We recently put together a list of 10 stocks that Jim Cramer wants you to check out, and in this article, we’ll take a look at how Tesla Inc. (NASDAQ:TSLA) stands against the stocks that Jim Cramer endorsed.
Jim Cramer noticed a strange pattern during his recent winning streak last week. According to Cramer, when a company announces better-than-expected earnings, stock prices rise significantly. Even if the results are only slightly better than feared, stock prices rise. Conversely, when a company announces disappointing earnings, the market largely ignores it and continues to buy, thinking it’s just a temporary setback because the Fed may soon lower interest rates. However, this trend has changed today as reality has begun to settle in.
“You see, during the streak, there was a very strange pattern. It was a bit like Pangloss and Camelot. When companies reported quarters that beat expectations, it was great. When companies reported quarters that beat fears, stocks also went up. And when companies reported bad quarters, we decided this was the last bad quarter because the Fed is about to cut interest rates, so we decided it was no big deal and bought anyway. In other words, companies can’t do anything wrong, but not today. Today we have a bit of a moment of reflection and reality check.”
Jim Cramer noted that Tuesday’s market decline was expected as the S&P had risen for eight straight days, and that a ninth consecutive day of declines was an anomaly not seen since 2004. It was a tough day, with the Dow down 62 points and the S&P down 2%, which felt like a bigger loss, raising concerns about whether the market can continue to rise, especially as negative news finally led to a selloff after eight strong days of gains.
“Today’s small pullback was expected. The S&P had risen for eight consecutive days, and a ninth would have put it in rare territory. Such a winning streak has not been seen since 2004. Today’s trading was tough. The Dow fell 62 points and the S&P fell 2% for a 33% loss. With all the bad news today, it makes you wonder if the market still has any upward momentum. And lo and behold, stocks actually fell. That almost never happens during an eight-day upswing.”
Jim Cramer noted that the market had been in a phase where good earnings were driving up stock prices and even bad earnings were ignored due to the belief that the Fed would step in. But after seven days of gains, he suggested that this optimistic trend may be coming to an end. The market has now reached a point where stocks can no longer automatically benefit from a positivity bias.
“People have been reporting perfect market scenarios where good earnings lead to higher stock prices and bad earnings are mitigated by the expectation that the Fed will step in and save the day. But after seven days of relentless strength, one has to accept that stocks may no longer be in doubt. The market has reached a point where it has risen high enough and is back to normal, where good stocks rise and bad stocks fall. At these high levels, you can’t dismiss the bears with, ‘Heads, I win, tails, you lose.’ It’s a return to rationality, and rationality is the enemy of a market where everything goes up indiscriminately.”
Cramer also said many investors are expecting the Federal Reserve to step in when it meets in Jackson Hole on Friday. If that expectation isn’t met, there could be significant selling pressure, especially on summer Fridays. He noted that Lowe’s has struggled recently because the market may be entering a phase where multiple rate cuts are needed, but there are no clear signs that such cuts are on the way. Without rate cuts, the company may struggle to turn its business around quickly.
“Many are expecting Fed reinforcements heading to Jackson Hole on Friday, but that won’t help. If things don’t go as expected, we could see a lot of selling, especially since it’s a summer Friday.”
Our Methodology
In this article, we analyze a recent episode of Jim Cramer’s Mad Money and select the 10 stocks that Cramer mentioned. We also provide information about hedge fund views on each stock and rank them from least to most based on the number of hedge funds that hold them.
At Insider Monkey, we stick to stocks that hedge funds concentrate their investments in. The reason is simple: our research shows that by mimicking the top stock picks of the best hedge funds, you can outperform the market. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter, and has returned 275% since May 2014, beating the benchmark by 150 percentage points (more details here).
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Tesla Inc. (NASDAQ:TSLA)
Number of hedge fund investors: 85
Jim Cramer answered a viewer’s question about Tesla Inc. (NASDAQ:TSLA) and emphasized his long-term belief in the strength of the stock. Viewers noted that they believe in Tesla Inc.’s (NASDAQ:TSLA) potential, no matter what others say. Cramer agreed, noting that Elon Musk’s leadership has redefined Tesla Inc. (NASDAQ:TSLA) as a technology company, not just a car manufacturer.
“I think Tesla is a strong stock. What’s happening is that Elon Musk is seen as the guru of Tesla and he’s positioned it as a technology company, not just a car company. People believe everything he says without thinking rationally. They don’t consider that self-driving cars might not happen the way he predicts. They just assume that if he says it, it must be right. Don’t we all want to have that level of confidence?”
Tesla Inc. (NASDAQ:TSLA) reported strong second quarter 2024 results with revenue up 22% year over year to $26.1 billion and net income up 17% to $2.8 billion. This growth highlights Tesla Inc. (NASDAQ:TSLA)’s ability to effectively scale its business and remain profitable despite market challenges. Tesla Inc. (NASDAQ:TSLA) is leading electric vehicle innovation with its new 4680 battery cells that extend vehicle range and reduce costs, as well as advanced Full Self-Driving (FSD) technology, positioning Tesla Inc. (NASDAQ:TSLA) as a leader in autonomous driving.
Tesla (NASDAQ:TSLA) is also expanding globally, building new Gigafactories in Berlin and Shanghai, with the latter set to produce 500,000 vehicles per year. Strategic partnerships such as with Panasonic will strengthen Tesla’s (NASDAQ:TSLA) manufacturing and research and development capabilities. As global trends shift toward sustainable energy and electric vehicles, driven by regulatory support and growing consumer demand, Tesla (NASDAQ:TSLA) is well positioned to capitalize on these changes. Overall, Tesla’s (NASDAQ:TSLA) strong financial performance, cutting-edge technology, and strategic growth plans point to a bright future and continued market leadership.
In its Q2 2024 investor letter, Baron Partners Fund said the following about Tesla Inc. (NASDAQ: TSLA):
“Tesla Inc. (NASDAQ: TSLA) manufactures electric vehicles, related software and parts, solar power generation and energy storage products. Shares rose as Tesla continued to lower vehicle manufacturing costs, accelerate new model launches, and invested heavily in profitable AI initiatives. Shareholders reaffirmed the CEO compensation plan and reduced personnel and legal uncertainties. Tesla delivered better-than-expected margins in the quarter despite significant operational complexities shutting down key manufacturing facilities and reducing sales volumes. The company plans to launch lower-cost models as soon as the second half of 2024, which should accelerate revenue growth, reduce manufacturing costs, and improve factory utilization. The company continues to improve its autonomous driving capabilities, expand its already large data centers, and develop its humanoid robot, Optimus. These investments boosted our confidence that attractive growth opportunities will continue in the future.”
Overall, TSLA ranks #2 on Jim Cramer’s list of stocks to watch. While we acknowledge TSLA’s potential as an investment, we believe there is ample opportunity for lower profile AI stocks to deliver higher returns in a shorter time frame. If you’re looking for AI stocks with better prospects than TSLA but trading at less than 5x price to earnings, check out our report on the cheapest AI stocks.
Read next: The $30 Trillion Opportunity: The 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and NVIDIA Has “Become a Wasteland” According to Jim Cramer.
Disclosures: None. This article was originally published on Insider Monkey.