We recently compiled a list of Jim Cramer’s 10 Stock Picks You Shouldn’t Miss. In this article, we are going to take a look at where Simon Property Group Inc. (NYSE:SPG) 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).
A rooftop view of a bustling downtown area, emphasizing the company’s investments in the real estate sector.
Simon Property Group Inc. (NYSE:SPG)
Number of Hedge Fund Investors: 38
Simon Property Group, Inc. (NYSE:SPG) is a leading global retail real estate investment trust (REIT) known for its high-quality portfolio of shopping centers and premium outlets. Jim Cramer highlights Simon Property Group Inc. (NYSE:SPG) as a strong investment. Despite a period of flat performance, Simon Property Group, Inc. (NYSE:SPG) recently surged 13% after reporting strong earnings on August 5th.
“This mall owner and operator has been a consistent recommendation of mine for years. The stock is currently trading at its highest level since 2021. Despite the stock trading sideways from December until early this month, it recently broke out of that range, gaining 13% since reporting an excellent beat-and-raise quarter on August 5th.
The bull thesis for SPG is twofold: First, while many proclaim that malls are dead, the reality is that high-end malls like those owned by Simon Properties are doing just fine. Their latest quarter showed a 95.6% occupancy rate, up 90 basis points year-over-year, with domestic property net operating income increasing by 4.5%. In plain terms, Simon’s malls are full and growing earnings.
Second, during the pandemic, Simon partnered with Authentic Brands Group to buy struggling retailers, which kept those brands in business and preserved Simon’s rent base. Many of these investments turned out to be very profitable as they were bought at fire-sale prices and have since increased in value. Simon is starting to monetize these investments, boosting their numbers.
Additionally, Simon has a portfolio of outlet malls in Asia, which are performing well but are often overlooked. Simon’s dividend is almost back to pre-pandemic levels, and in many respects, the business is in the best position it has ever been. This makes it a great dividend stock to own in anticipation of lower interest rates.”
Simon Property Group Inc. (NYSE:SPG)’s recent performance underscores its promising growth potential, making it a strong investment candidate. Simon Property Group Inc. (NYSE:SPG)’s third Annual National Outlet Shopping Day was a major success, drawing over 3 million shoppers and featuring more than 475 retailers. This event’s growing popularity highlights Simon Property Group Inc. (NYSE:SPG)’s expanding influence in retail.
Looking ahead, Simon Property Group Inc. (NYSE:SPG) is poised for further growth with new ventures like the fully leased Tulsa Premium Outlets and the upcoming Busan Premium Outlets expansion in South Korea. Additionally, the development of luxury residences at Northgate Station and ongoing international projects bolster its market position.
On the financial front, Simon Property Group Inc. (NYSE:SPG) has demonstrated robust health, having refinanced $1.1 billion in property mortgages and maintaining $11.2 billion in liquidity. The 7.9% increase in the third-quarter dividend, along with an upward revision of its full-year earnings guidance, reflects its solid financial stability and dedication to shareholder returns.
Simon Property Group Inc. (NYSE:SPG)’s Chief Financial Officer, Brian McDade, has this to say in their latest earnings call:
Second quarter funds from operations were $1.09 billion or $2.90 per share compared to $1,800 million or $2.88 per share last year. FFO from our real-estate business was $2.93 per share in the second quarter compared to $2.81 in the prior year, a 4.3% growth. Domestic and international operations had a very good quarter and contributed $0.12 of growth. As a reminder, the prior year included a non-cash gain of $0.07 from investment activity related to ABG. Domestic NOI increased 5.2% year-over-year for the quarter. Continued leasing momentum, resilient consumer spending and operational excellence delivered results exceeding our plan for the quarter. Portfolio NOI, which includes our international properties at constant currency, grew 4.8% for the quarter.
Malls and outlet occupancy at the end of the second quarter was 95.6%, an increase of 90 basis points compared to the prior year. The mills occupancy was 98.2%. Average base minimum rent for malls and outlets increased 3% year-over-year and the mills increased 3.9%. As David mentioned, leasing momentum continued across the portfolio. We signed more than 1,400 leases for approximately 4.8 million square feet in the quarter. Approximately 30% of our leasing activity in the second quarter was new deal volume. Our traffic in the second quarter was up 5% compared to last year. And importantly, total sales volumes increased approximately 2% year-over-year. Reported retailer sales per square foot in the second-quarter was $741 for the mall and premium outlets combined.” (Click here to see more…)
Overall SPG ranks 7th on our list of Jim Cramer’s top stock picks. While we acknowledge the potential of SPG 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 SPG 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.