In a recent episode of Mad Money, Jim Cramer examined market trends of the third quarter. He first discussed that while high interest rates and a cash-strapped consumer typically signal good fortune for dollar stores, this time was different.
Dollar stores are grappling with substantial challenges, primarily stemming from inflation. Cramer emphasized that rising prices have made it increasingly difficult for these retailers to maintain their signature one-dollar pricing model.
Moreover, he explained that historically, dollar stores are expected to decline when the economy improves, and that happens when the Federal Reserve begins to cut interest rates. However, a more pressing issue is that dollar stores are now facing more savvy consumers who have discovered better deals at larger retailers.
Cramer went on to discuss the necessity for the stock market to be driven by new companies, rather than relying on established leaders primarily associated with artificial intelligence, which are now experiencing diminished momentum. He said:
“You want to find a bunch of former market darlings? I want you to take a look at the bottom of the S&P 500 for this quarter.”
He remarked on the irony of the situation, suggesting that investors have spent considerable time believing that simply investing in anything linked to AI would guarantee success. He pointed out that recent market activity has shown that backing the wrong AI-related stock could lead to significant losses.
He cautioned that the days of going on autopilot with the Magnificent Seven are over. Those stocks had remarkable runs earlier in the year, but Cramer insisted that it is now essential to welcome new players into the market to reach new highs.
Lastly, he added:
“One thing’s certain, Wall Street, the complex of analysts, money managers, corporate finance traders, they missed out big this quarter, didn’t they? They still act like the new losers will be winners soon enough while the new winners are all one-hit wonders. I say, dream on. This move could be here to stay.”
Jim Cramer’s List of S&P 500 Dead Last Stocks in Q3
Our Methodology
For this article, we compiled a list of 5 large stocks that underperformed during the third quarter and were mentioned by Jim Cramer during his episode of Mad Money on October 1. We listed the stocks in descending order of their hedge fund sentiment as of the second quarter, which was taken from Insider Monkey’s database of more than 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 List of Stocks that Finished Dead Last
5. DexCom, Inc. (NASDAQ:DXCM)
Number of Hedge Fund Holders: 64
DexCom, Inc. (NASDAQ:DXCM) is involved in designing, developing, and commercializing continuous glucose monitoring (CGM) systems for diabetes management. The company’s key products include the Dexcom G6 and G7 integrated CGM systems, which facilitate diabetes management. In addition, it offers the Dexcom Share remote monitoring system.
Cramer has highlighted, “Medical device maker, Dexcom, down roughly 41%.” In July, company stock went down after management lowered its sales projections.
Although second-quarter sales increased by 15% year over year, the outlook for the third quarter showed a modest growth expectation of only 1% to 3%. The company also revised its annual revenue forecast down to a range of $4 billion to $4.05 billion, a decrease from earlier expectations of $4.2 billion to $4.35 billion for 2024.
Cramer further added:
“Dexcom practically printed money for years with its blood sugar monitors, essential for people with diabetes. Now though, Abbott’s got a cheaper version that’s selling very well and shareholders are worried that the GLP-1 weight loss drugs will ultimately shrink dexcom’s total addressable market.”
DexCom (NASDAQ:DXCM) faces increasing competition from powerful industry peers, which makes it challenging to differentiate its offerings in a crowded market. As competition intensifies, price competition may become a significant factor, potentially prompting the company to increase spending on marketing and research and development. It could put pressure on earnings and affect revenue growth over time, especially as more companies enter the space.
Furthermore, another reason that is impacting the stock is the fear that the future demand for continuous glucose monitoring (CGM) devices may not remain as strong. The fear is due to the emergence of new, effective medications for treating diabetes and obesity, conditions that significantly contribute to diabetes risk. Companies like Eli Lilly and Novo Nordisk are developing drugs that may reduce the necessity for millions of people to use CGMs.
Ithaka Group stated the following regarding DexCom, Inc. (NASDAQ:DXCM) in its Q2 2024 investor letter:
“DexCom, Inc. (NASDAQ:DXCM is a medical device company focused on the design, development, and commercialization of continuous glucose monitoring (CGM) systems, primarily for people with diabetes. Diabetes is a chronic, life-threatening disease for which there is no known cure. DexCom’s CGM system is superior to traditional fi nger-stick tests because it provides users with continuous data (including glucose trends and time spent in hyper or hypoglycemia) versus a snapshot in time. Dexcom’s stock suffered despite a solid earnings announcement that beat Street expectations across the board. The fall in the stock price was likely due to missing elevated buy-side expectations following multiple quarters of accelerating fundamental growth.”