We recently published a list of Must-See: Jim Cramer’s 10 Best Stock Picks for Investors Right Now. In this article, we are going to take a look at where e.l.f. Beauty, Inc. (NYSE:ELF) stands against other Jim Cramer’s best stocks for investors.
In a recent episode of Mad Money, Jim Cramer discussed how the slowing economy might lead the Federal Reserve to ease its policies. He expects the Fed to cut interest rates, but it’s unclear whether the reduction will be 25 or 50 basis points. This decision is crucial as 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 pointed out that Friday’s market performance was strong, with the Dow gaining 297 points, the S&P rising by 0.54%, and the Nasdaq increasing by 0.65%. This marked the best two weeks of the year for the S&P and the Nasdaq, suggesting that the market might be anticipating a larger rate cut of 50 basis points. Stocks sensitive to interest rates, particularly in housing, surged in response.
“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.”
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.
“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.”
Jim Cramer warned that if the housing market rally keeps going, it might lead to a sell-off if the Federal Reserve announces only a 25 basis point rate cut. If the Fed delivers a smaller cut, traders who anticipated a bigger reduction might start selling their stocks, which could lead to increased 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.”
Finally, Jim Cramer believes that this week is critical for the market. He advised that if the market declines after a 25 basis point cut, investors should remember the strong performance of the past week. This week’s gains could be a sign of more positive developments as the Federal Reserve continues to ease its 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 close up of the lip and eye products from the company on a model in a fashion and beauty shoot.
e.l.f. Beauty, Inc. (NYSE:ELF)
Number of Hedge Fund Holders: 40
Jim Cramer reported that TD Cowen significantly lowered its price target for e.l.f. Beauty, Inc. (NYSE:ELF), reducing it from $235 to $150 per share. This adjustment comes as e.l.f. Beauty, Inc. (NYSE:ELF)’s stock has dropped by 42% over the past three months. Cramer also noted that the cosmetics industry has become increasingly contentious.
“TD Cowen took an axe to its price target on Elf Beauty, going to $150 a share from $235. The stock has cratered 42% over the past three months. What a controversial area the cosmetics industry has become.”
e.l.f. Beauty, Inc. (NYSE:ELF) offers a strong investment opportunity due to its impressive financial performance, strategic growth efforts, and market expansion. In Q1 FY2025, e.l.f. Beauty, Inc. (NYSE:ELF) reported an earnings per share (EPS) of $0.87, exceeding expectations by $0.20, and achieved a 71.4% increase in revenue year-over-year, reaching $321.1 million. This growth was driven by both organic improvements and the successful acquisition of the skincare brand Naturium, helping e.l.f. surpass $1 billion in annual sales for the first time.
e.l.f. Beauty, Inc. (NYSE:ELF) is also increasing its market share in color cosmetics and has raised its fiscal 2025 outlook. e.l.f. Beauty, Inc. (NYSE:ELF)’s innovation, expanded retail partnerships, and effective digital marketing strategies aimed at younger consumers support this positive outlook. Analysts predict a 31.6% increase in EPS next year, highlighting e.l.f. Beauty, Inc. (NYSE:ELF)’s strong potential for long-term growth.
ClearBridge Multi Cap Growth Strategy stated the following regarding E.l.f. Beauty, Inc. (NYSE:ELF) in its first quarter 2024 investor letter:
“In consumer sectors, we added Tractor Supply Company and E.l.f. Beauty, Inc. (NYSE:ELF). ELF, in the consumer staples sector, is the third-largest mass cosmetics brand in the U.S. We believe the flywheel of ELF’s consumer value proposition, its innovation pipeline, and its unique ability to bring prestige-like products to mass consumers and high consumer engagement will enable the company to continue to outgrow the global market.
We see significant opportunity for ELF to transform itself from an emerging U.S. color cosmetics brand to a global beauty stalwart by doubling its share in the U.S. over the next few years and gaining share in international and skincare markets. ELF is profitable, balancing growth and earnings, and has an attractive balance sheet.”
Overall ELF ranks 7th on our list of Jim Cramer’s 10 best stocks for investors. While we acknowledge the potential of ELF 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 ELF 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.