We recently published a list of 10 Small-Cap Stocks Jim Cramer is Talking About Amid Latest Market Rotation. Since Comerica Inc (NYSE:CMA) ranks 1st on the list, it deserves a deeper look.
Recently, Jim Cramer talked about the rally in the small-cap-heavy Russell 2000 Index, saying these kinds of rebounds show you have to “stay invested” in the market to make “big money.”
“When I say stay in I mean you have to be as invested as you possibly can be so you don’t miss monster moves.”
Cramer said the Russell 2000 index rally was led by several “oddball” stocks that many people aren’t aware of.
“The biggest winners in the Russell today are all the companies I either don’t know or I barely heard of. You know I know thousands of stocks!”
Cramer highlighted that almost half of the stocks rising in the Russell 2000 index were biotech or healthcare companies that are losing money. Cramer believes these companies might be worth something only “years from now” and called them “risky” stocks.
Jim Cramer talked about what he called “small- and medium-sized businesses” which he believes can benefit from two possible developments in the near term: a Trump win in the election and rate cuts. A Donald Trump presidency, according to Cramer, could provide a level-playing field for these small companies which often get left behind by major companies amid tough regulation. Since Trump is expected to decrease regulations if he comes to power, these small companies could thrive in this new environment. Cramer said that money is coming from the “sidelines” as investors begin to invest in stocks instead of hoarding cash to earn interest income.
Cramer has been talking about several small-cap stocks in his programs lately. In a recent program, he mentioned several small-cap stocks that were moving recently and briefly discussed their businesses. We picked these stocks and analyzed their fundamentals and growth potential. We also mentioned hedge fund sentiment around these stocks. 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Image Source: Shutterstock
Comerica Inc (NYSE:CMA)
Number of Hedge Fund Investors: 45
Jim Cramer said in his latest program that many believe Comerica Inc (NYSE:CMA) is the “worst mid-sized bank in the country.”
Cramer highlighted that this stock sells for just 10 times earnings and has a 5.4% dividend yield. He said the company recently reported a “very weak quarter.”
“You don’t want it.”
Comerica Inc (NYSE:CMA) is a Texas-based banking company. The stock suffered as the company saw noninterest-bearing deposit (NIB) outflows, which caused a decline in net income. The company lost its contract for Direct Express debit card contract with the U.S. Treasury, expiring in early 2025. About 86% of its loans are generated in commercial banking. Amid the regional banking crisis, Comerica Inc (NYSE:CMA) took several steps which caused a spike in deposit costs, negatively impacting the bank’s fundamentals. Despite some hedging through interest-rate swaps, Comerica Inc (NYSE:CMA) remains sensitive to rate changes, and expected rate cuts could pressure net interest income by late 2024 or 2025.
Third Avenue Value Fund stated the following regarding Comerica Incorporated (NYSE:CMA) in its fourth quarter 2023 investor letter:
“Apparently, Ms. West never ran a bank. For many financial firms, interest rates are a lot like medicine in that the proper dosage can be salubrious, while too much of the same medicine can prove fatal. Similarly, the way interest rates impact the health of industries and companies can shift meaningfully over time. There are few better examples of this principle than the U.S. regional bank sector and Comerica Incorporated (NYSE:CMA), in particular.
Comerica, a long-time Fund holding, is an unusual super-regional bank due to the extent of corporate exposure in its loan book, as compared to many other U.S. regional banks with much larger exposures to residential mortgages. Because much of this corporate lending is done on a floating-rate basis, Comerica’s asset yields respond unusually rapidly to interest rate movements. As interest rates rose over the last few years, Comerica’s asset yields did indeed rise sharply as well, a very positive development. In this way, Comerica, along with many U.S. regional banks, were rightly perceived as beneficiaries of U.S. interest rates rising from historically low levels. Something similar can be said of our European banking investments where Bank of Ireland and Deutsche Bank have also been aided by rising European rates. However, higher rates were helpful for most U.S. regional banks, until they weren’t. By early 2023, rates had risen high enough, and rapidly enough, to expose a lot of duration risk (the risk associated with the value of longer-dated bonds bearing higher sensitivity to interest rate movements than shorter-dated bonds) present within the huge fixed-income portfolios comprising large portions of many regional bank balance sheets. Ultimately, accelerating deposit withdrawals at a few banks caused high-profile manifestations of this risk, leading to a couple of bank insolvencies, heightened fear, more withdrawals, and a spiral which had to be arrested by the U.S. Federal Reserve, Treasury and FDIC. U.S. regional bank stocks were punished severely during the first half of the year…
Overall, Comerica Inc (NYSE:CMA) ranks 1st on Insider Monkey’s list titled 10 Small-Cap Stocks Jim Cramer is Talking About Amid Latest Market Rotation. While we acknowledge the potential of Comerica Inc (NYSE:CMA), our conviction lies in the belief that 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 CMA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These Stocks.
Disclosure: None. This article is originally published at Insider Monkey.
Hedge Fund Resource Center