of stocks.
DA Davidson’s Rudy Kessinger thinks Palo Alto Networks Inc’s (NASDAQ:PANW) three platforms will result in vendor consolidation which would be better than other companies. They believe Palo Alto Networks Inc (NASDAQ:PANW) has so far captured only 7% of the market which could reach a whopping $200 billion.
Palo Alto Networks Inc’s (NASDAQ:PANW) biggest strength is its Prisma Secure Access Service Edge (SASE) product, which generated about 50% growth in the fiscal third quarter year over year. Another growth catalyst for Palo Alto Networks Inc (NASDAQ:PANW) is Thunderdome Defense Information System Agency’s zero-trust network architecture.
ClearBridge Large Cap Growth Strategy stated the following regarding Palo Alto Networks, Inc. (NASDAQ:PANW) in its first quarter 2024 investor letter:
“Given our view that the overall market looks expensive, mostly due to mega cap valuations, the low likelihood that technology can continue to deliver well above market returns and an expected slowdown in economic growth, risk management has guided our recent positioning activity. We have been consistently trimming from the select bucket and redeploying into undervalued stable and cyclical names, while also being cognizant of position sizing to maintain the latitude to add to names when prices become attractive.
During the first quarter, we continued to trim IT stocks into strength to manage risk while also adding to high-conviction positions. For example, we trimmed our active weight in Palo Alto Networks, Inc. (NASDAQ:PANW) after the information security software maker lowered its guidance in part due to a new emphasis on providing short-term discounts on product bundles to pursue its consolidation opportunity more aggressively. While this strategy should position the company more strongly in the future, it potentially increases volatility in operating results in the near-to-medium term.”
4. Dell Technologies Inc (NYSE:DELL)
Number of Hedge Fund Investors: 82
A caller recently asked Jim Cramer about his thoughts on Dell Technologies Inc (NYSE:DELL) and whether he should buy the stock. Cramers said Dell Technologies Inc (NYSE:DELL) is “absolutely” a Buy. Cramer said Dell is “such a good company” and even without the AI growth catalysts the stock is a buy.
Dell Technologies Inc (NYSE:DELL) jumped last month after Elon Musk said on Twitter that the company, along with Super Micro Computer, would make servers his AI startup xAI.
Bank of America analyst Wamsi Mohan said in a note after Q1 earnings that he reiterated his Buy rating for Dell Technologies Inc. (NYSE:DELL). The analyst believes we are still in the early stages of AI adoption and expects momentum around AI servers. Mohan set a $180 price target for Dell Technologies Inc. (NYSE:DELL).
Last month, Dell Technologies Inc. (NYSE:DELL) announced the expansion of its AI PC portfolio, with new Copilot+ PCs powered by Snapdragon® X Elite and Snapdragon® X Plus processors. Microsoft has also named Dell Technologies Inc. (NYSE:DELL) as its manufacturing partner for Copilot PCs.
Dell Technologies Inc.’s (NYSE:DELL) bulls believe the market’s reaction to Dell Technologies Inc.’s (NYSE:DELL) Q1 report was irrational. Dell Technologies Inc.’s (NYSE:DELL) revenue jumped about 6.2% on a YoY in the quarter to $22.2 billion. Wall Street expects Dell Technologies Inc.’s (NYSE:DELL) EPS this year to come in at $7.71, and at $9.1 next fiscal year (2026). Based on this 2026 estimate, Dell Technologies Inc. (NYSE:DELL) is trading at around 15x its future earnings, which is lower than the industry median P/E of 23.08. According to Yahoo Finance, Wall Street has a $155.14 price target on Dell Technologies Inc. (NYSE:DELL) on average, which presents an upside potential of 14%. Based on high growth expectations from both AI PCs and servers, Dell Technologies Inc. (NYSE:DELL) is an undervalued stock to buy right now, according to analysts.
Carillon Scout Mid Cap Fund stated the following regarding Dell Technologies Inc. (NYSE:DELL) in its first quarter 2024 investor letter:
“Dell Technologies Inc. (NYSE:DELL) reported results that exceeded earnings expectations and announced a better than expected AI-optimized server order pipeline. We expect Dell to participate in the growth of artificial intelligence hardware in its server, storage and personal computing franchises. Long-term, we like the company’s depth and breadth of products and services, as well as its focus on keeping costs low.”
3. Vertiv Holdings Co (NYSE:VRT)
Number of Hedge Fund Investors: 85
Talking about Vertiv Holdings Co (NYSE:VRT), Cramer recommended investors to hold the stock.
“I would hold on to that stock. I would not sell that stock.”
Vertiv Holdings Co (NYSE:VRT) shares jumped in April after the company increased its guidance, citing AI-related data center growth. For the full-year 2024, Vertiv Holdings Co (NYSE:VRT) expects its revenue to come in the range of $7.54 billion and $7.69 billion, compared to the previous estimate of $7.52 billion to $7.66 billion.
Vertiv Holdings Co (NYSE:VRT) is a market leader in the data center power and cooling market, which has nowhere to go but up from here since companies are hungry for data center solutions as they begin to deploy AI software. During the first quarter the company saw a 60% increase in organic orders. For full year, the company plans to increase its CapEx to $200 million, which is high, but still in the company’s CapEX margin range between 2.5% to 3%. Vertiv also upped its revenue guidance. Here’s what the management said during the latest earnings call:
“We are expecting organic sales growth of approximately 12% with Americas up mid-teens, APAC high single digits and EMEA low double digits. We anticipate an $18 million year-over-year foreign exchange headwind in the second quarter as the U.S. dollar has strengthened against most foreign currencies over the last several months. We expect second quarter adjusted operating profit between $315 million and $335 million and adjusted operating margin of 16.9%, up 240 basis points at the midpoint with expected benefits from price/cost partially offset by continued growth investments.
Based upon a favorable start to the year and visibility into a strong sales pipeline for the rest of the year, we are increasing estimates for organic sales growth from 10% at the midpoint to approximately 12% with higher expectations across all 3 regions. In addition, we are increasing the midpoint of adjusted operating profit guidance from $1.3 billion in our prior guidance to $1.35 billion primarily driven by contribution margin on incremental sales. And as a result, we are increasing midpoint guidance for adjusted operating margin to 17.7% with the primary driver there being fixed cost leverage.”
Vertiv Holdings Co (NYSE:VRT) earnings are expected to grow 35% this year, while the Wall Street expects a 28% growth next year. Based on these growth estimates, Vertiv’s forward P/E ratio of 37.45 looks attractive.
ClearBridge Growth Strategy stated the following regarding Vertiv Holdings Co (NYSE:VRT) in its Q2 2024 investor letter:
“The benchmark change to the Russell Midcap Growth Index has also had a meaningful impact on the Strategy’s sector allocations, increasing our communication services overweight, reducing our health care overweight and shifting our previous market weight in IT to a meaningful overweight. These allocations are a byproduct of our bottom-up, active stock selection and may shift over time based on where we are finding the best risk/reward in our target universe.
That said, we continue to look to diversify the portfolio, seeking to add new ideas in sectors such as industrials, where we have historically had less exposure. In the second quarter, we added three new holdings in the sector: electrical product manufacturer Vertiv Holdings Co (NYSE:VRT), building products supplier Builders FirstSource and environmental waste management provider Clean Harbors. The largest new addition of the three, Vertiv, has key offerings in power and thermal management designed to power, cool, deploy, secure and maintain electronics that process, store and transmit data. The company generates the majority of its revenue from the data center end market, which we believe should benefit from continued spending growth supported in part by the rise in power requirements of next-generation AI graphic processing units (GPUs). The company is nicely profitable today though we see room for further margin expansion ahead.”
2. Broadcom Inc (NASDAQ:AVGO)
Number of Hedge Fund Investors: 115
Jim Cramer in a latest program yet again shared his bullish view on Broadcom Inc (NASDAQ:AVGO), saying his charitable trust owns a stake in the company. However, Cramer said that Broadcom is going to get “hammered” like the rest of tech stocks because of the ongoing market rotation.
TD Cowen in a fresh note named Broadcom Inc (NASDAQ:AVGO) as one of the stocks that can benefit from the rise in AI spending. Analysts at the firm said there are “no signs” of generative AI demand abating and highlighted that Broadcom Inc (NASDAQ:AVGO) recently raised its full-year AI outlook. Broadcom Inc (NASDAQ:AVGO) expects AI-related revenue for 2024 at $11 billion.
Broadcom Inc (NASDAQ:AVGO) recently reported second-quarter results. Revenue in the quarter rose about 43% year over year. AI revenue in the period rose a whopping 280% year over year. Broadcom’s revenue stream is diverse and does not rely on a single source. It includes enterprise, networking, storage, data center/hyperscaler, industrial, and consumer space. For 2024 AVGO has increased its annual revenue guidance to over $51 billion, anticipating growth of over 40%. A significant portion of this growth is expected to come from software, which would also help margins.
The company’s Ethernet business is also strong amid partnerships with Arista Networks (ANET), while the company is also collaborating with Dell (DELL), Juniper (JNPR), and Super Micro (SMCI) in the networking business and other segments. Broadcom has also developed ASIC AI chips in partnership with Google and Meta Platforms.
Based on this strong growth and upcoming catalysts, AVGO’s forward P/E of about 25 makes the stock look undervalued.
Aristotle Atlantic Large Cap Growth Strategy stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q2 2024 investor letter:
“Broadcom Inc. (NASDAQ:AVGO) is a global technology leader that designs, develops and supplies a broad range of semiconductor and infrastructure software solutions. The company strategically focuses its research and development resources to address niche opportunities in target markets and leverage its extensive portfolio of U.S. and other patents and other intellectual property to integrate multiple technologies and create system-on-chip component and software solutions that target growth opportunities. Broadcom designs products and software that deliver high performance and provide mission-critical functionality. The company has a history of innovation in the semiconductor industry and offers thousands of products that are used in end products such as enterprise and data center networking, home connectivity, “set-top boxes broadband access”, telecommunication equipment, smartphones and base stations, data center servers and storage systems, factory automation, power generation and alternative energy systems, and electronic displays. Broadcom differentiates itself through its high-performance design and integration capabilities and focuses on developing products for target markets where it believes it can earn attractive margins.
We view Broadcom’s semiconductor business as being very well positioned to benefit from secular growth in data center networking, which is being driven by AI and cloud computing. The company continues to invest in research and development, and we see this as a competitive advantage for the company. Broadcom’s infrastructure software business is a recurring revenue business model that provides mission-critical mainframe support software to its customer base. The recent VMware acquisition will enhance this business strategy and accelerate the growth rate of this business unit, as VMware’s product suite includes key tools for AI server upgrades. Our long-term investment thesis is supported by Broadcom’s success in its strategy of maintaining technology and market share leadership in mission-critical markets with high switching costs and deep profit pools.”
1. Salesforce Inc (NYSE:CRM)
Number of Hedge Fund Investors: 154
Jim Cramer said in a latest program that Salesforce Inc (NYSE:CRM) is a “hold” here and he’d own the stock. Cramer said he sold some Salesforce shares when they were higher for his charitable trust.
According to Yahoo Finance data, Salesforce Inc (NYSE:CRM) is expected to see earnings growth of about 16% on a per-annum basis over the next five years. Data also shows the company is expected to deliver double-digit YoY EPS growth in the next ten out of eleven quarters.
While Salesforce Inc (NYSE:CRM) is primarily a customer relationship software company, with notable tools and platforms like Sales Cloud, Service Cloud, Marketing Cloud, Tableau, MuleSoft, and Slack, its most promising platform is Data Cloud when it comes to AI and software. The platform has 90% year-over-year growth and clocking in $400 million in FY2024. What does this platform do? It helps organizations process data from various departments and third-party cloud solutions. Powered by an AI-driven data engine, it analyzes metadata in real-time to provide valuable insights, supporting sales, marketing, and customer service workflows.
As of the end of Q1 Salesforce Inc (NYSE:CRM) had $17.7 billion in cash and low financial leverage.
Mizuho Securities analyst Gregg Moskowitz thinks the company is still “well situated” to help customers in digital transformation. However, the analyst thinks Salesforce Inc. (NYSE:CRM) would do so by prioritizing profitable growth. The analyst reiterated his Buy rating on the stock but cut his price target to $300 from $345.
Morgan Stanley analyst Keith Weiss, who has an Overweight rating and a $320 price target on Salesforce Inc. (NYSE:CRM), said that Salesforce’s PEG ratio of 1.2 shows the market is not pricing in operational discipline and earnings growth sustainability.
“We continue to view GenAI as a tailwind for Salesforce, with benefits likely coming in CY25, but at these levels, GenAI represents a call option.”
Polen Focus Growth Strategy stated the following regarding Salesforce, Inc. (NYSE:CRM) in its Q2 2024 investor letter:
“Salesforce, Inc. (NYSE:CRM) declined nearly 20% due to a slowdown in revenue and bookings growth, part of a wider trend we’ve observed across enterprise software as companies defer spending on large projects given the uncertain macroeconomic environment. As mentioned, there has been an emerging narrative about prioritized spending on AI, cloud, and security over enterprise software spending that could eventually impair seat-based software over the longer term. Though there may be some near-term shifts in dollars toward GenAI, we believe the market for mission-critical enterprise software will remain robust well into the future. We will monitor the position closely, but we continue to believe that Salesforce is well-placed with its mission-critical software and high customer retention rates to weather these headwinds, lean on pricing power, and effectively monetize generative AI in its product suite.”
While we acknowledge the potential of Salesforce Inc (NYSE:CRM), our conviction lies in the belief that under the radar 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 CRM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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