We recently compiled a list of the 10 Stocks Jim Cramer Thinks You Should Check Out. In this article, we are going to take a look at where Cummins Inc. (NYSE:CMI) stands against the other stocks Jim Cramer thinks you should check out.
Jim Cramer draws an engaging parallel between fantasy football and stock investing as the NFL season begins. Cramer uses this occasion to introduce his concept of “Fantasy Stock Football.” He likens selecting stocks for an investment portfolio to drafting players for a fantasy football team, emphasizing how both require strategic thinking and role balancing.
“While you’re enjoying the game, I want to get you into the NFL spirit with some Fantasy Stock Football.”
Unveiling Jim Cramer’s “Fantasy Stock Football” Strategy
Cramer enjoys blending real-world sports with market insights to offer a unique perspective on investing. He notes that, like fantasy football teams, investment portfolios consist of various stocks that play different roles, contributing to overall performance. Reflecting on the previous year, he highlights that the 11 stocks he recommended have risen an average of 38%, outperforming the S&P 500’s 23% gain. This comparison underscores his belief in the strategic approach to both fantasy football and stock selection.
“Now look, I love comparing real teams and real players to my favorite stocks. These are two great tastes that taste great together. More importantly, it gives me another angle to help you—I’ve got to teach you about the market in any way I can. Picking stocks for your portfolio has a lot in common with drafting players for your fantasy football team.
Fifty-five million people do it. Different positions play different roles for your fantasy team, just like different stocks fill different roles in your portfolio. By the way, if you look at the 11 stocks I highlighted when we did this a year ago, they’re now up an average of 38%, compared to the S&P 500, which is up 23% during the same period.”
Cramer’s Warning Against Overreacting to Market Fluctuations
Jim Cramer highlights some key mistakes investors are making and emphasizes the importance of a strategic approach to investing. He points out that many investors are making errors by overreacting to market fluctuations and trying to time their moves poorly. According to Cramer, sometimes the best strategy is to do nothing and avoid making rash decisions.
“People keep making a ton of mistakes when they should really just be sitting on their hands. Sometimes the best thing you can do is absolutely nothing. Instead, they’re acting out every possible fantasy nightmare when it comes to the market. Not only is it tedious and foolhardy, but it’s also very expensive for anyone who’s running with this non-strategy. You can see the averages, which started out like a house on fire today, only to fizzle out by the end.”
Jim Cramer: Trust Powell’s Strategy Amid Economic Data Volatility
Cramer criticizes the persistent doubts about Federal Reserve Chair Jerome Powell. He believes Powell has managed the transition from tightening to easing policies well, despite earlier criticism for slow rate hikes. The ongoing panic over economic data—whether strong or weak—shows a lack of faith in Powell’s ability to adjust rates appropriately. Cramer asserts that the Fed will act as needed, whether that means a 25 or 50 basis point cut, and advises investors to trust Powell’s strategy rather than being swayed by market noise.
“There’s a belief that the Federal Reserve under Jerome Powell will somehow screw up the transition as they shift from tightening to stop inflation to easing to combat recession. At this point in Powell’s tenure, I find it insane that he never seems to get the benefit of the doubt. Well, yes, he started raising rates a little too late in 2022, but it’s hard to blame him for that. Powell didn’t want to hit the brakes on the economy when we were still dealing with a healthcare emergency, which is why he didn’t tighten in 2021.
Who would have thought that COVID would run its course so quickly? Who could have imagined that the Biden administration would be able to pass generous spending packages right when we stopped needing them, sparking an inflationary run? Since then, though Jerome Powell has done pretty much everything right. Once rolling, he raised rates with vigor because our country had some of the worst inflation in recent history.
The rate hikes, one after another, did manage to tamp down inflation. Everything that could be controlled by the Fed is now going the right way. Prices have come down all over the place, though many are still elevated compared to 2019 levels. But I don’t think anyone surveying the situation could honestly contend that Powell is going in the wrong direction…
What’s most important, though, is that if you have faith in Jerome Powell, as I do, you know he’ll give us a 25 basis point cut if that’s what’s needed. And if the economy suddenly gets weaker, then a 50 basis point cut would be on the table. Why is that so hard to understand? People keep freaking out about things that simply won’t be a problem, given that we have a competent central bank. They’ve done this during the run-up to every Fed easing cycle I can recall. You always get these tense moments—like right now—filled with wild swings, full of sound and fury, and of course, yes, signifying nothing.”
Jim Cramer Defends AI, Calls Early Criticisms Misguided
Cramer addresses skepticism around artificial intelligence (AI), arguing that it is premature to dismiss its potential. While current AI developments may not seem revolutionary, he believes that significant advancements, such as breakthroughs in cancer diagnosis, indicate that AI’s impact will grow over time.
“We’ve gone from a world where artificial intelligence (AI) was supposed to solve everything to a world where AI is treated as just a robust sham, except for when ServiceNow gets one more contract, of course. At its apex, AI was supposed to make organizations much more efficient, improve gross margins magically, and create inventions vastly better than the status quo. Sadly, we don’t see much of anything tangible, other than competing chatbots—rivaling inquiry systems that can generate information in sentence form, including hallucinations. We’re told the whole thing’s a canard, and this reality has slapped true believers like me in the face.”
Jim Cramer believes that dismissing AI as a failure is premature. He argues that people are underestimating its potential, as we are still early in discovering its practical applications. According to Cramer, recent advances in accelerated computing and generative AI have already led to significant breakthroughs, such as improvements in cancer diagnosis. While the excitement around AI in healthcare may suggest we’re on the brink of a major revolution, Cramer points out that we’re actually witnessing a gradual but important evolution in the technology’s capabilities.
“Now look, I think that’s just plain wrong. It’s way too early to view AI as a waste. People know nothing. We’re only a couple of years into finding use cases, for heaven’s sake. We just got word that accelerated computing and generative AI have led to a breakthrough in cancer diagnosis, which could be very important. That’s a huge thing. But the hype of what this technology could mean for healthcare seems to illustrate that we aren’t seeing a revolution yet—we’re just seeing a faster evolution.”
Our Methodology
The article reviews a recent episode of Jim Cramer’s Mad Money, where he discussed and recommended various stocks. It highlights ten companies that Cramer featured and explores their perception among hedge funds. The companies are ranked from the least owned to the most owned by hedge funds.
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 mechanic standing proudly in a factory floor surrounded by the engines the company produces.
Cummins Inc. (NYSE:CMI)
Number of Hedge Fund Investors: 38
Jim Cramer compares Cummins Inc. (NYSE:CMI) to Jahmyr Gibbs of the Detroit Lions, noting that while both face some criticism—Cummins for being an engine maker in a freight recession and Gibbs for sharing the workload with David Montgomery—these concerns might be overstated. Cramer points out that Cummins Inc. (NYSE:CMI) is growing through new opportunities, such as selling backup power units for data centers, which was highlighted in their recent earnings call.
“Finally, let’s talk Cummins, the engine maker with major exposure to the data center market. It might be the Detroit Lions running back, Jahmyr Gibbs, of the stock market. The knock on Cummins is that it’s an engine maker during a freight recession, and truck orders are weak right now. The knock on Gibbs is that he has to share the workload with fellow Lions running back, David Montgomery.
I think both concerns are overblown. Cummins is seeing growth with new ventures, like selling backup power units for data centers—we heard them talk about that during their recent earnings call. Meanwhile, Gibbs is thriving because he’s a much better pass catcher than Montgomery.”
Cummins Inc. (NYSE:CMI) is a strong investment option due to its recent solid performance and forward-looking strategies. In Q2 2024, Cummins Inc. (NYSE:CMI) reported an EPS of $5.26, surpassing the expected $4.85, and earned $8.80 billion in revenue, exceeding the forecast of $8.33 billion. This 2.3% increase in revenue from the previous year was driven by high demand for its power generation and truck engines.
Cummins Inc. (NYSE:CMI) is also advancing in green technologies; its zero-emissions unit, Accelera, secured $75 million from the U.S. Department of Energy to boost manufacturing. Additionally, Cummins Inc. (NYSE:CMI)’s new battery joint venture with Daimler and PACCAR highlights its leadership in commercial vehicle electrification. Cummins Inc. (NYSE:CMI) has raised its full-year outlook, reflecting its growing market presence and commitment to alternative fuel technologies.
Parnassus Value Equity Fund stated the following regarding Cummins Inc. (NYSE:CMI) in its first quarter 2024 investor letter:
“Cummins Inc. (NYSE:CMI), a leader in diesel and alternative fuel engines and generators, guided to a shallower-than-expected downcycle in 2024. New rules from the Environmental Protection Agency are expected to drive higher demand for the company’s truck engines in the coming years.”
Now, how about the wide receiver position? For me, wide receivers are akin to turbocharged growth stocks. When they work, they can deliver incredible gains. Nvidia is the obvious stock market analog. A year ago, I compared it to Justin Jefferson of the Vikings, but then he got hurt and missed nearly half the season. Meanwhile, Nvidia was an unstoppable winner, so I’m changing course. Nvidia is now the *Tyreek Hill* of the stock market—the tremendous wide receiver speedster from the Miami Dolphins. Both are known for their blazing speed. Hill had the second-most fantasy points at the wide receiver position last year, and Nvidia speaks for itself.
Yet, both have their doubters—Nvidia has pulled back hard from its highs this summer as people worry about the durability of AI demand, while Hill supposedly has a hand injury. Guess what? I think they’ll both do great, even if there’s some near-term turbulence.”
Overall CMI ranks 6th on our list of the stocks Jim Cramer thinks you should check out. While we acknowledge the potential of CMI 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 CMI 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.