In this article, we’ll explore Jim Cramer’s Latest Top 10 Stock Picks.
Jim Cramer: Billions to Flood the Market as Double Rate Cut Sparks Stock Surge!
In a recent episode of Mad Money, Jim Cramer explains that a double rate cut, or a 50 basis point reduction, is likely to attract tens of billions of dollars into the stock market from investors who have been sitting on the sidelines. Many people have been holding onto cash in money funds, eager to invest, especially as rates start to decline. While some are tied up in CDs or treasuries, those inaccessible money funds see the opportunity to move their cash into high-yield dividend stocks.
Cramer warns that they need to act quickly, as these stocks will soon rise in price and lose their high-yield appeal. He also criticizes commentators on television who downplay the Fed’s impact by focusing on the national debt. He argues that these voices are not interested in helping everyday investors; instead, they cater to the wealthy. Cramer reminds listeners that their audience is diverse, and it’s essential to focus on making informed investment decisions.
“When you get a double rate cut, meaning a 50 basis point monster, well, that’s going to bring tens of billions of dollars into the stock market from the sidelines. The sidelines have been so lucrative for so long that people in money funds have been coveting their dollars. Sure, there are plenty of folks sitting in two- to three-year CDs or treasuries who can’t easily cash out, but if you’re in an easily accessible money fund, you can see rates are going lower now, right? That’s all the more incentive to put your cash into, say, dividend stocks with high yields. You’ve got to do it fast because pretty soon, the high yielders will rally to the point where they’re just mid-yielders.
No matter how smart they sound, the people who come on television to argue that the Fed’s actions don’t matter because the national debt is too big are being unhelpful. These people are not concerned with helping you make money; you’re not important to them. They’re speaking to the billionaire class. Yes, they crowded you out a long time ago. Remember, we do have all sorts of audiences.”
Additionally, Jim Cramer points out that many Wall Street analysts like to go against popular opinion, which leads them to downplay the importance of a half-point rate cut. He believes this perspective ignores common sense. Cramer acknowledges that while aging has its downsides, like not being able to move around as easily at events, he feels he has gained wisdom. He understands the situation better than those who argue that the rate cut indicates panic, simply by being present and observing the market.
“Everybody on Wall Street loves to be a contrarian, which is why so many commentators keep trying to minimize the impact of a half-point rate cut. Not me! No matter what, common sense dictates that there are always people who think they know better than common sense, and they don’t. There are so few advantages to age, I have to tell you.”
Can the 50 Basis Point Cut Spark Stock Gains and Revive Housing?
Jim Cramer points out that during rate cuts, there are many promising winners to consider, while the losers are easy to spot and should be avoided. He emphasizes that when the Wall Street Journal reported the chance of a 50 basis point cut, it opened up more opportunities for stocks to benefit. A smaller 25 basis point cut could have aided homebuilders if they had built more homes, but they’ve been reluctant due to high rates. However, a 50 basis point cut will lower mortgage rates, making homes more affordable and likely giving a boost to the housing market.
“The winners in an easing cycle are varied and exciting, while the losers are obvious and must be avoided. From the moment the Journal reported that there could be a 50 basis point cut, the swatch of what can go higher expanded dogmatically. A 25-point cut would have been truly beneficial for homebuilders if they would just start building a lot more homes, that’s something they’ve been reluctant to do because rates are still too high. But a 50 basis point cut means lower mortgages for certain and, therefore, more affordable homes.”
Our Methodology:
In this article, we delve into the latest episode of Jim Cramer’s Morning Thoughts, where he analyzed various stocks. We rank these companies based on their popularity among hedge funds, starting with the least owned and moving up to the most favored.
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).
A Game Changer: Jim Cramer’s Latest Top 10 Stock Picks
10. KB Home (NYSE:KBH)
Number of Hedge Fund Investors: 23
Jim Cramer reported that Bank of America has increased its price targets for homebuilders, including KB Home (NYSE:KBH), due to the advantages of lower borrowing costs. Despite this optimistic outlook, Bank of America has kept a neutral rating on KB Home (NYSE:KBH).
KB Home (NYSE:KBH) has a positive outlook, supported by robust financial performance and favorable market conditions. In Q2 2024, KB Home (NYSE:KBH) reported earnings per share (EPS) of $2.15, significantly higher than the expected $1.78, along with revenue of $1.71 billion that exceeded forecasts. This growth stems from strong results in key markets, a 14% increase in book value per share, and a solid gross profit margin of 21.1%-21.5%. For 2024, KB Home (NYSE:KBH) projects housing revenues between $6.7 billion and $6.9 billion, with average home prices expected to range from $485,000 to $495,000.
Despite facing challenges like rising interest rates, KB Home (NYSE:KBH) has effectively navigated increased material costs and market uncertainties, leading to consistent revenue growth and community expansion. Analysts anticipate about 7% annual earnings growth over the next three years, highlighting strong long-term potential. Overall, KB Home (NYSE:KBH)’s strong financial results, market expansion, and positive housing demand trends.
9. CarMax Inc. (NYSE:KMX)
Number of Hedge Fund Investors: 35
Jim Cramer notes that JPMorgan has raised its price target for CarMax Inc. (NYSE:KMX) from $55 to $65 per share, but maintains an underweight sell rating. This new target is still below CarMax Inc. (NYSE:KMX)’s closing price of $77 on Wednesday. The analysts pointed to improved fundamentals, yet they believe the risk-reward ratio for CarMax Inc. (NYSE:KMX) remains unattractive due to high valuation multiples.
“JPMorgan raised its Carmax price target to $65 per share from $55 but kept its underweight sell rating. The new PT level is still below where shares closed Wednesday at $77. The analysts talked about better fundamentals but still felt the risk-reward ratio on the stock is unattractive due to stretched multiples.”
CarMax Inc. (NYSE:KMX) is a top retailer of used cars in the U.S., known for its clear pricing and focus on customer service. CarMax Inc. (NYSE:KMX)’s strong performance in Q2 2024, with revenues reaching $7.6 billion—up 9% from the previous year—and net income increasing to $252 million, supports a positive outlook. As more consumers opt for used cars due to rising interest rates and inflation, CarMax Inc. (NYSE:KMX) is well-positioned to benefit from this trend.
CarMax Inc. (NYSE:KMX) has also improved its online platform, making the buying experience smoother and aligning with changing consumer habits. CarMax Inc. (NYSE:KMX) dedication to customer satisfaction and transparency has built strong loyalty, attracting both returning and new buyers. Additionally, CarMax Inc. (NYSE:KMX) is focusing on growth by expanding its store locations and improving inventory management, which should boost sales. Analysts are optimistic about CarMax Inc. (NYSE:KMX)’s future, emphasizing its solid business model and growth potential in the market.
Giverny Capital Asset Management stated the following regarding CarMax, Inc. (NYSE:KMX) in its Q2 2024 investor letter:
“Our holding CarMax, Inc. (NYSE:KMX) continues to scuffle along in what is a very challenging market for used cars, because of both high interest rates and a lack of supply of late model used cars after supply chain issues slowed production in the COVID-19 years. A typical monthly payment on a good used car is more than $100 per month higher today than pre-pandemic, with about two-thirds of that attributable to higher auto prices and one-third to higher interest rates on loans.
The company noted in a recent meeting with investors that annual sales of used cars aged 0-6 years have fallen from about 15 million to 12.3 million, down 18%, over the past couple of years. Lately, it appears that sales of late model used cars have begun to improve. If the trend holds, CarMax ought to see much better results.”
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