Jim Cramer, the host of Mad Money, on Friday discussed how to deal with brutal selloffs, more specifically, how to protect yourself from them and how to use them to your advantage.
“I want to help you game out the other, less dangerous kind of crash, the mechanical kind caused by a broken market in a healthy economy.”
READ ALSO: 14 Stocks on Jim Cramer’s Radar and Jim Cramer Commented on These 17 Stocks.
Cramer said the best way to approach these abrupt drops is to recognize that there is often a bottoming process involved, one that investors can learn to spot. As to what investors should do when they see this type of market behavior, Cramer noted that one of his favorite strategies is to look for what he calls “accidental high yielders.”
“Those are stocks of companies that are doing fine, have good balance sheets, that’s very important, by the way, but their share prices have fallen so low that their dividends are starting to give you an unbelievable return, that’s right, good yield.”
He said that one way to find these accidental high yielders is to compare a stock’s historical dividend yield with what it is paying now, and also take into account the current yield on the 10-year Treasury. If a stock that usually yields 2% suddenly yields 4% because of a broad market drop, and the company itself is still in good shape, that may be a sign that one is looking at one of these opportunities.
“Second, if field level isn’t giving you opportunities, I’d use a mechanical sell-off to pick some stocks that you like. You can begin buying them using what’s known as wide scales… Pick one of your best stocks out there, premier stock, and buy some using limit orders only.”
Our Methodology
For this article, we compiled a list of over 40 stocks that Jim Cramer commented on during episodes of Mad Money aired between June 9 and June 11. 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 June 16. We also mentioned the hedge fund sentiment around each stock, which was taken from Insider Monkey’s Q1 database of 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 Stocks Jim Cramer and Analysts Are Watching
10. McDonald’s Corporation (NYSE:MCD)
Average Upside Potential: 14.01%
Number of Hedge Fund Holders: 75
McDonald’s (NYSE:MCD) is one of the 10 stocks that Jim Cramer and analysts are watching. On June 10, Redburn Atlantic analyst Chris Luyckx double downgraded the stock from Buy to Sell and lowered the price target to $260 from $319.
The firm believes weight-loss drugs like GLP-1 could hurt demand over time and sees this risk as not fully priced in. It warns that even a small hit to sales now could grow much larger, especially for chains that rely more on lower-income customers. Redburn expects lasting shifts in dining habits that go beyond individual users.
On June 9, Cramer discussed the recent analyst reports covering McDonald’s Corporation (NYSE:MCD). He commented:
“It amazes me that analysts refuse to learn from their mistakes that some stocks should not be taken off the buy list. Today, Morgan Stanley downgraded the stock of McDonald’s, saying it’s arguably too expensive and that it will probably not be insulated from some structural pressures on fast food. Now, with the stock at 25 times earnings, consensus estimate’s too high. Morgan Stanley moved [it] to Equal Weight or Hold. [The] stock dropped $2 and 58 cents or 0.84% on that.
Now, it would not have made much of an impact on me if McDonald’s hadn’t also been downgraded by Loop Capital on Friday, again, concerned that it won’t beat the consensus numbers. Look, I understand the downgrades. Stock’s up 5%. It’s holding its own, but I think that in the long run, it has never paid to downgrade Mickey D’s. It’s the king. It offers good value and it’s incredibly well run…
The main thing Loop cites for what they think will be a shortfall is negative reaction to the new chicken strips launch… I say, wait a second, this is McDonald’s. Do you think this company is stupid? Do you think that CEO Chris Kempczinski doesn’t pay attention to these things? Do you think he ignores the franchises? Do you think he doesn’t know the product’s ugly? Do you think that he’ll bet everything on a product that people don’t like?
Listen, McDonald’s is an amazing company. It didn’t become amazing because it stuck with bad ideas… The strength of McDonald’s is that they don’t fight battles they can’t win. When something doesn’t work, they just dump it and they move on. Which is why I say you downgrade a stock like McDonald’s at your own peril.”
McDonald’s (NYSE:MCD) operates and franchises restaurants under its brand, and it provides a range of food and beverages such as burgers, chicken items, fries, desserts, and breakfast options. The company runs its business through different franchise models.
9. Broadcom Inc. (NASDAQ:AVGO)
Average Upside Potential: 14.56%
Number of Hedge Fund Holders: 158
Broadcom Inc. (NASDAQ:AVGO) is one of the 10 stocks that Jim Cramer and analysts are watching. On June 9, Citi increased its price target on the company stock to $285 from $276 and maintained a Buy rating.
Citi believes that the company delivered mixed results, showing strong performance in AI but weaker margins due to product mix and rising options costs. The firm noted the margin outlook was lowered because of a greater semiconductor mix, as the company projects 60% annual AI growth in fiscal 2025 and 2026 from broader adoption. On the same day, Barclays analyst Tom O’Malley also raised the price target on Broadcom to $265 from $215 and maintained an Overweight rating.
On June 9, Cramer discussed Broadcom (NASDAQ:AVGO) in detail and said:
“There’s nothing more frustrating than watching one of your favorite companies report a strong quarter only to see the market find some reason to send the stock lower, but in retrospect, these can be great buying opportunities. Just look at what happened to Broadcom last week… long-time Cramer fave, big holding in my Charitable Trust. But the stock sold off hard after the company reported on Thursday night…
Putting it all together, though, I think the main problem is that Broadcom stock had run up so dramatically from the April lows. Think about this trajectory. The stock bottomed at $138 in April. It was at nearly $260 before it reported last week. Under those circumstances, anything less than perfection was going to be punished. And while the quarter was very good, it certainly wasn’t perfect, which is why, despite the post-earnings sell-off, I still like the stock and think you may be getting a terrific buying opportunity here…. I think the bears are missing some even more important positives for the quarter, outside of just the headline numbers.
For starters, Broadcom’s AI revenues came in at $4.4 billion. That’s an increase of 46% from the previous year and up from the already impressive $4.1 billion just last quarter. While that was merely in line with expectations, it underscores that the company’s seeing the most enticing part of its business inflecting. I like this. This strength is coming from both parts of their AI business….. AI chip sales are expected to get to be $5.1 billion this quarter, and that’s up another $700 million sequentially, mind-boggling, $300 million more than the analysts were looking for.
That’s something. This would represent 60% growth for AI chips year-over-year. That’s amazing. This, you see, this is why it’s so hard for me to justify the pullback in Broadcom stock. They’re selling a stock that’s guided for AI semiconductor sales to come in $300 million higher than expected because they’re worried about the slow growth non-AI part of the business. That’s nuts…
… Broadcom paid out $2.8 billion in dividends last quarter, and on top of that… they spent $4.2 billion to repurchase 25.3 million of their own shares… Always good to see the company buying its stock right alongside. Here’s the bottom line: Contrary to the market’s reaction, there was plenty to like about Broadcom’s quarter, and the stock only sold off because some investors were expecting an insane blowout. Honestly, I’m more positive in Broadcom than I was before the report. And the fact that you can buy the stock at a discount here, I think it’s a steal.”
Broadcom (NASDAQ:AVGO) develops and supplies a wide range of semiconductor devices and software solutions used in networking, broadband, wireless communication, data centers, smartphones, and industrial systems. The company’s technology supports applications across AI infrastructure, telecommunications, home connectivity, and enterprise computing.