We recently compiled a list of the Jim Cramer’s 10 Best Stocks to Buy After Fed Rate Cut. In this article, we are going to take a look at where Toll Brothers Inc. (NYSE:TOL) stands against Jim Cramer’s best stock picks.
In a recent episode of Mad Money, Jim Cramer observes that many on Wall Street enjoy going against the crowd, which is why some analysts downplay the significance of a half-point rate cut. He disagrees, asserting that common sense often gets overlooked by those who think they know better.
“Everybody on Wall Street loves to be a contrarian, which is why so many commentators keep trying to minimize the impact of a half-point rate cut. Not me! No matter what, common sense dictates that there are always people who think they know better than common sense, and they don’t. There are so few advantages to age, I have to tell you.”
Market Roars Back: Bears Get Played as Dow Surges 522 Points Amid Rate Cut Frenzy!
Jim Cramer points out the irony that, despite critics spreading negativity, the stock market soared today, with the Dow jumping 522 points, the S&P rising 1.7%, and the NASDAQ climbing 2.5%. He found it remarkable. Initially, bearish sentiment swayed the markets right after the announcement yesterday, causing many to panic and sell, particularly in tech stocks, which often face unwarranted hits from rate cuts.
Critics fueled this panic, echoing a negative narrative without questioning it, which led to a rush for the exits. Cramer emphasizes that this reaction to a rate cut, rather than a hike, creates a misleading panic, demonstrating how easily people can be misled into thinking a 50 basis point easing is bad news, which he believes is simply foolish.
“Funny thing: while these critics were polluting your minds, the stock market exploded today, with the Dow gaining 522 points, the S&P surging 1.7%, and the NASDAQ pole vaulting 2.5%. I’ve got to tell you, it was a thing of beauty. The Bears initially had their way with the markets, distorting a view immediately after the announcement at 2 p.m. yesterday. They fooled enough people to start blowing out of stocks in their frenzy, especially tech stocks, as if those are the ones that always get hit on a rate cut.
That’s just not true. There were also people who panicked, thinking the Fed was panicking. Commentator after commentator came on air, echoing this negative narrative out of nowhere. After all, who wants to go against the tide and question why sellers are streaming for the exits? You don’t want to be in the way of that. That’s how the aftermath of a rate cut—not a hike, but a cut—snowballs into a giant avalanche of people who have been instantly brainwashed into thinking that a 50 basis point easing is somehow bad news. That’s what we saw yesterday after 2:00. That analysis was absurd, just pure foolishness.”
50 Basis Point Cut Boosts Stocks and Housing
Jim Cramer notes that during a period of rate cuts, the potential winners are diverse and promising, while the losers are clear and should be avoided. He highlights that once the Wall Street Journal announced the possibility of a 50 basis point cut, the range of stocks that could benefit significantly widened. A smaller 25 basis point cut would have helped homebuilders if they increased construction, but they’ve been hesitant due to still-high rates. However, a 50 basis point cut will lead to lower mortgage rates, making homes more affordable and likely boosting the housing market.
“The winners in an easing cycle are varied and exciting, while the losers are obvious and must be avoided. From the moment the Journal reported that there could be a 50 basis point cut, the swatch of what can go higher expanded dogmatically. A 25-point cut would have been truly beneficial for homebuilders if they would just start building a lot more homes, that’s something they’ve been reluctant to do because rates are still too high. But a 50 basis point cut means lower mortgages for certain and, therefore, more affordable homes.”
Our Methodology:
In this article, we review the latest episode of Jim Cramer’s Mad Money where he discussed several stocks. We have ranked the companies according to their popularity among hedge funds, starting with the least owned and progressing to the most owned.
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).
A team of architects meeting around a blueprint to discuss the design of a high-end apartment rental.
Toll Brothers Inc. (NYSE:TOL)
Number of Hedge Fund Investors: 46
Jim Cramer expresses his admiration for Toll Brothers Inc. (NYSE:TOL) when a viewer called to ask about his opinion about the homebuilder. He recently interviewed Toll Brothers Inc. (NYSE:TOL)’s CEO, Doug Yearly, and believes they are performing well. However, given the negative market reaction to Lennar’s recent earnings report, Cramer anticipates that Toll Brothers Inc. (NYSE:TOL)’ stock may also experience a decline. He plans to closely monitor the extent of the drop before making any investment decisions.
“Okay, I hear you. Look, I like Toll, and everybody knows I like Toll. I interviewed Doug Yearly not that long ago, maybe a week ago, and I think they’re doing well. But Lennar reported tonight, and people don’t like Lennar, so Toll will probably be down. We’ll have to take a hard look at how low it goes, but I do like Toll and I like it more than Lennar.”
Toll Brothers Inc. (NYSE:TOL) is experiencing a period of sustained growth, with Q2 2024 revenue reaching approximately $2 billion. This impressive performance reflects strong demand for luxury homes and the company’s ability to capitalize on favorable market conditions. Toll Brothers’ improved gross margins demonstrate effective cost management and pricing power, further enhancing its profitability.
The luxury housing market remains strong, and Toll Brothers Inc. (NYSE:TOL) is a leading builder in this segment, benefiting from rising consumer interest in premium homes linked to lifestyle changes and low inventory levels. Its geographic diversification across various U.S. markets helps mitigate risks and allows Toll Brothers Inc. (NYSE:TOL) to take advantage of regional trends. A strong backlog of homes under contract signals future revenue potential and reflects consumer confidence.
Toll Brothers Inc. (NYSE:TOL) is also committed to sustainability, focusing on energy-efficient building practices that appeal to environmentally conscious buyers, enhancing its competitive edge. Recent announcements include expanding product lines to offer more customizable home options and exploring new communities for active adult living, targeting the growing demographic of older buyers seeking luxury homes.
Baron Real Estate Fund stated the following regarding Toll Brothers, Inc. (NYSE:TOL) in its Q2 2024 investor letter:
“We trimmed our position in Toll Brothers, Inc. (NYSE:TOL), America’s leading luxury homebuilder, during the second quarter following exceptionally strong share price appreciation over the last year and the Fund’s resulting large position size. Toll Brothers remains the largest position in the Fund, and we continue to be enthusiastic about the company’s long-term prospects.
Our meetings with CEO Doug Yearley and other key members of the company’s management confirm our view that the long-term prospects remain compelling. We believe Toll Brothers has the ability to grow its community count of homes by approximately 10% per year as the company continues to gain market share against its mostly smaller private competitors who lack scale advantages, brand awareness, and access to attractively priced financing.
Further, Toll Brothers has a long runway for multi-decade growth as it targets the fastest growing income demographic in the U.S. – 16 million households with annual incomes of at least $200,000. According to the U.S. Census Bureau (September 2023), households with over $200,000 in annual income have grown approximately 10 times faster than all U.S. households in the last 10 years. Currently, Toll Brothers has captured only 0.06% of this important demographic group. For additional reasons we remain optimistic on our investment in Toll Brothers, please see the “Top contributors” section of our first quarter 2024 shareholder letter.”
Overall TOL ranks 6th on our list of Jim Cramer’s best stocks to buy after Fed rate cut. While we acknowledge the potential of TOL 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 TOL 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.