In a recent episode of Mad Money, Jim Cramer advised investors to hold off on selling stocks, anticipating a rebound once the market’s downturn ended. This strategy proved effective as the average investor saw gains, with the Dow rising by 484 points or 1.16%, and the NASDAQ also climbing by 1.16%. This performance suggests that selling during Friday’s decline was not the best move.

“Last week, I advised you to hold off on selling everything and just wait, as I believed that once the pain ended, we would see a rebound. The average investor saw gains, with the Dow up 484 points, or 1.16%, and the NASDAQ also climbing 1.16%. While it might not be a full recovery, it shows that selling into Friday’s downturn wasn’t the best strategy.”

The previous week was challenging for economically sensitive stocks and tech stocks, despite the August employment report showing modest growth and a downward revision for July. The recent report seemed favorable for those hoping for Federal Reserve rate cuts, as it presented a balanced scenario of neither too strong nor too weak. Nonetheless, Wall Street reacted negatively, with investors moving away from cyclical stocks in favor of recession-proof sectors like consumer goods and pharmaceuticals. Industrials and semiconductors were particularly affected.

Jim Cramer observed that on Monday, recession-proof stocks such as pharmaceuticals, drug wholesalers, and medical devices continued to perform strongly. However, this trend is concerning as these stocks have surged significantly and might be due for a correction.

“Recession-proof stocks like pharmaceuticals, drug wholesalers, and medical devices continued to perform well, which is dangerous as these stocks have seen parabolic gains and could be due for a correction.”

According to Cramer, historically, when the Federal Reserve is about to cut rates, it’s a signal to shift investment strategies. With the Fed moving towards easing and a rate cut expected next week, Cramer suggests it’s time to reconsider holding recession-proof stocks. Instead, investors should look at more cyclical companies that could benefit from economic stimulation. While investing in cyclical stocks during a downturn can be challenging, anticipating a positive impact from the Fed’s rate cuts could make these stocks attractive.

“Historically, when the Fed is about to start cutting rates, we know that it’s time to shift focus. With the Fed leaning towards easing and an expected rate cut next week, it’s time to consider moving away from recession-proof stocks and investing in more cyclical companies. While it’s challenging to buy cyclical stocks during a slowdown, anticipating that the Fed will boost the economy can make them strong investment opportunities. It’s important to maintain diversification but be ready to adjust as needed.”

Our Methodology

In this article, we discuss a recent post of Jim Cramer’s Morning Thoughts, where he recommended several stocks, highlighting ten companies in particular. This article reviews the companies included in the list and explores how hedge funds view these stocks. We then rank these companies 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).

Jim Cramer Thinks These 10 Stocks Deserve Your Attention

10. KB Home (NYSE:KBH)

Number of Hedge Fund Investors: 23

Jim Cramer noted that Wells Fargo raised its price target for KB Home (NYSE:KBH) to $80 from $70, which is close to where the stock ended last week. While analysts kept a neutral rating on KB Home (NYSE:KBH), which has already risen 27% this year, Cramer emphasized the significance of the summer surge.

“Wells Fargo upped its price target on KB Home to $80 a share from $70, right around where the stock closed Friday. Analysts maintained their neutral rating on shares, which have climbed 27% so far this year. The summer was an especially strong period for the stock as interest rate cuts, which should spur more activity in the housing sector, moved closer into view.”

A positive outlook for KB Home (NYSE:KBH) is supported by its strong financial performance and favorable market conditions. In Q2 2024, KB Home (NYSE:KBH) reported earnings per share (EPS) of $2.15, well above the expected $1.78, and revenue of $1.71 billion, exceeding predictions. KB Home (NYSE:KBH)’s growth is driven by solid performance in core markets, a 14% increase in book value per share, and a healthy gross profit margin of 21.1%-21.5%.

For 2024, KB Home (NYSE:KBH) forecasts housing revenues between $6.7 billion and $6.9 billion, with average home prices expected to be between $485,000 and $495,000. Despite challenges like rising interest rates, KB Home (NYSE:KBH) has managed higher material costs and market uncertainties effectively, maintaining steady revenue growth and expanding its communities. Analysts expect about 7% annual earnings growth over the next three years, indicating strong long-term potential. Overall, KB Home (NYSE:KBH)’s solid financials, market expansion, and positive housing demand trends support a bullish outlook for its stock.

9. The Boeing Company (NYSE:BA)

Number of Hedge Fund Investors: 42

Jim Cramer pointed out that The Boeing Company (NYSE:BA)’s stock climbed after the company reached a tentative labor agreement with a union representing about 33,000 workers. Cramer emphasized the significance of this deal, which analysts at JPMorgan said “seems like a good outcome,” as it helps The Boeing Company (NYSE:BA) avoid a potentially costly strike. Cramer views this development as a positive step for The Boeing Company (NYSE:BA), reducing uncertainty and stabilizing operations, which could have otherwise been impacted by labor disruptions.

“Boeing shares rose after the plane maker and a union representing around 33,000 of its workers reached a tentative labor agreement. The deal “seems like a good outcome” to help avoid a costly strike, JPMorgan analysts said.”

A positive outlook for The Boeing Company (NYSE:BA) is supported by its improving performance in 2024, following earlier supply chain disruptions and reduced expectations. As production of the 737 MAX and 787 aircraft increases, The Boeing Company (NYSE:BA)’s financial performance is expected to stabilize and improve significantly. Analysts at RBC Capital Markets have upgraded The Boeing Company (NYSE:BA) to “Outperform,” raising their price target from $200 to $275 due to strong demand in the commercial aerospace sector and higher delivery rates for the 737 in 2024.

The Boeing Company (NYSE:BA)’s free cash flow is projected to grow, with the 737 MAX expected to generate $2.8 billion and the 787 $1.7 billion by 2025, indicating a stronger financial position. Although there are some uncertainties around the 777X program, The Boeing Company (NYSE:BA) has reported steady revenue growth in its Global Services segment and secured major contracts with Hainan Airlines and Ryanair. Despite ongoing challenges, The Boeing Company (NYSE:BA)’s long-term outlook is increasingly positive, presenting a compelling investment opportunity.