We recently published a list of Jim Cramer’s Must-Watch List: 10 Stocks to Look After. In this article, we are going to take a look at where Lennar Corporation (NYSE:LEN) stands against other Jim Cramer’s must-watch stocks.
In a recent episode of Mad Money, Jim Cramer explained that with the economy slowing down, the Federal Reserve is poised to ease its policies. He anticipates that the Fed will decide to cut rates, but the exact size of the cut, whether 25 or 50 basis points, remains uncertain. This upcoming decision is particularly important because it could significantly impact the market.
“At last, the economy has slowed enough that the Fed can take its foot off the brakes and step on the gas. That’s why we’re starting our game plan in the middle of next week when the Federal Reserve renders its verdict: 25 or 50 basis points. We don’t typically have a lot of drama in this business, but this one counts as a nail-biter because we really don’t know how big the rate cut will be. We just know they’re going to cut.”
Cramer highlighted Friday’s market performance, where the Dow gained 297 points, the S&P rose by 0.54%, and the Nasdaq increased by 0.65%. This strong performance marked the best two weeks of the year for the S&P and the Nasdaq. The rise in these indices suggests that the market might be expecting a substantial rate cut, potentially 50 basis points. Cramer noted that stocks sensitive to interest rates, especially those related to housing, surged in anticipation of this.
“Today’s rally saw the Dow gaining 297 points, the S&P advancing 0.54%, and the Nasdaq climbing 0.65%, capping off the best two weeks of the year for both the latter two indices. The S&P and the Nasdaq suggest the Fed might actually go for 50. That’s a double rate cut. I know this because the stocks most sensitive to interest rates, particularly housing and housing-related names, soared today.”
Using an analogy from NFL fantasy football, Cramer compared the market’s optimism to waiting for a major play from the Fed. Despite this, he personally bets on a 25 basis point cut rather than 50. He argues that while a larger cut could help the slowing economy, particularly affecting lower-income groups, it also risks reigniting inflation and causing panic. A 50 basis point cut might signal severe economic problems, which could lead to unnecessary anxiety.
“To use a little NFL fantasy football lingo, they soared presumably in anticipation of something huge from Jay Powell and company. All aboard! I still find myself betting on a quarter-point cut, though. It’s not that we don’t need a half-point cut, as the economy is slowing pretty quickly, especially for the lower-income cohort. However, I’ve always believed that the Fed should be measured when it cuts rates at this stage of the business cycle.
The biggest risk is that inflation might flare up again if you cut too much, and a 50 basis point cut all at once makes that a lot more likely. Plus, a double rate cut signals that something may be very wrong with the economy—something we don’t know about, something lurking. So going for 50 could inspire panic, and there’s simply no reason for the Fed to take that chance when it can simply hit us with a series of thoughtful 25 basis point cuts that neither reignite inflation nor cause panic.”
Cramer also cautioned that if the housing market rally continues, it could lead to a sell-off if only a 25 basis point cut is announced. He pointed out that traders are currently pricing in a higher chance of a 50 basis point cut, according to the CME Group’s FedWatch tool. If the Fed opts for a smaller cut, traders who bought in anticipation of a larger reduction might sell off their stocks, potentially causing market volatility.
“Now, if the housing rally continues at this pace, these stocks run the risk of being too hot to handle for a mere 25 basis point cut, and we’ll get a sell-off in response. Keep in mind how the CME Group’s FedWatch tool, which tracks interest rate expectations based on the Fed Funds Futures Market, indicates that traders are now pricing in a much higher probability of a double rate cut, currently at 45%. That’s much higher than it was a week ago. These traders could indeed be disappointed if the Fed decides to be more measured. They could be your enemy come Wednesday at 2 p.m. as they dump what they bought incorrectly, and that is what happens. That’s what traders do, they let the stocks go.”
Jim Cramer Sees Market Turnaround: This Week’s Gains Signal Future Upside
Finally, Jim Cramer believes that this coming week marks a significant moment for the market. He advises that if the market declines following a 25 basis point rate cut, investors should keep in mind the strong performance of this week. He suggests that this week’s gains are a sign of more positive developments to come as the Federal Reserve continues to ease monetary policy.
“When I look at next week, I can only conclude that we’re finally at the moment we’ve all been waiting for. So let me give you the bottom line: if we sell off on a 25 basis point rate cut, remember this phenomenal week, because there will be plenty more like it as the easing process continues and progresses.”
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A construction crew installing roof tiles on a newly built row home.
Lennar Corporation (NYSE:LEN)
Number of Hedge Fund Investors: 60
Jim Cramer discussed Lennar Corporation (NYSE:LEN), a well-known home builder, noting that the company is set to report its results the day after the Federal Reserve’s meeting. He expects Lennar Corporation (NYSE:LEN) to present a strong performance and believes that if the Fed announces a 50 basis point cut, Lennar’s stock could be a great investment opportunity. Cramer’s analysis suggests that favorable conditions from the Fed could make Lennar Corporation (NYSE:LEN)’s stock particularly attractive.
“Lennar, a classic home builder, will report a day after the Fed meeting, which could be very enlightening. I think Lennar will tell a terrific story, and if we get a 50 basis point cut, its stock might be a terrific place to be.”
Lennar Corporation (NYSE:LEN), in its Q2 2024 earnings report, showed impressive results with a 12% increase in revenue, reaching $8.5 billion, and a 15% rise in net income to $1.2 billion. Lennar Corporation (NYSE:LEN) also improved its gross margin to 23%, up from 20%, reflecting its ability to stay profitable and efficient in a competitive market. Lennar Corporation (NYSE:LEN) is boosting its growth through smart investments and acquisitions of land in promising areas.
Lennar Corporation (NYSE:LEN)’s focus on affordable and sustainable home designs is aligned with current market needs, which should attract more buyers. The housing market remains strong, driven by high demand and a shortage of homes. Even with rising mortgage rates, Lennar Corporation (NYSE:LEN)’s focus on both entry-level and move-up homes puts it in a good position to take advantage of these trends. Overall, Lennar Corporation (NYSE:LEN)’s solid financial performance, strategic growth initiatives, and favorable industry trends make it a promising investment.
Overall LEN ranks 2nd on our list of Jim Cramer’s must-watch stocks. While we acknowledge the potential of LEN 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 LEN 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.