Jim Cramer, the host of Mad Money, recently discussed a market trend that’s been generating impressive gains, especially when investors target heavily shorted stocks. He explained the phenomenon as he said that investors find success by betting that these companies are in better shape than short sellers expect. According to Cramer, this approach has led to some significant wins in recent times. He pointed out the behavior of short sellers, noting that when things go wrong for them, they panic.

“The shorts always panic when their trades fall apart because, unlike longs, if you’re a short seller, you can lose a lot more than a hundred percent of your investment if the stock goes up too much.”

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Cramer also highlighted that while short sellers can profit when a company fails, it’s a risky game with significant asymmetry. He explained that while a stock’s price can only fall to zero, it has the potential to rise indefinitely. Cramer cautioned that although short sellers might be hoping for a stock’s downfall, they are equally vulnerable to the nightmare scenario of infinite losses if the stock price continues to climb.

In such situations, when short sellers run out of options, they are forced to buy back shares, which can send the stock price even higher. For shareholders, this scenario can be advantageous. While short sellers may be a threat when predicting a stock’s decline, their need to buy back shares can act like rocket fuel for the stock’s price when good news emerges.

“If you’re a shareholder, they’re your worst enemy when they’re talking about a stock going to zero. But once the stock starts soaring on any good news, the shorts are your best friend because their forced buying is like rocket fuel and they can’t stop the propulsion while you just get to go along for the ride.”

Our Methodology

For this article, we compiled a list of 9 stocks that were discussed by Jim Cramer during the recent episodes of Mad Money. We listed the stocks in ascending order of their hedge fund sentiment as of the third quarter, which was taken from Insider Monkey’s database of 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 Lightning Round: 9 Stocks in Spotlight

9. B&G Foods, Inc. (NYSE:BGS)

Number of Hedge Fund Holders: 15

Cramer recently called B&G Foods, Inc. (NYSE:BGS) a loser and said:

“… BGS is a total loser and has been a loser for many, many years and I cannot stand by the fact of even thinking that that dividend is safe. I used to speak to the company quite a bit. They have not been able to deliver in many, many quarters. So they’ve earned the Appalachian loser.”

B&G Foods (NYSE:BGS) is engaged in manufacturing and distributing a wide range of shelf-stable and frozen foods, along with household products, including canned and frozen vegetables, oils, spices, sauces, cereals, and other specialty items under various brands. In its third-quarter results, it reported a decline in net sales, which fell by $41.6 million, or 8.3%, reaching $461.1 million compared to $502.7 million in the same period of 2023.

According to Casey Keller, President and CEO of B&G Foods (NYSE:BGS), the decrease in sales trends was slower than expected, reflecting broader challenges within the center store packaged food industry. The primary reasons for the sales drop included the divestiture of the Green Giant U.S. shelf-stable business, a decline in unit volumes, and unfavorable foreign currency impacts.

8. Rocket Lab USA, Inc. (NASDAQ:RKLB)

Number of Hedge Fund Holders: 16

When Cramer was asked about his thoughts on Rocket Lab USA, Inc. (NASDAQ:RKLB), he said:

“You don’t need my thoughts on Rocket Lab. It’s one of those stocks that people are just gonna buy because they love the name, they love the business. It’s not a bad company by any means, but it is up 305%. I like to think that I missed it, but I know people can’t resist. It’s moth to flame, but I don’t know how close the moth is to the flame.”

Rocket Lab (NASDAQ:RKLB) is a company that offers a range of services, including rocket launches, spacecraft design and manufacturing, and on-orbit management solutions, primarily serving the space and defense industries. As of October, the company had completed 12 launches, surpassing the total number of launches in all of 2023, which stood at 10. This growth is reflective of a broader upward trend within the company, as it reported a 55% increase in sales year-over-year during the third quarter.

In the third quarter, the company set a new annual launch record with 12 Electron launches, and secured new contracts worth $55 million, reflecting a 67% price increase since its debut. The company also completed successful missions for three commercial satellite constellation operators and achieved a rapid 10-week turnaround for a November 2024 launch.

On the Neutron front, Rocket Lab (NASDAQ:RKLB) signed key agreements, including a contract with the U.S. Air Force to develop the Archimedes engine and made progress on Neutron’s infrastructure. The company also advanced its space systems division, delivering spacecraft for NASA’s ESCAPADE Mars mission and completing work on its $515 million contract with the Space Development Agency.