In this article, we’ll explore Jim Cramer’s Must-Watch List: 10 Stocks to Look After.

In a recent episode of Mad Money, Jim Cramer explained that with the economy slowing down, the Federal Reserve is poised to ease its policies. He anticipates that the Fed will decide to cut rates, but the exact size of the cut, whether 25 or 50 basis points, remains uncertain. This upcoming decision is particularly important because it could significantly impact the market.

“At last, the economy has slowed enough that the Fed can take its foot off the brakes and step on the gas. That’s why we’re starting our game plan in the middle of next week when the Federal Reserve renders its verdict: 25 or 50 basis points. We don’t typically have a lot of drama in this business, but this one counts as a nail-biter because we really don’t know how big the rate cut will be. We just know they’re going to cut.”

Cramer highlighted Friday’s market performance, where the Dow gained 297 points, the S&P rose by 0.54%, and the Nasdaq increased by 0.65%. This strong performance marked the best two weeks of the year for the S&P and the Nasdaq. The rise in these indices suggests that the market might be expecting a substantial rate cut, potentially 50 basis points. Cramer noted that stocks sensitive to interest rates, especially those related to housing, surged in anticipation of this.

“Today’s rally saw the Dow gaining 297 points, the S&P advancing 0.54%, and the Nasdaq climbing 0.65%, capping off the best two weeks of the year for both the latter two indices. The S&P and the Nasdaq suggest the Fed might actually go for 50. That’s a double rate cut. I know this because the stocks most sensitive to interest rates, particularly housing and housing-related names, soared today.”

Using an analogy from NFL fantasy football, Cramer compared the market’s optimism to waiting for a major play from the Fed. Despite this, he personally bets on a 25 basis point cut rather than 50. He argues that while a larger cut could help the slowing economy, particularly affecting lower-income groups, it also risks reigniting inflation and causing panic. A 50 basis point cut might signal severe economic problems, which could lead to unnecessary anxiety.

“To use a little NFL fantasy football lingo, they soared presumably in anticipation of something huge from Jay Powell and company. All aboard! I still find myself betting on a quarter-point cut, though. It’s not that we don’t need a half-point cut, as the economy is slowing pretty quickly, especially for the lower-income cohort. However, I’ve always believed that the Fed should be measured when it cuts rates at this stage of the business cycle.

The biggest risk is that inflation might flare up again if you cut too much, and a 50 basis point cut all at once makes that a lot more likely. Plus, a double rate cut signals that something may be very wrong with the economy—something we don’t know about, something lurking. So going for 50 could inspire panic, and there’s simply no reason for the Fed to take that chance when it can simply hit us with a series of thoughtful 25 basis point cuts that neither reignite inflation nor cause panic.”

Cramer also cautioned that if the housing market rally continues, it could lead to a sell-off if only a 25 basis point cut is announced. He pointed out that traders are currently pricing in a higher chance of a 50 basis point cut, according to the CME Group’s FedWatch tool. If the Fed opts for a smaller cut, traders who bought in anticipation of a larger reduction might sell off their stocks, potentially causing market volatility.

“Now, if the housing rally continues at this pace, these stocks run the risk of being too hot to handle for a mere 25 basis point cut, and we’ll get a sell-off in response. Keep in mind how the CME Group’s FedWatch tool, which tracks interest rate expectations based on the Fed Funds Futures Market, indicates that traders are now pricing in a much higher probability of a double rate cut, currently at 45%. That’s much higher than it was a week ago. These traders could indeed be disappointed if the Fed decides to be more measured. They could be your enemy come Wednesday at 2 p.m. as they dump what they bought incorrectly, and that is what happens. That’s what traders do, they let the stocks go.”

Jim Cramer Sees Market Turnaround: This Week’s Gains Signal Future Upside

Finally, Jim Cramer believes that this coming week marks a significant moment for the market. He advises that if the market declines following a 25 basis point rate cut, investors should keep in mind the strong performance of this week. He suggests that this week’s gains are a sign of more positive developments to come as the Federal Reserve continues to ease monetary policy.

“When I look at next week, I can only conclude that we’re finally at the moment we’ve all been waiting for. So let me give you the bottom line: if we sell off on a 25 basis point rate cut, remember this phenomenal week, because there will be plenty more like it as the easing process continues and progresses.”

Our Methodology

This article reviews a recent episode of Jim Cramer’s Mad Money, where he discussed various stocks. We selected and analyzed the ten most notable companies, ranking them based on their level of hedge fund ownership, from the least owned to the most owned.

At Insider Monkey we are obsessed with 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 Must-Watch List: 10 Stocks to Look After

10. Cracker Barrel Old Country Store Inc. (NASDAQ:CBRL) 

Number of Hedge Fund Investors: 17

Jim Cramer discussed Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL), describing it as a “work in progress.” According to Cramer, Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL)’s CEO, Julie Felss Masino, is facing a tough challenge in revitalizing the business. She must balance satisfying existing customers with attracting new ones. Cramer appreciates Masino’s methodical approach to this task and believes she has the potential to succeed, though he is uncertain about the speed of the turnaround.

“Next, we have Cracker Barrel, which is a work in progress. The formidable CEO, Julie Masino, is attempting to turn this whole battleship around, and it won’t be easy. She has to keep the current clientele pleased while luring in new customers. MSO is approaching this task methodically, and I really like that. I think she can get it right; I just don’t know if she can do it quickly. Again, I’m calling this a work in progress.”

Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) is investing about $700 million through 2027 to modernize its restaurants, upgrade technology, and enhance its retail offerings, all crucial to its business. Despite a slight drop in revenue to $817 million in Q3 FY2024, Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) managed to increase menu prices by 4% and significantly beat earnings expectations with $0.88 per share compared to the forecasted $0.56.

The cut in its quarterly dividend from $1.30 to $0.25 per share reflects a strategic move to reinvest in growth and strengthen its balance sheet. Although Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) faces challenges like fluctuating commodity prices and rising labor costs, its strong cost management and focus on efficiency position it well for future earnings growth. If consumer spending stabilizes and the company successfully carries out its transformation plan, Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) could see substantial growth ahead.

9. Darden Restaurants Inc. (NYSE:DRI)

Number of Hedge Fund Investors: 27

Jim Cramer highlighted a busy day for earnings reports this coming Thursday, starting with Darden Restaurants Inc. (NYSE:DRI). He noted that Darden Restaurants Inc. (NYSE:DRI)’s performance is closely tied to the same-store sales of its largest division, Olive Garden.

“On Thursday, there’s a cornucopia of earnings starting with Darden Restaurants, which tends to swing with the same-store sales of its largest division, Olive Garden. It could surprise me, but after speaking to the CEOs of Sweetgreen and Cava in the last couple of weeks, I vastly prefer those two fast-casual chains. Even at their current prices, they are worth buying on any pullback.”

Darden Restaurants, Inc. (NYSE:DRI) looks like a strong investment opportunity due to its solid financial performance, positive analyst outlook, and strategic moves. In Q1 FY2024, Darden Restaurants Inc. (NYSE:DRI) reported a significant 11.6% rise in total sales, reaching $2.73 billion, and earnings per share of $1.78, which were above expectations. Key brands like Olive Garden and LongHorn Steakhouse saw strong same-store sales growth.

Analysts are positive, with Citigroup and Truist Securities increasing their price targets due to Darden Restaurants, Inc. (NYSE:DRI)’s excellent sales and favorable cost conditions. Despite some economic challenges, Darden Restaurants, Inc. (NYSE:DRI) has expanded its market share and improved margins, partly due to its diverse brand portfolio. The recent acquisition of 77 Ruth’s Chris Steak House locations shows Darden Restaurants Inc. (NYSE:DRI)’s focus on strategic growth and cost management.