In this article, we’ll explore Jim Cramer’s Top Stock Picks: 10 Stocks with High Potential.
In a recent episode of Mad Money, Jim Cramer explains the current split between tech stocks and other sectors, noting that they often move in opposite directions. For instance, on a day when the Dow Jones Industrial Average gained 228 points and the S&P 500 rose by 0.13%, the NASDAQ—which is heavily weighted with tech stocks—fell by 0.52%.
“How did we get to this bizarre dichotomy between tech stocks and pretty much everything else, where the two groups now almost always seem to move in opposite directions? Take today: the Dow Jones Industrial Average gained 228 points, the S&P advanced 0.13%, but the NASDAQ—with all that tech in it—dropped a bomb. Yes, it fell 0.52%. How could there be such a schism?”
As a result, large institutions must shift investments between sectors since they can’t invest in both simultaneously. This situation is driven by market mechanics rather than fundamental news. When stocks are already performing well, attracting new investment is challenging, especially when safer investments offer decent returns. Consequently, either tech stocks or other sectors will perform well, but not both at the same time.
“It’s because there’s not enough money coming in from the sidelines, so these big institutions have to swap out of one group if they want to buy stock in another. Yet this action has nothing to do with fundamentals; it’s not about the news, it’s about pure market mechanics. When stocks are already red hot, it’s hard to attract new capital from the sidelines, especially when you can get a cozy 4% return for doing nothing. So, either tech wins or everything else wins, but there’s not enough cash for both of them to win at the same time.”
Market Shuffle: Winners vs. Losers and the Fed’s Big Decision
Cramer points out that this scenario leads to clear winners and losers instead of a spectrum of performance on a positive day. This is happening alongside uncertainty about whether the Federal Reserve will cut interest rates by 25 or 50 basis points in their upcoming meeting.
“What happens? We get winners and losers—not big winners and smaller winners, as you would normally expect on an up day like today. This is all against the backdrop of the big question: will the Fed cut rates by 25 basis points or 50 when it meets on Wednesday?
Now, you know me, I try to refrain from this parlor game of guessing the Fed’s next move based on the strength of the economy. Last week, when *The Wall Street Journal* indicated the Fed may actually be leaning toward 50 basis points, we saw this great migration into cyclicals, especially anything related to housing. Of course, last week, there was just enough good news to propel the entire market, which is why it was the best week of the year.”
Cramer also mentions that despite his tendency to avoid speculating on the Fed’s actions, recent market movements have been influenced by expectations about rate cuts. For instance, when The Wall Street Journal suggested that the Fed might opt for a 50 basis point cut, there was a significant shift toward cyclical stocks, especially those linked to housing. This shift, combined with other positive news, led to the best week of the year for the market.
“This leads me to this newfound great divide between tech and non-tech, because that’s how this market seems to be trading. It’s a big reason why I’m out here in Silicon Valley this week. Today, we saw a market that doesn’t believe in AI, AI, or tech in general, for that matter. It’s a market that believes a 50-basis-point rate cut will shift money from semiconductors to housing and anything housing-related, and people want to get ahead of that.”
“Anything But Tech”
Jim Cramer observed that Monday’s market saw a broadening of winners. Healthcare stocks, retailers, and consumer packaged goods companies all performed well. Even oil stocks, which have been struggling, are making a comeback. This is unusual because typically when cyclical stocks rally, sectors like healthcare and consumer products would decline. However, Cramer attributes this trend to a broader market shift he refers to as “ABT,” which stands for “anything but tech.” In other words, today’s market focus is on sectors outside of technology.
“Today, the winners broadened out. The healthcare stocks got jiggy, retailers worked, and consumer packaged goods companies outperformed. Even the much-maligned oils are rallying. It’s crazy—healthcare and consumer products should be selling off when cyclicals rally, but that’s not what’s happening because it’s *ABT*. No, I’m not talking about the symbol for Abbott Labs. ABT means “anything but tech,” and that’s what today’s market was about.”
Our Methodology
This article provides a summary of Jim Cramer’s latest Morning Thoughts, where he reviewed several stocks. We’ve chosen the ten most noteworthy companies he mentioned and ranked them according to how much they are owned by hedge funds, starting with the least owned and moving 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 Top Stock Picks: 10 Stocks with High Potential
10. Stanley Black & Decker Inc. (NYSE:SWK)
Number of Hedge Fund Investors: 24
In a recent post of Morning Thoughts, Jim Cramer focused on the Federal Reserve’s upcoming decision, wondering whether they’ll cut rates by the usual 25 basis points or go for a bigger 50 basis point reduction. This decision, expected on Wednesday afternoon, is crucial for the market. Regardless of the size of the cut, mortgage rates are already heading lower, which should benefit companies tied to the housing market. One of those companies, according to Cramer, is Stanley Black & Decker Inc. (NYSE:SWK), which stands to gain from increased business as a result.
“Will the Federal Reserve cut rates by the traditional 25 basis points or opt for a larger 50-basis-point reduction? That’s a key question looming over the market ahead of the central bank’s decision, which we’ll get Wednesday afternoon. Either way, mortgage rates are trending lower, and that should lead to more business for companies levered to the housing market, including Club name Stanley Black & Decker.”
Stanley Black & Decker, Inc. (NYSE:SWK) presents a strong investment opportunity for the rest of 2024, thanks to its successful strategies in improving operations, reducing costs, and maintaining strong brand performance. Even with a tough consumer market, Stanley Black & Decker, Inc. (NYSE:SWK) has shown resilience through its Global Cost Reduction Program and supply chain upgrades, which are expected to save $1.5 billion in pre-tax costs by the end of 2024 and $2 billion by 2025. These efforts have already boosted gross margins significantly, up by 600 basis points year-over-year in Q2 2024.
Moreover, Stanley Black & Decker, Inc. (NYSE:SWK) has increased its free cash flow guidance for the year to between $650 and $850 million, having already generated $486 million in Q2 2024. This cash flow has helped reduce debt by $1.2 billion and is likely to support further debt reduction and dividends. Stanley Black & Decker, Inc. (NYSE:SWK)’s core segments, including DEWALT, outdoor products, and aerospace fasteners, contributed to a 1% rise in organic revenue, despite slight declines in overall sales due to divestitures and currency fluctuations.
With strong earnings performance, including an adjusted EPS of $1.09 for Q2 2024 that exceeded expectations, and a raised 2024 EPS guidance to between $3.70 and $4.50 per share, Stanley Black & Decker, Inc. (NYSE:SWK)’s focus on improving margins, generating cash flow, and driving innovation supports a positive outlook for future growth, making its stock a compelling investment.
9. Colgate-Palmolive Company (NYSE:CL)
Number of Hedge Fund Investors: 52
Jim Cramer pointed out that Wells Fargo has unexpectedly downgraded Colgate-Palmolive Company (NYSE:CL)’s stock rating from equal weight to a sell-equivalent underweight. Despite being a popular stock that has risen nearly 33% this year, Wells Fargo is concerned that Colgate-Palmolive Company (NYSE:CL)’s organic sales growth is returning to more typical levels.
“A surprising downgrade at Wells Fargo: Analysts moved their rating on Colgate-Palmolive to a sell-equivalent underweight from equal weight. This has been a much-loved stock, up almost 33% this year. However, Wells Fargo is worried that organic sales growth is normalizing.”
Colgate-Palmolive Company (NYSE:CL) shows a strong case for growth, backed by solid financial results and positive market conditions. In the second quarter of 2024, Colgate-Palmolive Company (NYSE:CL) exceeded expectations with net sales of $5.06 billion, a 5% increase from the previous year. Its earnings per share (EPS) came in at $0.89, beating the forecast of $0.87. Colgate-Palmolive Company (NYSE:CL) raised its full-year organic sales growth forecast to 6-8%, indicating confidence in its strategy of balancing price increases with volume growth across different sectors.
Colgate-Palmolive Company (NYSE:CL)’s strong performance in emerging markets such as Latin America and India, driven by successful pricing strategies and gains in market share for its oral care products, contributes to higher-than-average growth. Colgate-Palmolive Company (NYSE:CL)’s foray into new areas like CBD-infused dental care highlights its focus on innovation and exploring new market opportunities.
Colgate-Palmolive Company (NYSE:CL)’s stock has surged by over 25% this year, nearing record highs and reflecting investor confidence. Analysts have increased price targets, expecting continued strong results. With its diverse revenue streams, growth in key regions, product innovation, and strong financial performance, Colgate-Palmolive Company (NYSE:CL)is well-positioned for future success.
ClearBridge Sustainability Leaders Strategy stated the following regarding Colgate-Palmolive Company (NYSE:CL) in its Q2 2024 investor letter:
“Colgate-Palmolive Company (NYSE:CL), added to the portfolio in 2023, started outperforming materially toward the tail end of last year as growth, margin and market share momentum began to turn favorably, and that momentum has continued year to date as the stock has nicely outperformed the large cap staples group. The fundamental upside has been driven by a combination of healthy organic growth (with positive volumes), good gross margin progression, and strong re-investment spending supporting market share gains and future growth.”
