During the episode of Mad Money aired on Wednesday, Jim Cramer broke down what he considers some of the most effective practices for buying stocks.
“I want to pull back the curtain and show you how a professional looks for stocks to buy and knows what to sell. There’s no magic. There’s no hidden talent. Just a bunch of disciplines, disciplines that can help you try to make mad money if you master them.”
READ ALSO: 21 Stocks on Jim Cramer’s Radar and Jim Cramer’s Thoughts on These 13 Stocks.
Cramer stressed the importance of conducting thorough research before committing to any stock purchase. He emphasized that investors must truly believe in the stock they are buying, even if that belief is rooted in skepticism, so long as they are convinced the price will rise and that the stock deserves that rise. He warned, however, that conviction is not enough on its own when a stock has pulled back from its high. If the decline is unrelated to the company’s actual business, which he described as an “extraneous” reason, it may present an opportunity.
“Be certain you’re dealing with a momentarily damaged stock and not a troubled company that’s going down, down, down. How can you tell the difference between a damaged company and a damaged stock? The fundamentals haven’t changed, the stock probably hasn’t fallen from grace. It’s pulled back for mechanical reasons, profit taking, or some panic in the market in general.”
Cramer pointed out that modern markets are heavily influenced by highly levered hedge funds, which treat stocks like commodities. He said that such behavior leads to irrational sell-offs that can drag high-quality stocks down for reasons unrelated to their financial health. Still, he cautioned that once a stock’s fundamentals begin to shift, if the qualities that originally made it appealing no longer exist, then it is no longer suitable for inclusion in a portfolio.
Our Methodology
For this article, we compiled a list of 43 stocks that Cramer was bullish on during episodes of Mad Money aired between April 24 and May 2. We narrowed the list to 10 stocks that were most favored by analysts. We listed the stocks in ascending order of their average analyst price target upside as of May 8. We also mentioned the hedge fund sentiment around each stock, which was taken from Insider Monkey’s Q4 database of over 1,000 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10 Jim Cramer Stocks with Huge Upside Potential
10. Apple Inc. (NASDAQ:AAPL)
Average Price Target Upside: 20.61%
Number of Hedge Fund Holders: 166
Celebrating Mad Money’s 20th anniversary, Cramer highlighted Apple Inc. (NASDAQ:AAPL) among the 20 stocks that had the biggest gains over the past 20 years and said:
“Fourth place: Apple, up more than 14,500% since we went on air. The great thing about Apple is these gains were totally gettable, come on. This was the most obvious story in America for years and years. It’s much harder to own here because it’s under fire from the White House for sourcing most of its merchandise from China for the cell phones. But it’s still a terrific illustration of the fact that you don’t need to be a genius to pick winners in this business.”
Apple (NASDAQ:AAPL) designs and sells a variety of consumer electronics, including smartphones, computers, tablets, wearables, and accessories. The company also offers subscription services like Apple Music, Apple TV+, and Apple Arcade, and operates platforms such as the App Store and Apple Pay. On May 6, BofA analyst Wamsi Mohan reported that Apple App Store revenues for fiscal Q3, after 35 days, rose 11% year-over-year to $3.3 billion, based on data from SensorTower. For April, global App Store revenue grew 12% year-over-year. The analyst kept a Buy rating and a $235 price target on Apple shares.
9. Phillips 66 (NYSE:PSX)
Average Price Target Upside: 20.98%
Number of Hedge Fund Holders: 47
Answering a caller’s question about Phillips 66 (NYSE:PSX) on May 2, Cramer said:
“Alright, let’s just view it as an investment situation. It’s got a 4.4% yield. We’re running short of refiners. I think that the stock has been overly punished. It’s been going down as if it’s an oil stock. It is not an oil stock, it’s a refiner, and I would be a buyer of PSX, and I’ve been waiting to say that for some time, but it’s down enough that I think it’s time.”
Phillips 66 (NYSE:PSX) is an energy firm focused on manufacturing and logistics. It manages the transportation, storage, refining, and marketing of petroleum products and also produces and sells chemicals. On April 28, TD Cowen reduced its price target on PSX stock to $114 from $127 and maintained a Buy rating on the stock. The firm updated its model and noted that earnings were weaker than expected, with refining results as expected due to maintenance, while RD and Marketing fell short.
