We recently published a list of Must-See: Jim Cramer’s 10 Best Stock Picks for Investors Right Now. In this article, we are going to take a look at where T-Mobile US Inc. (NASDAQ:TMUS) stands against other Jim Cramer’s best stocks for investors.
In a recent episode of Mad Money, Jim Cramer discussed how the slowing economy might lead the Federal Reserve to ease its policies. He expects the Fed to cut interest rates, but it’s unclear whether the reduction will be 25 or 50 basis points. This decision is crucial as 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 pointed out that Friday’s market performance was strong, with the Dow gaining 297 points, the S&P rising by 0.54%, and the Nasdaq increasing by 0.65%. This marked the best two weeks of the year for the S&P and the Nasdaq, suggesting that the market might be anticipating a larger rate cut of 50 basis points. Stocks sensitive to interest rates, particularly in housing, surged in response.
“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.”
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.
“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.”
Jim Cramer warned that if the housing market rally keeps going, it might lead to a sell-off if the Federal Reserve announces only a 25 basis point rate cut. If the Fed delivers a smaller cut, traders who anticipated a bigger reduction might start selling their stocks, which could lead to increased 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.”
Finally, Jim Cramer believes that this week is critical for the market. He advised that if the market declines after a 25 basis point cut, investors should remember the strong performance of the past week. This week’s gains could be a sign of more positive developments as the Federal Reserve continues to ease its 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.”
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A customer checking out their new device at a T-Mobile store, illustrating the convenience and accessibility of retail stores.
T-Mobile US Inc. (NASDAQ:TMUS)
Number of Hedge Fund Investors: 67
Jim Cramer reported that Wells Fargo has increased its price target for T-Mobile US Inc. (NASDAQ:TMUS) shares from $200 to $230 and maintained its overweight rating. The bank’s analysts pointed to price increases and substantial free cash flow as reasons for the upgrade. T-Mobile US Inc. (NASDAQ:TMUS), along with Verizon (NYSE:VZ) and AT&T (NYSE:T), is also offering promotions on Apple’s new iPhone 16, which is expected to drive a strong upgrade cycle powered by AI advancements.
“Wells Fargo raised its T-Mobile price target to $230 per share from $200 and kept its overweight rating. The analysts cited prices increases and huge free cash flow. T-Mobile, like Verizon and AT&T, is offering deals on Apple’s new iPhone 16, in what’s expected to be a robust AI-driven device upgrade cycle.”
T-Mobile US Inc. (NASDAQ:TMUS) presents a strong investment case due to its leadership in 5G technology, impressive customer and revenue growth, and solid financial performance. T-Mobile US Inc. (NASDAQ:TMUS) stands out in the 5G market by offering the fastest speeds and the widest coverage in the U.S., which helps retain and attract customers. In Q2 2024, T-Mobile US Inc. (NASDAQ:TMUS) added 406,000 high-speed internet customers, surpassing its competitors and showing high demand. T-Mobile US Inc. (NASDAQ:TMUS) expects to add 5.4-5.7 million postpaid customers by year-end.
Financially, T-Mobile US Inc. (NASDAQ:TMUS) experienced a 54% increase in free cash flow year-over-year, reaching $4.4 billion, which has enabled substantial share buybacks and dividends, with $3 billion returned to shareholders so far in 2024. T-Mobile US Inc. (NASDAQ:TMUS) also raised its free cash flow forecast to $16.6-$17 billion, highlighting its strong cash generation and investor returns. With stock prices over $200 and analysts setting target prices around $228, T-Mobile US Inc. (NASDAQ:TMUS) financial strength, network leadership, and focus on shareholders make it an attractive investment in the telecom sector.
Overall TMUS ranks 3rd on our list of Jim Cramer’s 10 best stocks for investors. While we acknowledge the potential of TMUS as an investment, 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 TMUS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.