We recently compiled a list of the Jim Cramer’s 10 Stock Picks You Shouldn’t Miss. In this article, we are going to take a look at where Kinder Morgan Inc. (NYSE:KMI) stands against Jim Cramer’s other top stock picks.
Jim Cramer reacted to Monday’s market by questioning if there’s any money left to invest and why mutual funds aren’t holding enough cash. The S&P 500 fell 17.77 points, or 0.3%, to 5,616.84. The Dow Jones Industrial Average rose 65.44 points, or 0.2% to 41,240.52. The Nasdaq composite fell 152.03 points, or 0.9%, to 17,725.76.
“What do we do if we’re out of money? Don’t mutual funds have enough cash? That’s my reaction to today’s market action. Right now, mutual funds know they have to pivot out of consistent growth stocks, especially tech stocks like software and semiconductors, which don’t benefit from rate cuts. They need to swap into companies that can supercharge their earnings as the Fed lowers rates. We all recognize that cyclical stocks, the ones that benefit from lower rates, can go higher, maybe much higher.”
Cramer pointed out that mutual funds now need to shift away from consistent growth stocks, particularly in tech sectors like software and semiconductors, which don’t benefit from interest rate cuts. Instead, they should move towards companies that can boost their earnings as the Federal Reserve reduces rates.
“What’s painful for many of you are the declines in stocks of companies with consistent earnings. These companies, especially tech firms, don’t really need lower rates, and they’re selling off as money managers raise capital to rotate into the rate-cut winners.
So, why don’t we go over the winners and talk about the losers? The rate-cut winners are divided into two camps: stocks with high dividend yields and cyclical companies with earnings that should go higher because lower rates will bolster various industries, especially housing.”
Cramer explained that cyclical stocks, which tend to perform better with lower rates, are likely to rise, possibly significantly. However, the decline in stocks of companies with stable earnings, especially in tech, is troubling for many investors. These stocks are being sold off as money managers raise capital to invest in those poised to benefit from rate cuts.
Cramer emphasized that it’s important to understand who the winners and losers are in this situation. The winners include two groups: high-dividend-yield stocks and cyclical companies expected to see earnings growth from lower rates, particularly in the housing sector.
Cramer noted that housing stocks, which had seen significant gains, were down on Monday because hedge funds and mutual funds had bought heavily before the Federal Reserve’s Jackson Hole meeting. While mutual funds are holding on, hedge funds are cashing in their profits, as these stocks had sharp increases before the event. For traders, taking profits after such a successful trade is standard practice.
“Let’s start with the most direct beneficiaries: housing. These stocks were all down today because hedge funds and mutual funds bought them aggressively ahead of Friday’s Jackson Hole verdict. Mutual funds are staying long, but hedge funds are ringing the register furiously because they’ve made so much money. Housing stocks had parabolic moves going into the Fed’s Jackson Hole conference, so now these portfolio managers are just taking profits. That’s what you’re supposed to do with a successful trade if you’re a trader.
Remember, these guys are traders, not investors. So, the housing trade is over, but what about the housing investment? I believe Toll Brothers, which just reported a stellar quarter last week, can go higher, maybe much higher. But this reversal is going to constrain the stock because people do not like the technical trends we just saw. We’ve seen multiple long-term reversals after these kinds of moves, and they rarely turn out to be buyable, even though in theory, this should be a great moment for the stock of all the homebuilders.”
Cramer believes that while the housing trade may be over for traders, the housing investment story isn’t finished. He also warned that the recent reversal in housing stocks could limit their potential, as investors are wary of the technical trends.
“It doesn’t matter, though. This kind of reversal I’m talking about can be hideous. Some of these stocks are very close to their highs, and I don’t like that.”
Cramer cautioned that these kinds of reversals can be severe and might discourage new buyers. He reminded everyone that by the time the Federal Reserve signals a clear path forward, it might be too late to buy the most obvious rate-cut winners. According to Cramer, it’s better to wait for these stocks to pull back and recharge before making a move.
“Those who have them can hold on, but they flew too close to the sun to attract new buyers. Remember, I’ve said all along that by the time the Fed gives the all-clear, it may be too late to buy the most obvious rate-cut winners. You have to let them recharge, let them come down, and then you can pull the trigger.”
Our Methodology
In this article, we analyzed a recent episode of Jim Cramer’s Mad Money and picked the ten notable stocks he mentioned. We also explore what hedge funds think about these stocks and rank them based on how many hedge funds own them, from the fewest to the most.
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).
Aerial view of an oil and gas pipeline, spanning vast landscapes.
Kinder Morgan Inc. (NYSE:KMI)
Number of Hedge Fund Investors: 41
Jim Cramer revisits Kinder Morgan Inc. (NYSE:KMI), a favorite of his from 2005 to 2010. Kinder Morgan Inc. (NYSE:KMI), a major energy pipeline company, operates similarly to a toll road, meaning it doesn’t rely heavily on fluctuating oil or gas prices. Instead, it benefits from steady growth in domestic energy production, which has been strong for years. Cramer notes that while Wall Street anticipates rate cuts, Kinder Morgan Inc. (NYSE:KMI)’s fundamentals remain solid. With a strong yield and a reliable track record, it is a strong long-term investment in the pipeline sector, especially as rates decrease.
“This energy pipeline play was a big favorite of mine from 2005 to 2010. Pipeline operators like Kinder Morgan operate like toll roads, meaning they aren’t heavily leveraged to the price of oil or gas. While KMI does have some exposure, it primarily benefits from domestic energy production growth, which has been strong for the past two decades.
While I like Enbridge with its 7.27% yield, it’s not part of the S&P 500. Instead, we’ll focus on Kinder Morgan, which offers the 10th highest yield in the S&P 500 at 5.37%. Despite oil and gas prices pulling back from their highs, Kinder Morgan’s stock has continued to perform well, up more than 21% this year with minimal drama.
Wall Street is anticipating rate cuts, but the fundamentals are solid—this is a great long-term operator in the pipeline space with a very attractive yield that will become even more appealing as rates decrease.”
Kinder Morgan Inc. (NYSE:KMI) is showing strong growth potential due to impressive performance and strategic initiatives. Kinder Morgan Inc. (NYSE:KMI)’s natural gas gathering volumes increased by 10% year-over-year, driven by higher production in the Haynesville and Eagle Ford regions. Although a minor decrease in volumes is expected for 2024, this is seen as temporary.
In the products pipeline segment, refined product volumes rose by 2%, while crude and condensate volumes remained stable. The $150 million upgrade of the Double H Pipeline system to handle natural gas liquids underscores Kinder Morgan Inc. (NYSE:KMI)’s focus on meeting market demands and seizing new opportunities. The terminals segment is thriving with high leased liquid capacity and strong utilization at key locations, and the CO2 segment has optimized its asset portfolio through strategic transactions, preparing for future CO2 flood projects and carbon capture initiatives.
Financially, Kinder Morgan Inc. (NYSE:KMI) is solid, as evidenced by a 2% increase in its dividend, reflecting strong performance and a commitment to returning value to shareholders. Kinder Morgan Inc. (NYSE:KMI) reported $3.57 billion in revenue for the quarter and saw a significant rise in gross margin.
Overall KMI ranks 6th on our list of Jim Cramer’s top stock picks. While we acknowledge the potential of KMI 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 KMI 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.